Just Dial Ltd, the Indian local search engine and service discovery platform, witnessed its stock falling by nearly 8% on January 13 after the company announced its third-quarter earnings report for the fiscal year 2025 (Q3 FY25). This is despite reporting a strong year-on-year (YoY) growth in net profit. In this blog post, we’ll dive deeper into the company’s Q3 financials, analyze the reasons behind the stock’s drop, and explore what this means for investors moving forward.
A Closer Look at Just Dial’s Q3 FY25 Performance
On January 10, 2025, Just Dial reported its financial results for Q3 FY25, marking a 42.7% rise in net profit compared to the same period last year. However, despite the strong YoY growth, the company’s profit saw a 15% quarter-on-quarter (QoQ) decline, which has raised concerns among market participants and analysts. Let’s break down the key financial metrics from Just Dial’s earnings report:
- Net Profit: The company posted a net profit of Rs 131.3 crore for Q3 FY25, up 42.7% from the same period last year. However, the profit was down by around 15% from Q2 FY25, where the company had posted Rs 154 crore in net profit.
- Revenue Growth: The revenue of Just Dial increased at a healthy YoY growth rate of 8.4% to Rs 287.3 crore in the quarter. This was better than Rs 264 crore seen in Q3 FY24. Revenue growth is a positive sign as it indicates the company is continuously attracting users and businesses to its platform.
- EBITDA: Just Dial’s EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) surged 43% YoY to Rs 86.6 crore, compared to Rs 60.2 crore in Q3 FY24. This is a good indication of the operational efficiency of the company and its ability to convert revenue into profit. The EBITDA margin came in at 30.1% for the reporting quarter, compared to 22.8% in Q3 FY24, which further speaks of better cost management.
- Other Income: Other income of Just Dial also increased by 3.4% YoY to Rs 77.4 crore. However, sequentially, it declined by 31.9% from the previous quarter (Q2 FY25). This decline was due to mark-to-market gains on the company’s treasury portfolio that were higher in Q2 and absent in Q3.
- Profit Before Tax (PBT): The company has reported a PBT of Rs 149.2 crore, up 23.3% YoY. This means that even though the net profit has declined QoQ, the company is still growing its earnings on an annual basis.
- Deferred Revenue: Deferred revenue of Just Dial increases at a YoY growth rate of 7.3% to Rs 507.2 crores. It is a prime metric that reflects the amount of business for which payment has already been received for future periods. Increasing deferred revenue indicates strong future revenue prospects for the company.
The Stock Market Reaction: Why the 8% Decline?
Despite the YoY growth in all parameters, the stock of Just Dial dipped by around 8% on the morning of January 13 as the market reacted to the company’s dismal QoQ profit fall and concerns about its future growth trajectory. The stock price plummeted sharply with shares trading at Rs 954.90, which had declined by 7.75% at 10:00 am.
Although the market had anticipated strong growth in Q3, especially considering the company’s success in driving top-line revenue, the QoQ decline in net profit raised questions among investors. Profit-taking from those who had invested in the stock earlier in the year contributed to the downturn, as the company’s future performance might appear less optimistic due to the slowing profit growth.
Factors Contributing to the Decline in Profit
There are a few key reasons behind Just Dial’s profit decline in Q3 FY25, despite strong YoY revenue growth:
- Lower Profit Margin from Other Income: As discussed earlier, Just Dial’s other income fell by almost 32% quarter-over-quarter. This significant drop in non-core revenue is alarming because it shows that the diversified revenue streams of the company may not be performing up to the mark. The mark-to-market gains that were reported higher in Q2 might have given a one-time boost to earnings, which did not repeat in Q3.
- Increased Operating Costs: Although the company demonstrated operational efficiency by improving its EBITDA and margin, increased operating costs could have impacted its profitability. In such a competitive market, Just Dial might have spent more on customer acquisition, advertising, and product development to maintain its position in the market, thus affecting profitability.
- Lower Tax Benefits: The company has benefited from a lower effective tax rate for the first nine months of FY25 on account of the reversal of deferred tax on treasury movements. Though these tax benefits will vanish over time, the company may end up with higher effective tax rates in the future, thus curbing profits.
How Just Dial Positions Itself for the Future
Just Dial has a short-term setback in profit growth, but the company remains optimistic about its long-term prospects. The strategy of the company is focused on driving top-line growth while improving operational efficiency. Shwetank Dixit, chief growth officer, emphasized that Just Dial is working on enhancing the offerings for users and providing businesses with easy-to-use, advanced tools. This approach is expected to create sustainable growth for all stakeholders involved.
One of the major growth drivers for Just Dial is its shift towards expanding beyond its traditional search engine business. The company has been increasingly focusing on its digital services and enterprise offerings, which include paid subscriptions and lead-generation services. This diversification into B2B services is expected to bolster its long-term revenue streams.
Moreover, Just Dial is working to incorporate new technologies into its platform so that it can better serve its customers. Artificial intelligence, machine learning, and advanced data analytics are expected to help the company understand user behaviour better and deliver more relevant results. This would keep Just Dial competitive in the fast-evolving online services market.
What This Means for Investors
For investors, the current stock performance of Just Dial poses both risk and opportunity. The recent downward trend in the stock price due to disappointing Q3 results has become a buying opportunity for those believing in the long-term prospects of the company. The investor should not, however, be oblivious to the short-term volatility of the company, considering the QoQ decline in profit, indicating some challenges to maintaining consistent growth.
As the company continues to expand its digital services and improve its operational efficiency, growth is likely to be realized in the future. However, the company is also expected to face short-term fluctuations as it goes through its business model evolution and is subjected to competitive pressures.
Conclusion
In conclusion, even though the Q3 FY25 results from Just Dial did push the stock down, the company’s long-term future is safe and sound. Its revenue and EBITDA have started to rise, and the investments the company is making in technology and business expansion speak for themselves.
Investors must watch out for the performance of the company in implementing its strategy and adjusting to the constantly changing digital world. If Just Dial can keep on growing its revenue streams and enhancing profitability in the subsequent quarters, its stock would see positive momentum again. But investors should keep their eyes peeled for short-term setbacks and prepare themselves to react as the company works through the challenges and opportunities that lie within the marketplace.
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