Internet biz will enhance margins, not dilute: Just Dial

Search service provider Just Dial rose as much as 19.2 percent in its stock market debut on Wednesday after the company raised about USD 165 million last month in the biggest listing so far this year.

Shares in Just Dial were trading at Rs 614.1 on the National Stock Exchange at 11:04 a.m. after hitting a high of Rs 631.9, compared with their initial public offer price of Rs 530 a share, valuing the company at Rs 3703 crore.
Speaking to CNBC-TV18, a very pleased VSS Mani, founder and chief executive officer of Justdial says he sees a "fantastic opportunity" to grow as internet connectivity, especially on the mobile front, goes on improving. "The company is going to only do better, maybe even in terms of growth percentage or maybe in terms of overall profitability and offerings to customers or users," he says. Also Read: Just Dial & Amitabh Bachchan: Superstar's super gains
Moreover, Mani believes the internet business would enhance the margins and not dilute them as is feared by some analysts.
"Businesses in India have realised that they have to have an online strategy. That online strategy has to be at a market place and not just owning a small little website. And that's where Just Dail comes in where there are millions of buyers coming in," he told the channel. Below is an edited transcript of the interview on CNBC-TV18. Q: You will be at more liberty now to talk about where you see the company headed over the next year or so. What do you think looks like a reasonable sales and earnings target for Justdial going into the New Year?
A: I still don't know if I can speak about future earnings right now. But we are really thrilled to bids, the kind of response that we got for our IPO especially when there were several naysayers saying that this is not the right time to go public. The GDP of the country is at 10 year low, but we got 12 times over subscribed. We are so glad that even after listing, it has got a good response from the market. Q: The primary concern around your company right now is the kind of valuations it trades at. Can you talk a little bit about whether or not you guys hope to do better in terms of a compounded annual growth rate even and what you hope to do in terms of sales volumes especially for the telephonic side of the business?
A: So far we have done well despite the infrastructure. With improvements, especially in mobile internet connectivity, we have a fantastic opportunity to grow in the coming years. So the company is going to only do better maybe even in terms of growth percentage or maybe in terms of overall profitability and offerings to customers or users. You are going to see a different avatar if Justdial in the months to come. Q: Are you as confident on boosting the internet side of sales? What kind of sales target do you think you can hope towards or maybe maintain on that end?
A: We sell Justdial as a single platform. We don’t monetise internet separate and voice separate. However, 61 percent of our traffic is from the net and maybe next year same time it could be much higher on the internet. What happens is when you go on net, the offerings could be much richer and better content and people can actually search and even transact on Justdial. So you would be seeing lot of interesting products soon. Q: The reason I ask is because if its impact on your blended margins going ahead, where the fear is internet might start to dilute margin performance for a company such as yours. Are you confident that margins can be held while also augmenting internet traffic?
A: Internet would actually enhance the margins. There will be margin expansion because of more traffic going to the net. It costs a bit to service voice calls whereas on internet it is like a fixed cost. It will only increase our overall gross margin in the business.
Also, one interesting fact is businesses in India have realised that they have to have an online strategy. That online strategy has to be at a market place and not just owning a small little website. It is important to be in a market place like Justdial where you would have millions of buyers coming in and that's where you need to set up your virtual shop. You would see that happening very soon across business categories. Q: How confident are you of maintaining or improving ad rates? What’s the experience been so far with regards to ad rates?
A: Just dial follows a fully automated pricing engine. As the traffic grows, we are able to monetise it better. There is no human intervention here. It happens every minute. So you try to sign a campaign today vis-à-vis something that you want to time three months down the line. You could be probably paying ‘X’ percentage more because overall traffic; the volumes have grown. We would continue to do that. We have continued that for the last five years. We have continued to earn better and better from our customers, particularly the premium listings. Q: Your margin range has been wideish from between 22 and 28 percent. Stepping into FY14, and given what you are seeing in terms of the environment and the spend, what end of it do you think you would be hitting in terms of a margin performance as also whether sales are looking more sluggish now or stronger compared to FY13?
A: Sales are looking stronger compared to FY13. You would see margin expansion happening 2-2.5 percent at least on a year on year basis. This will continue to happen for the next three-four years and we would stabilise in high 30s or maybe 40s.