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Just Dial Ltd
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[Audio Gap] Thanks, Ardeep. Good evening, everyone. On behalf of Nomura, I would like to welcome you all to the Second Quarter FY '19 Earnings Call for Just Dial. We have with us the Founder and CEO of Just Dial, Mr. VSS Mani; and also the CFO, Mr. Abhishek Bansal. So without further delay, let me hand it over to the management. Over to you, guys.
Hi, everyone. Welcome to Just Dial's Earnings Call for Second Quarter '19. We'll quickly go through key financial and operational highlights for the quarter. Operating revenues stood at INR 221 crores, which grew 13.7% year-on-year. Operating EBITDA stood at a healthy INR 57.5 crores, witnessing strong 45% year-on-year growth. Adjusted operating EBITDA margin, excluding ESOP expenses, stood at 28.6% for the quarter.Now coming to EBIT margin, which we think is a better indicator of our gross profitability, considering incrementally part of our CapEx is becoming OpEx in nature. EBIT margin stood at 22.2% for the quarter versus 15.6% during same quarter last year. Net profit for the quarter was INR 48.4 crores, which was up about 29% year-on-year. Cash and investments stood at INR 1,360 crores approximately, as on September-end, which was an increase of INR 158 crores during the first half of this fiscal year.Coming to operational highlights. It's extremely encouraging that we have crossed 100 million users on our mobile platform system. Mobile traffic is growing at a healthy 45%, 50% year-on-year. Overall, including all platforms, despite a high base of 105 million quarterly unique users, we were able to grow at 25% year-on-year to 131 million users.On our database, we added another 1 million listings, and we now have approximately 24 million active listings in our database, which was 20% year-on-year increase. About 52% of the database is now geocoded, and we have over 50 million images in our database.Coming to paid campaigns. Paid campaigns at the end of the quarter stood at approximately 471,000, addition of net 17,700 campaigns during the quarter, which was highest in last 8 quarters. As we have mentioned in the past, we expect overall revenue growth this year to partly materialize from volume growth and partly due to realization. The same is panning out. Overall, I think it was still a balanced quarter for us from all standpoints. Revenue growth was highest in last 12 to 13 quarters, strong user growth continues, healthy margins on the back of efficiencies that we have brought over last 4, 5 quarters. Overall, first half of this fiscal has been pretty strong. As we have mentioned earlier, we have wanted to increase our feet-on-street cold-calling team. In sales 4 quarters back we were at about 2,100, 2,200 strength in that team. And now, that particular team, we have grown to 3,300-plus members. We have been able to swiftly add people without compromising on productivity, which is now also resulting in good uptake in paid campaign. As the business focus continues on getting more users to our product, which is undergoing continuous improvement, getting users to engage more, building on to current growth rate and, at the same time, maintaining healthy profitability.On the buyback, which is in progress, certain statutory approvals are in progress and might actual get concluded sometime in December, also.We shall now open the floor for questions. Thank you.
[Operator Instructions] We have the first question from Mr. Niket Shah from Motilal Oswal.
I have 2 questions. First is, on this 17,700 campaigns which have been added this quarter, could you tell me the duration of these campaigns?
Largely, we sell typically 1 year contracts. So broadly, for about half of the population, tenure would be around 1 year.
One year. Okay. And how much would be deferred revenues in this quarter versus the previous quarter?
So this quarter, we ended with about INR 375 crores of deferred revenue, which was around 35% year-on-year growth.
On a sequential basis, this would be flat, right.
Last quarter, we ended at about INR 371 crores.
That's right. So I just wanted to understand that, if on a Q-on-Q basis, the other campaign was about 4%, shouldn't it be a similar kind of growth in the deferred revenue part of it because that is the lead indicator, right, as such?
No. These particular numbers, they are best seen as on a year-on-year basis. So for example, last year, if you see second quarter sequentially had our dip in unearned revenue, so this particular metric is better looked at on a year-on-year basis.
Okay. But actually, if you add about 17,000 campaigns in this year and if they have a duration of 1 year, you've taken a 3-month revenue in the P&L, balance 9 months would actually add up to the accrual number.
All this total first day of the month.
So this -- the active paid campaigns that we report, they are active as on month-end. So these particular campaigns would have come during that particular quarter. And from that day, that particular campaign got activated, coming through this revenue booking would have taken place.
Moving to the next question. We have the next question from Mr. [ Wizel Surkart from Unified Capital ].
Coming to the pricing scenario last 2 quarters, I think -- they've been rather [ healing ], and you really don't see the benefit of [ seeing ] leverage going not down to your P&L. We seem to understand, are you facing any headwinds. What's the growth number? Why's the scenario looking like that?
See, on the pricing scenario, as we have mentioned earlier, that inherently, there should be a downward pressure in our realization considering the share of Tier 2, Tier 3 cities is going up. Tier 2, Tier 3 cities today contribute broadly 45% by volumes and about 24%, 25% by revenues. Considering last year's 3, 4 quarters that we took certain price hikes at [ aging ] level. And we have been selling certain bundled products. So that has helped us grow our realization on a year-on-year basis by about 6%, 6.5%.
Okay. Just to prolong your case prediction. I'm really new, given prior [ restaurants ], just help us reconcile again the lack of follow-through advances in the active paid campaigns. I understand you might have taken 25% of land billing in Q2. But even then, adjusted for that 4% growth campaign, I mean, I see these are the different advances. I'm able to reconcile the [ center grip ] difference. And your ARPUs haven't fallen either. So what am I missing?
See, on -- in our particular case, our customers have options to pay us in monthly payment plans or upfront payment plans. So not all [ impacts ] that come up are in upfront payment plans, where we get the full advance. So the mix can actually result into a difference in that particular deferred revenue.
Oh, okay. That's clear. What's the mix? Would you have that number between upfront and monthly or bimonthly payment?
Roughly, it's around 65% upfront and 35% monthly payment plan.
Okay. And does the monthly payment plan have a premium to upfront plan?
Yes. If you actually pay upfront, then you get a certain discount because you're actually paying upfront.
Okay. Okay. So given the quarter for advances, I think, our guidance for '19 as well is in the bag. So typically, how do you really begin to plan your sales strategies for FY '20 other than work? I notice you increase your frequency dramatically over the last couple quarters. And you had mentioned in your opening remarks that a large part of your CapEx is now OpEx. Is it possible then to understand how you're looking at sales growth in FY '20? And as things stand today, what would be a moderate volume growth number that we might target?
See, in case of our sales planning, as we mentioned earlier, last about 4, 5 quarters. We spent time in consolidating or bringing in efficiencies. We were very clear that we don't want to continue going on a hiring spree by compromising on productivity. We wanted to make sure that the marginal productivity of our every new incoming employee tried the listing to my current sales force. Once we achieved that, then we went on to add employees. So last 2, 3 quarters, where we have seen good amount of addition to feet on street, part of those particular benefits are already coming up. Once these particular employees become tenured, they should be adding more to our revenue pool as well. So the planning is a mix of the geographies we should expand in current geographies with the number of employees we should have in order to optimize revenue per sales employee, revenue per customer. On the product side, what should be optimal price increases, if any, on premium versus nonpremium? Should we launch any sort of bundled products, which can demonstrate better value to our customer. So all those factors together contribute into optimizing that particular revenue.
Okay, okay. I understand. And so how does your feet strategy work because I remember go back a couple of quarters. Is it fair to say that you only add aggressively if you maximize the throughput after your existing payroll? Or are you adding this because you're keeping your presence in the non-top-15 cities? I'm just trying to understand the rationale of your excessive ramp-up here.
See, the ramp-up is both in Tier 1 cities as well as Tier 2, Tier 3 cities. We are finding that, even in Tier 1 cities, our particular feet-on-street team is getting us much better revenue growth from same set of customers versus a [ host win ] and marketing team. The key reason there is that product has become more of a show-and-tell product. Many of us hardly take [Audio Gap]are taking, say, incoming marketing calls. So when a particular person actually goes to an SME, demonstrates the product, shows that how your particular listings shall show up, what are the benefits you can get, so that same geography rapid marketing growth rate is lower, its feet on street will take -- is coming out to be better. So that addition is not just in Tier 2, Tier 3 cities. It is in Tier 1 cities as well, subject to managing your bandwidth [ be no ] level.
That's clear. Last question before I get back in queue. Your active paid campaigns for H1 this year up roughly 10%. So assuming a large part of that would translate into revenues next year, is it a little too early for you to give us a sense of how FY '20 revenue growth might look like?
See, as we commence the year with our proper [ transite ] meeting is what we're targeting for this particular year, we are almost there. We would want to exit FY '19 at a much better run rate and then belong to those particular growth rates in FY '20. Last 4 to 6 quarters, on the cost side, we have done optimization. On the sales side, we have brought in those particular productivity level metrics, such that, for example, a particular branch, if they cross a particular threshold of productivity, they're free to hire the next batch of employees. So all those fundamentals are being addressed. And I think with the kind of trend or the run rate that we are seeing, FY '20 should definitely be much better than the growth rates that we are witnessing now.
Okay. And is it fair to assume that if [ big fellow won ], is it a concern assuming you would reinvest in this thing, back in the business?
Not really. See our particular business on a gross margin basis, which is revenue less direct sales force, which is salute anything that [ we pay ] to all these employees. It's a healthy 60%, 64% gross margin business. So far, my other overhead, they will probably increase only with inflation, or we would try to optimize on them as well. So inherently, there is a good amount of operating leverage that is there in the system. We are currently at only about, first half, 28%, 29% adjusted EBITDA margin. So with revenue growth accelerating, there is a fair chance that the margins could see further expansion as well. The clear indication is that, since that time, we have gone up from 7% growth to 13.7% growth. There is a fair margin expansion from, say, 15% levels to 25%-plus levels. Part of it obviously has come to cost optimization, but part of it is also due to revenue-led operating leverage.
Sure. If I could just squeeze in one last question. I understand buyback has been a regular source of your capital predominantly [ sat ] leadership to stakeholders. Given the quantum of cash that is building up and the lack of visibility in terms of even the strategic use of that, don't you think it's time we -- that we look at -- as you know, take the tax impact of -- we're going to welcome that money once for all to go back and improve your return ratios as have them all calibrated on this. What are our thoughts?
We're more than optimizing on the return ratio. The purposes of that, whatever maximum amount of capital we could return [ back to ] of shareholders, between 2 buybacks, there's a gap of, say, 1 year. So we did almost full 25% of paid-up capital plus features of -- for our last buyback, which will get concluded. So as of now, we would want to take this route till the time it is self-sufficient.
[Operator Instructions] We have the next person from Mr. Pranav from Edelweiss.
My first question is, at the start of the call, you talked about incremental CapExes becoming OpEx. Can you just elaborate what exactly you mean for that, within an example or anything like that?
It's still about 2, 3 years back, if we had to add, say, further servers or storage to augment our big capacity. We typically used to buy such particular hardware and have that particular FX on our books. But incrementally, a lot of subscription-based services are available, for example, Amazon AWS or our Chennai services cloud service solutions that are available, so we don't really need to buy those particular service on our books. We can actually take them on a subscription or a lease basis. So all those costs directly get expensed in the P&L. Whereas earlier, if you were buying those particular servers, we were taking P&L in the form of depreciation. That is why you will see depreciation which was upwards of 5% of top line at one point of time is now about 3.8%, 3.9% also. That is why I said that, more than EBITDA margin, EBIT margin would be a slightly better indicator to look at for gross profitability.
Okay. That's very helpful. My second question is how you're looking at -- are you looking at any inorganic acquisitions or any -- I mean, how Just Dial investing for making yourself future-ready...
In terms of future-readiness, et cetera, we realize that we are a horizontal player. We know how to run this particular business in a horizontal manner. To that extent, we did look at several opportunities that came along our way last 2, 3 years, but none of them seem to happen to leave with a horizontal player like us. Even in terms of valuation, nothing was available at the type of valuation that we would otherwise wanted look at. So we would rather spend money into building good technologies on the product side, et cetera. Inorganic opportunities seem unlikely at this point of time.
Any particular area where you are investing organically? Any particular analytics, EBITDA, anything, which...
A lot of effort is going into -- if you see that we have recently -- yesterday, said we released the latest version of our Android app. Today, our Android, iOS in mobile site are almost replica of each other. Certain new features are being added. We are working towards bringing our particular products in vernacular languages as well. So a lot of work is being done in order to render customized content to users to assist their particular searches, predictive searches, et cetera. So all these other key areas where technology can be focus is being done.
Moving to the next question, we have Mr. Rajesh [ Ditalia ] from Credit Suisse.
My question is to Mr. Mani, the CEO. Last call, you had spoken about a possible partnership with a telco like Jio. I was wondering if you've been able to make progress on that front. Are there any other partnerships that you sort of are thinking about actively?
I don't recall this -- my -- me mentioning about the partnership. Can you just jog my memory a bit, please?
Last quarter, we've spoken about how a partnership with a telco possibly getting on to the Jio phone now that the full app might be a good strategy for Just Dial. And my question was, if that's something that you envisage in the future? And you said that you're thinking about it.
We did try it with putting Just Dial before that in several forms, but the usage from such activity is very low. As you may be aware, there are several apps that are [Audio Gap]