Making Sense Of Reliance’s Acquisition Of Just Dial

Reliance’s retail arm, Reliance Retail Ventures Limited (RRVL), will be acquiring a controlling stake in Just Dial through a combination of equity infusion, open offers and by acquiring stakes from the current promoters.

According to the company, RRVL will acquire 25.33 per cent stake through preferential allotment and another stake from V S S Mani, which would take Just Dial’s stake to 40 per cent. RRVL also plans to launch an open offer, at a price of Rs 1,022 per share, for an additional 26 per cent stake.

Faltering Growth

Just Dial’s main offerings are listing services and local search services that connect users with local small and medium enterprises (SMEs). A business can list on Just Dial and have a chance at reaching out to potential customers through Just Dial’s listings page.

A business can also opt for a premium listings, that is, a paid service to boost its rank on Just Dial’s listing page. The listing business is Just Dial’s largest revenue contributor, with multiple premium plans for businesses to choose from.

But growth in the segment has been slow in recent years and it began facing competition from niche players like Zomato, Uber, and others who serve customers in specific segments.

Google too, has emerged as a strong competitor as many businesses preferring to list on Google My Business. With Google listings, small businesses get an easy visibility boost without having to spend additional money. At the end of the financial year 2020 (FY20), Just Dial had 475,000 paid listings, which had grown at around 8 per cent per annum from 206,500 paid listings in FY13.

New Product Launches

To overcome these challenges, Just Dial introduced multiple other products to add more value to the platform and retain its customers. These products included JD Social, JD Omni, and Search Plus. JD Social is a social media platform with curated content aiming to provide more visibility to users.

JD Omni is a one-stop-shop for SME needs. It provides web development, bill payment, order management and other services for businesses. Search Plus was an online marketplace looking to serve as a meta-search engine with marketplace features, but the venture did not work out as expected.

While Just Dial has also been targeting tier-two and tier-three cities, it hasn’t been able to grow in these areas as smaller towns usually have better offline human networks. With an existing strong brand recall, local businesses in smaller towns do not find spending upwards of Rs 15,000 on advertising practical. Larger cities have remained the best target markets for Just Dial.

The pandemic has only added to Just Dial’s woes. SMEs have been among the worst-hit businesses during the lockdowns, resulting in lowered advertising spending. Consequently, Just Dial has seen its revenues fall from Rs 953 crore to Rs 675 crore, a decline of 30 per cent.

But to its credit, Just Dial has continued to be profitable and build cash reserves of Rs 1,500 crore over the years, even conducting buybacks to return cash to shareholders.

How Does RRVL Fit Into The Picture?

With the threats to its business model and faltering growth, RRVL’s acquisition of Just Dial is surprising.

But from RRVL’s perspective, Just Dial’s acquisition allows it access to 30 million active businesses that have free listings on the app. It would also allow it to access the 29 million users who use the app and the 129 million unique quarterly visitors to the website.

Reliance has been quite interested in the business-to-business (B2B) segment for the past several years. Just Dial has a strong sales force base which had more than 9,000 employees, during the pre-pandemic period, working to grow Just Dial’s sales. The salesforce relationships with SME can also be used to meet Reliance’s strategic goals.

Just Dial also runs a B2B portal named JDMart. It connects businesses looking to buy and sell goods. Just Dial expects to leverage its existing SME network to run the business. It has several well-funded and established competitors like IndiaMart, Udaan, TradeIndia and others. In 2015, Reliance Retail had tried to launch its own B2B marketplace, but it did not make a dent on the industry.

From Just Dial’s perspective, the investment means Reliance’s financial backing and more dry powder to fund its growth. Since the B2C business has slowed down, it has been trying to grow the B2B business. The deal also allows the promoters to monetise their stake at a good valuation. The promoter and founder, V S S Mani, will continue to run Just Dial after the acquisition.

Reasonable Valuations

The deal has taken place at a reasonable valuation. RRVL has acquired a cash-generating Internet company with a strong business network already in place. When compared to current valuations of other public and private Internet companies, Just Dial’s acquisition price is quite cheap. In addition, RRVL is flush with funds from last year’s stake sale as it sold a 10 per cent stake and garnered Rs 47,625 crore.

In the past, Reliance has made acquisitions without an evident plan and has only integrated these acquisitions after several years. How Reliance plans to integrate Just Dial and its existing products into the retail business remains to be seen.