Just Dial IPO Analysis
This would be an analysis of Just Dial IPO which was refiled with SEBI in August 2012. The earlier one was in 2011 but was cancelled due to adverse market conditions. This post will be a bit long but worth reading because of unique business of Just Dial .
First some disclaimers– If you read this and invest in IPO when it comes out and LOSE money don’t sue me. If you make money contact me on my email/blog and I will try to take 1-2% of your Profits J (how is that for free advice). If everything fails and you really want to sue me GO ahead. This is a country where Kasab is still alive, hale and hearty, eating biryani from tax payer’s money and no sight to be hanged. What do you think you can do by suing me?
I had been an employee of Just Dial for around 9 months which was the best learning experience of my lifetime as I had the privilege to interact with Mr. Mani and his brilliant senior management team of Just Dial. This gives me unique insight in one of the really different businesses not just in India but in the whole world. There is a not a single business on the planet which works almost exactly/close to how Just Dial makes money on that scale. (Rs. 250 crores odd revenue and Rs. 50cr worth profits last yr with 0 debt and return on capital close to 40+% for last 3 years).
My analysis will be primarily based on the basic parameters on how Buffett would like to invest in a company like
- High return on capital employed with little or no debt with strong free cash flow for the owners and pricing power.
- Strong durable competitive advantage
- Able and honest management
- Available at a fair price (this is the 1st question) and
- Predictable earnings/industry (this is the second question).
If you are more of financially inclined person Financial Data and Calculations Just Dial with all the numbers and you can directly see that pristine looking financial statements and ratios people dream of.
Here is a one line business model of Just Dial – When people need to buy something (goods or service) from some shop/business they call up Just Dial which in turn provides that data (business phone number, address) free of cost to person calling but Just Dial charges the business owners to make sure their phone number/address goes to the caller. How simple yet how difficult to beat.
I have put ratio analysis right at top so that you have a basic idea about financial strength of the company and no need believe in some kind of ‘STORY’ as it generally is with overhyped losing businesses (aka organized retail , Suzlon , Infra , DTH) .
Ratio Analysis (A dream for any CEO)
|Liquidity Measurement Ratios|
|Days Inventory Outstanding(DIO)||0||0||0||0||0|
|Net Sales Per Day||1.9||2.5||3.6||5.1||7.5|
|Average Trade Receivables||4.2||0.5||5.6||5.4||0|
|Days Sales Outstanding(DSO)||2.1||0.2||1.5||1.0||0|
|Cost of goods sold (taking it as total expenses)/365||1.8||2.2||2.9||3.9||5.5|
|Average Accounts Payable||24.3||25.3||40.3||47.0||21.9|
|Days Payable Outstanding(DPO)||12.9||11.2||13.8||11.8||3.9|
|Cash Conversion Cycle = DIO+DSO-DPO||-10||-11||-12||-10||-3|
|Profitability Indicator Ratios|
|Operating Profit Margin||4%||10%||21%||23%||26%|
|Net Profit Margin||2%||8%||14%||15%||19%|
|Return on Capital Employed (PAT/Total Capital)||2%||7%||15%||15%||21%|
|Return on Net Worth(PAT/NW)||5%||16%||29%||31%||51%|
|NA as it’s a debt free company|
|Cash Flow Ratios|
|Operating CF to Sales||20%||7%||26%||32%||33%|
|FCF Return on Net Worth||23%||0%||39%||44%||65%|
|FCF to Operating CF||60%||0%||72%||68%||74%|
|Valuation Ratios still mystery as no price declared|