Big B makes a killing with Just Dial IPO: 10 things you should know

Big B, who is among the top investors in Just Dial (JD), is all set to make a killing after selling his entire stake in the company post its initial public offering.

Bachchan could have gained as much as Rs 3.4 crore from the IPO

According to media reports, Amitabh Bachchan could have gained as much as Rs 3.4 crore based on the higher price band of Rs 543 a share and around Rs 2.95 crore based on the lower price of Rs 470. If the IPO is fully subscribed at the upper end of the price band or Rs 543, he will clock a 5,330 percent gain, said a Business Standard report .

The telephone and internet-based company’s IPO opened on Monday and will close tomorrow. The issue was subscribed 50 percent on Day 1, data from the National Stock Exchange showed.

According to a disclosure in the company’s red herring prospectus, Bachchan was allotted 62,794 shares at a price of Rs 10 in January 2011. The shares were then valued at Rs 6.27 lakh. They are now worth between Rs 2.95 and Rs 3.40 crore.

Apart from Bachchan, early bird investors like Sequoia Capital, SAIF Partners and Tiger Global are also pruning their stake and are likely to make windfall gains.

Promoter stake to reduce to 33.13 percent post listing

Post the listing of the company, promoter stake will reduce to 33.13 percent from the current 37.15 percent.Existing PE investors (Sequoia, SAIF, Tiger Global, EGCS, SAP Ventures) will own 39.48% (down from 60.5%), with Amitabh Bachchan and employees owing 0.09% and 2.26%. Balance 25.02% will be with public investors.

According to most brokerages, Just Dial follows an almost risk-free model

It also takes advance payment from service providers (advertisers), which significantly reduce the credit risk. “JDtakes advance payments from its paid listers on a weekly, monthly, annual basis leading to negative workingcapital,” said ICICI Direct in a research report.

Just Dial enjoys first-mover advantage

It enjoys a first-mover advantage and outperforms its peers on page views per user, time spent on website and rank among Indian websites.

“The company has created an extensive database of 9.1 million listings spread across 11 major cities and 1800 towns attracting traffic of 267.2 million search requests,” said ICICI Direct in a research report.

Justdial Apps are available for the Android, Blackberry and iOS platforms and Keynotes have location-based service for their mobile Internet users. Justdial users have contributed 24,634,670 reviews and ratings for various listings, till date.

Fundamentals of the IPO strong, says CRISIL

Crisil Research has assigned IPO Grade “5/5” to the proposed initial public offer of Just Dial. This indicates that the fundamentals of the IPO are strong relative to the other listed equity securities in India.

Why some brokerages are advising against investing in the IPO

However, several brokerages have advised against subscribing to Just Dial IPO because 16 percent of the issue size is an offer for sale by existing promoters only, which will not win investor confidence.

Aditya Birla Money has recommended that investors should avoid the issue because the pricing is too expensive.

“We believe that the steep pricing of the IPO factors in the medium-term growth expansion. In addition, entering into low-entry barrier business model (Google India & Nokia City lens app biggest threat) - demands rigorous monitoring and also has the risk of technological obsolescence. Moreover, 16% of the issue size is an offer of sale by the existing promoters - a move not likely to inspire confidence among investors,” it said.

SP Tulsian, investment analyst commenting on the IPO said since it is an offer for sale, company will not revive any funds from the IPO. Hence there is no real objective of the IPO.

“The issue will only provide part exit to promoters and PE investors, in addition to liquidity and benefits of listing.”

“Although the company enjoys positives like first mover advantage, difficult-to-replicate business model, debt free status with negative working capital cycle, its market cap on listing at Rs 543 will be Rs 3771 crore, which is very aggressive and PE multiples look quite stretched. On expensive valuations, the issue can be given a miss. ’'

Google may be a major threat

The shift of Google towards local search could jeopardise JustDial’sbusiness model, market share and/or profitability, which could have anadverse effect on its financial condition, noted ICICI Direct.

Moreover, its promoters have interests in entities which are in the sameline of business as that of Just Dial, name as Just Dial Global, JD USA.

Company Background

Incorporated in 1993, Just Dial (JD) predominantly offers local search services in India. JD’s search services could be classified as 1) company search - business need (64% of all searches) and 2) category search - product or services search. While search services are free for users, the company generates revenue through paid listings - a fee for the listing to be featured on priority basis in the search results. JD uses proprietary pricing algorithms, which helps set price range for its membership packages.