Shares of Just Dial surged nearly 9 percent on February 20 buoyed by an influx of heavy trading volumes. In addition, brokerage firm Nuvama institutional Equities also upgraded its rating on the stock to a 'buy' citing lucrative valuations, further bolstering sentiment.
Nuvama views the stock as an attractive opportunity, with its core business available at a compelling valuation after adjusting for cash. "While we have maintained a cautious stance on the company's growth prospects and acknowledge its struggles over the past two quarters, the current valuation justifies an upgrade despite ongoing challenges," Nuvama said.
To that effect, the brokerage assigned a price target of Rs 1,140 for the stock, reflecting an upside potential of around 36 percent from Wednesday's closing level.
At 11.04 am, shares of Just Dial were trading at Rs 866 on the NSE. As much as 14 lakh shares of the company changed hands on the exchanges thus far, already much higher than the one-month daily traded average of three lakh shares.
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Just Dial's market-cap has corrected 20 percent since its Q3 results, but its core market cap excluding cash has corrected by 47.6 percent. In fact, the company's valuation is close to its lowest point excluding the COVID period, Nuvama noted.
The weakness in the stock in recent times was due to weaker-than-expected performance over the last two quarters, which made its initial FY25 growth target of 15 percent now appear unachievable.
Collections growth for the company slowed to 5.6 percent on year in the first nine months of FY25 from 17.7 percent in FY24, while deferred revenue growth declined to 9.5 percent from 20.8 percent in FY24.
"With revenue growth closely linked to collections, further deceleration is expected. Sales strength has returned to pre-COVID levels, dropping by to 9,765 in Q3FY25, as JD shifts focus toward profitability by cutting investments," Nuvama wrote.
Despite the revenue slowdown, EBITDA margin improved by 130 basis points on quarter in Q3 and is expected to remain stable, supported by cost-cutting measures. Moreover, further investment reductions could drive additional margin expansion in the short term, the brokerage believes.
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