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We upgrade Just Dial to ‘BUY’ (from ‘HOLD’ earlier) as we expect the company to see strong earnings recovery over the next 2-3 years, partly aided by a low, Covid-affected base. Having surpassed pre-Covid level revenue for the first time after 12 quarters in 1QFY24, the company’s core business growth revival strategy now hinges on better monetisation of its B2B listings, which contribute ~26% to consolidated revenue. The company has ~7mn B2B listings on its platform, of which it is currently monetising only 120k-125k, compared to 200k+ for IndiaMART (Buy, INR TP 3,300). It also sees decent room for improvement in realisation, as current average for its B2B campaigns stands at ~INR 20k, significantly lower than IndiaMART’s INR 50k+. Basis this, we forecast Consol. topline CAGR of c.17% over FY23-26E for Just Dial. Further, EBITDA margin that was down to break-even levels in FY22 (from 28%+ in FY20) is also expected to report a robust recovery on account of strong operating leverage and scale-down of investments towards new initiatives (such as JD Mart, JD Xperts and JD Shopping). Sharp recovery in operating performance and compelling valuations of 11x/8.5x FY25/26 ex-cash EPS should lead to a near-term up-move in the stock.

* Expect B2B campaigns to drive topline growth in the near to medium term: While B2B businesses contribute ~22% to the company’s overall paid campaigns, they account for ~26% of consolidated revenue. The threat of disruption by verticals is relatively low in B2B businesses compared to B2C businesses due to large ticket sizes and high proportion of customisation that is needed. As a result, average realisation of B2B campaigns is also higher than that of B2C campaigns. Therefore, Just Dial is now focussing on enriching the catalogue content as well as the quality of search algorithms. Given that Just Dial currently monetises just about 1.7% of total B2B listings on its platform despite offering significantly lower price points, we believe the revenue share of B2B campaigns can increase significantly over the next 2-3 years. That in turn could drive topline CAGR of 16.8% over FY23-FY26E, ~1.7x of CAGR reported over FY15-FY20, partly aided by a low, Covid-affected base (revenue declined at a CAGR of 3.9% between FY20 and FY23)

* Strong operating leverage and scale-back of new investments could support margin expansion: Just Dial’s EBITDA margin dropped to break-even levels in FY22 from 28%+ in FY20 due to sharp decline in revenue during Covid as well as investments towards new initiatives. The company is now focussing on recovering margins to pre-Covid levels by improving the productivity of the sales team, making controlled A&P spend (focus on growing organic traffic) and scaling back investments towards new initiatives. As revenues are likely to grow in mid-teens, we anticipate strong operating leverage for the company with EBITDA margin expanding from 10.2% in FY23 to 22.3% in FY26E. 

*Strong operating leverage and scale-back of new investments could support margin expansion: Just Dial’s EBITDA margin dropped to break-even levels in FY22 from 28%+ in FY20 due to sharp decline in revenue during Covid as well as investments towards new initiatives. The company is now focussing on recovering margins to pre-Covid levels by improving the productivity of the sales team, making controlled A&P spend (focus on growing organic traffic) and scaling back investments towards new initiatives. As revenues are likely to grow in mid-teens, we anticipate strong operating leverage for the company with EBITDA margin expanding from 10.2% in FY23 to 22.3% in FY26E.

*Favourable risk-reward, upgrade to BUY: We raise our EBITDA estimates over FY25/26 by 11-19% and expect Just Dial’s PAT (ex-other income) to see a 4x+ increase from INR 0.4bn in FY23 to ~INR 1.8bn in FY26. We continue to value the stock basis 15x Sep’25E core business EPS + Sep’24-end cash to derive our revised TP of INR 830 (vs. INR 750 earlier). The stock trades at 11x/8.5x FY25/26 ex-cash EPS, which limits any material downside.  

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