Just Dial IPO – “Subscribe” at lower price band after discount
Mumbai based free search engine company, Just Dial is coming up with IPO next week. Just Dial IPO is long awaited IPO where Crisil has rated it as 5/5 indicating as strong fundamentals. Thought the fundamentals look strong, there are several hidden facts that an investor should know before subscribing for this. Should you subscribe for Just Dial IPO?
About Just Dial IPO
Just Dial is incorporated in 1996 and is a 24/7 search engine services company which provides services through internet, mobile internet, telephone and text (SMS). It provides services in 2000 cities and has 300 Mn customer using Just Dial services. Just dial gets its revenues mainly from selling advertisement and through qualified leads. Just Dial is planning to issue 17 Mn shares of offer for sale for Rs 822 to Rs 950 Crores depending on the price band of the share.
- IPO opens: 20-May-2013
- IPO closes: 22-May-2013
- Price band: Rs 470 to Rs 543 per share (before discount)
- Face value: Rs 10
- Minimum bid: 25 shares and in multiples of 25 shares thereon
- Minimum investment: Rs 11,750 to Rs 13,575 (before any discounts)
- Lead managers: Citi and Morgan Stanley
- Listing: BSE / NSE / MCS-SX
- Prospectus: http://www.sebi.gov.in/cms/sebi_data/attachdocs/1345542838751.pdf
Promoters of the company are VSS Mani, Anitha Mani, Ramani Iyer and V Krishnan.
Purpose of the IPO: The funds would be used for the following purposes.
- Achieve listing benefits on equity securities in stock exchanges
- Carry out offer for sale of 17 Mn shares of existing shareholders.
Crisil assigned grade of 5/5 for this IPO
Care has assigned this IPO grading as 5/5 which indicates strong fundamentals compared to other listed equity securities in India. This grade is not an opinion on whether the issue price is appropriate in relation to the issue fundamentals. This grade is not recommendation to buy or sell the IPO.
Safety Net Scheme for Retail investors
Just dial IPO offers safety net which will be available to all retail individual investors applying in Just Dial IPO for up to Rs. 50,000. The safety net would trigger in case the price of the share fall over 20% from the issue price. Earlier Sai Silks has issued similar option, however it has withdrawn the IPO due to poor response from investors.
Company has posted 28% to 47% annualized growth in terms of revenue in the last 5 years. The revenues have increased from Rs 71.6 Crores (FY2008) to Rs 275.6 Crores (FY2012). For the 9 months ending Dec-2012, company has posted Rs 271.6 Crores.
Company has been operating around 15% to 18% margins in the last 3 years.
Reasons to invest in Just Dial IPO
- Crisil rated Just dial IPO as 5/5 which indicates strong fundamentals.
- It offers 10% discount on the floor price to the retail investors
- It offers safety net to the retail investors.
- Company is debt free with negative working capital cycle.
- Strong growth in future
Reasons not to invest in Just Dial IPO
- The NAV of Just Dial IPO is only Rs 57 (as on 31-Dec-12) whereas the issue price band is Rs 470 to Rs 543 (pre-discount)
- Through this issue Just dial is selling the existing shareholders capital and company is not raising any capital for its own.
- Retail subscription is only for 10% of the issue price. Due to small retail subscription, promoters can manage the safety net option.
- There are several IPO’s which were graded by Crisil as 5/5 like Care, L&T Finance which are now available at discount post listing.
- There are other competitors like Google India, Askme, Asklaila, Sulekha etc. which may provide stiff competition in future.
Recommendation / Investment strategy: Just dial has consistently innovated and stayed ahead of competition. Any aggressive moves from big competitors like Google India (which is a powerful search engine company across the world) need to be carefully monitored. Company is growing in terms of revenues and margins. Considering the earnings per share of Rs 8.99, the P/E ratio would work out to be 52 to 60. The price to book value (P/BV) comes to 8.2 to 9.4. There are no listed peer companies to compare the issue price. Somewhat, I felt that this issue is aggressively priced. Leaving the aggressive pricing, if an investor subscribes at Rs 423 (Lower price band of Rs 470 minus 10% discount for retail investors) for a maximum of 100 lot / < Rs 50,000, even in case of discount after listing, there would be less risk of loss. If the price goes down beyond 20% of the issue price, Safety net any how is there to safeguard the investors. Investors should subscribe this IPO considering these points.
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Just Dial IPO – Buy at lower price band after discount