Shares of Just Dial Ltd surged 8 per cent in Thusrday's trade after Nuvama upgraded the stock to ‘Buy’ from ‘Hold’, saying the stock looks extremely attractive with the core business available at a compelling value on market cap adjusted for cash.
The domestic brokerage said it had a negative view on Just Dial's growth prospects for a while, and the company has been facing serious growth challenges for the last two quarters. Even as it continues to believe growth challenges may persist, the valuation is compelling enough to warrant an upgrade, the domestic brokerage said.
Following the development, the stock rose 8.32 per cent to hit a high of Rs 911.90 on BSE. The stock is down 35 per cent from its 52-week high of Rs 1,394.95.
"Our upgrade comes with a few tweaks in the model — we are not assuming a dividend in FY25E, but continue to reckon 100 per cent of net income as dividend in FY26E and FY27E—in line with management commentary. Our DCF yields an unchanged target of Rs 1,140," Nuvama said. The target price suggests a 25 per cent potential upside over the prevailing stock price.
Nuvama said Just Dial is an asset-light business generating an Ebitda margin of 30 per cent with high cash conversion. Its market-cap has corrected 20 per cent since its Q3FY25 results, but its core market cap (ex-cash) has corrected by 47.6 per cent. In fact, Just Dial's valuation is close to its lowest point ex-Covid, the brokerage said.
Just Dial has been retaining cash generated from operation instead of returning it to its shareholders. It has accumulated Rs 5,060 crore in cash & cash equivalent at the end of December quarter, contributing 72 per cent to its total market cap.
At the Q1FY25 call, the management had committed to return 100 per cent of new income back to shareholders going forward. Nuvama said Just Dial may likely generate Rs 120 crore in cash over the next two years.
"We have analysed the stock’s valuation under two scenarios: i) Scenario 1: Market cap at Rs 7,000 crore and cash at Rs 6,260 crore if JD does not distribute dividends while the core business is available at 3 times PE—close to lowest historically. ii) Scenario 2: If JD begins to pay out dividends from FY26, it would be available at a very attractive dividend yield of 7.3 per cent," Nuvama said.
In both scenarios, it believes Just Dial offers a very reasonable valuation and a value ‘BUY’.