Moneycontrol BureauUBS has initiated coverage on Just Dial with a sell rating. Shares of the search service provider company slumped 3 percent intraday on Wednesday. UBS has set a target of Rs 1200, stating that the risk-reward is unfavourable at the current price.
In downside scenario, the valuation of the stock could be Rs 900 and even if Search Plus is a bigger success than upside scenario implies valuation of only Rs 1500, feels the brokerage.It believes the current share price implies robust growth for the core Search business and reasonable success for its new Search Plus (adding transaction capability) business. However, it thinks the market may be complacent in assuming secular growth in the Search business is a given, ignoring that it is dependent on the success of Search Plus."Strong cash flow and balance sheet but earnings cuts ahead Just Dial has negative working capital, which helps robust cash flow, and a net-cash balance sheet. Management's strategy of not burning cash aggressively for its new Search Plus business can be a double-edged sword over the long term," it says in a note.UBS forecasts a FY15-17 EPS CAGR of 22 percent, with Search Plus contributing 7.1 percent of revenue by FY19 with an implied GMV (gross merchandise value) of USD 875 million.At 10:36 hrs the stock was at Rs 1,271.60, down Rs 28.80, or 2.21 percent on the BSE.Posted by Nasrin Sultana
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