Just Dial - The lnternet Wannabe?

Mint published an article Justdial: The Internet Wannabe on Nov 25th where the writer argues that Justdial is one of the Indian companies which wants to latch onto the internet boom on similar lines of Flipkart, Zomato but fails to do so because JD only saw a glacial growth of 27% last year. While there's no explosive growth, I felt that if JD was able to convert revenues into profits much better than Flipkart will be able to, that's still a stock to watch out for. I valued this company around Nov 26th and it has been hanging in my drafts till now.

Just Dial is a local search engine that has listings of sellers and services vendors and provides this list of information to sellers. It had 11.8 Million Listings on its server and 37 Million ratings and reviews by users in 2014. It offers these services by multiple platforms

My valuation for the company is attached here and you can make any modifications you want to get a value which you believe is the right value. My belief in the growth may be different from another so valuation becomes a user dependent entity especially for some company like JD which is still in the growth phase and has few comparables.

1. For revenues, I looked at the different sources of subscribers JD has which I have picked up the Annual Report. I posted the screenshot above. These three different types of searches would grow at different rates in the future. Mobile Internet is going to grow exponentially while SMS searches and PC internet rates would stagnate. In JD's annual reports, Avendus reports of the market such as projected Cell phones were given. Also CAGR growth rates of the three different bases were also attached picked up from reports. Using the growth rates directly given in their own annual report is not an ideal method but this was the best alternative for growth I had and if I used other growth rates such as cell phones, I would be missing out on PC internet searches. And using these growth rates would give me a base value over which I could later work on. The given growth rates were Mobile Internet- 174%, PC Internet- 32%, SMS- 21%. I used these growth rates over the existing customer base of JD and projected this upto 2018.
2. I looked at the revenues in the previous years as a ratio of searches and found that each search contributed to a revenue factor of 4. I estimate that this will remain the same, In future too, more the searchers, more the ad revenue and more interest by industries to showcase their services. So I used the searches I projected till 2018 to get revenues.
3. The EBIT margin as a percent of revenues was around 25%-30% in the previous years so I assume that this will continue and I have used an EBIT margin of 27%- mainly as this is not capital intensive service and I believe such high margins are justified.
4. JD is a debt free company. I took the cost of equity from Damodaran's WACC sheet which has a collection of all companies in different sectors and averages of different factors such as WACC and Beta. I took the average of cost of equity for the advertising sector from the sheet which was 12.21%
5. The Tax Rate was around the range of 30% in previous years and since there is no high cost of depreciation JD is going to incur in future, I have used marginal tax rate.
6. For reinvestment, from the news I found that JD is going to invest Rs 100 Cr for the FY 2014-15. I took reinvestment = Growth/ROC . The ROC of JD in the past was around 25-45%. In the initial years I estimated that ROC is 35% and slowly it will increase to 44% at terminal value because there will be less investment and it will be dedicated to improve the online website once the infrastructure is set in place
7. For terminal value, I estimated a 10% growth, while I generally do not give such a high growth rate but if you believe in the Indian growth story, you are liable to believe in the internet growth story too and because of that, I am estimating a 10% growth rate for the terminal value.
8. The Value of operating assets came to be Rs 9434 cr, to which adding the cash and bank balance comes to Rs 9471 Cr. Just Dial is a zero debt company.
9. Dividing by the total shareholding, the value per share comes to be Rs 1349. JDs value was at Rs 1600 towards the end of november which was when the Livemint article came out but corrected itself sharply when an analyst gave a recommendation to sell with a target of Rs 1440-Source 
10. Right now, at the time of writing this article, the value is at Rs 1382 which indicates the market price is near the fundamental value and buying this can result in a gain at a later point of time especially since JD is trying to enter other sources of revenue mainly the E Commerce market. 
11. Personally, I am going to add it into my portfolio and see where it goes until the next earnings. I believe that for the next earnings, the market is going to react well so the price might increase and you can make a profit.