Small Cap Service Sector Stock Soars 10% Post Q3 Result, Should You Buy?

Just Dial's shares soared 10% on Monday post the company announced its Q3 results. The company's quarterly revenue grew 7.8% QoQ and 39.3% YoY Just Dial. Just Dial is a local search platform.

Leading brokerage firm ICICI Securities has a buy on the stock of Just Dial with an estimated target price of Rs 750/share. According to the brokerage's given target price, if stock is purchased today at the current market price, it would likely give a return of up to 17%.

Stock performance & outlook over the past 5 years

The stock of Just Dial is currently trading at Rs 644.30/share on NSE, jumped 10% from its previous close of Rs 585.75/share. The stock last week has given 8.36% positive return, whereas, in the last 1 month it has given 8.46% positive return. However, it fell 26.83% in the last 1 year. It gave 8.67% in 3 years and 1.04% in the last 5 years, respectively.

It recorded its 52 week high on 21st January 2022 at Rs 957.55/share and its 52 week low on 20 June 2022 at Rs 520/shares, respectively. It is a small-cap company with a market capitalisation of Rs 5,427.80/share.

Strong margin beat, compelling valuation, Buy for a target price of Rs 750/share

According to the brokerage, Just Dial's Q3FY23 revenue grew 7.8% QoQ and 39.3% YoY. EBITDA grew 5.2x YoY as operating margin improved by ~900bps YoY (400bps QoQ). It is now 12.3% vs ISec estimate of 9.4%. Ramping up of hiring in previous 3-4 quarters had resulted in increased employee expenses which led to lower margins over the last year but now they are quickly reverting to steady state margins as they benefit from operating leverage. Deferred revenue increased to Rs4bn (+24%YoY) led by ~6% QoQ growth in collections. Sustained improvement in collections on a sequential basis in our view is indicative of an underlying demand for their services. Just Dial has ~26% revenue exposure to the B2B ecommerce segment. "We believe this is likely to be the primary growth driver for the company going forward and estimate a revenue CAGR of ~28.5% in the core business over FY22- FY25E (link)," the brokerage has said.

It added, "We expect the company to reverse its EBITDA margin losses of FY22 over FY23E-FY25E. Execution of e-commerce business opportunities currently being piloted by the company is a key monitorable and any potential upside from the same is yet to be priced in. At current valuation, the stock is trading at ~5x 1-year forward EV/EBITDA (cash balance Rs39.3bn; market cap Rs49.4bn), which is significantly below historical levels. Reiterate BUY with target price of Rs750."

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.