— already the largest organised retailer in the country — has agreed to buy a 15.62 % stake from first generation entrepreneur VSS Mani and family through a secondary share purchase for Rs 1336 crore. Just Dial will also be making a preferential allotment to Reliance Retail at Rs 1022.25 share to infuse Rs 2164.88 crore into the company, or around 25.33 percent stake and capitalise its operations and take on competition. This will inturn, trigger an open offer for an additional 26% of the company from minority shareholders. After the successful open offer, the total payout would be around rs 5222.8 crore or $700 million.
Currently the Mani family owns 35.5% of the company he founded 25 years ago. Starting out as a phone-based service in 1996, listing local services, the company was a market leader in discovery, with an over $2 billion valuation in 2014, a year after listing. But over the years, it lost much of its sheen as a hyper competitive consumer internet landscape and VC backed rivals ate into the market share with convenient transaction support, standardised services and superior user interfaces.
The current market capitalisation of Just Dial is Rs 6683.74 crore.
Just Dial will also be making a preferential allotment to Reliance Retail at Rs 1022.25 share to infuse Rs 2164.88 crore into the company, or around 25.33 percent stake and capitalise its operations and take on competition. Justdial is the market leader in local search engine segment with nearly 150 million average quarterly unique visitors across multiple platforms like mobile, apps, website and 8888888888 telephone hotline.
Both the preferential allotment and the secondary share purchase will be at a slight discount to JD’s current share price. The stock has already appreciated 61.12 percent in the last 6 months, touched its 52-week high of Rs 1,138 to close at Rs 1,080.15 on Wednesday.
Post the preferential allotment and a fully successful offer Reliance could own as much as 67% of the company. Mani will retain a 10% stake and continue as the CEO and MD of the company with a seat on the board.
Mani, a first generation entrepreneur, will take out around Rs 1336.82 crore.
ET in its 15 July edition was the first to break the news about the deal.
Morgan Stanley acted as financial advisor, JM Financial as manager to the open offer, Shardul Amarchand Mangaldas and Khaitan & Co as legal advisors and Deloitte as accounting and tax advisors to Reliance Retail. Goldman Sachs acted as exclusive financial advisor, Cyril Amarchand Mangaldas as legal advisor and Ernst & Young provided tax advisory and diligence services to Just Dial and its promoters
Reliance has set an ambitious target to grow its Retail business by 3x over next 3-5 years, driven by expansion of retail footprint/delivery hubs, supply infrastructure and sourcing ecosystem. The company also plans to add 10M merchants over the next 3 years from current base of 300 million. Just Dial’s network and loyal customer base, sales presence, especially in tier 2 cities (markets excluding its top-11 cities) would further help bump both business-to-business and business-to-consumer traffic for Reliance. It has already acquired Grab, a last mile logistics start up to power its commerce initiatives.
Reliance Retail Ventures Limited (RRVL), the holding company of Reliance Retail, has raised over $6 billion since last September 2020, by diluting 10.1% stake.
With 12700+ stores across categories, Reliance Retail has leadership in physical footprint. It also wants to build its JioMart ecommerce grocery platform based on a 1P/inventory led model where delivery and fulfillment happen through owned stores and B2B commerce (JioMart) where its kirana stores fulfill the orders. It is also keen to embed payment with Whatapp for its 400 million users after Facebook bought into Reliance Jio Platforms last year.
“The investment in Just Dial underlines our commitment to New Commerce by further boosting the digital ecosystem for millions of our partner merchants, micro, small and medium enterprises. We look forward to working with the highly experienced management team of Just Dial as we further expand the business going forward,” said Isha Ambani, Director of RRVL.
ONE APP FITS ALL?
Faced with challenges from full-stack consumer vertical companies like Urban Company, Practo, Zomato, Make my Trip among others and horizontal platforms (Google and Facebook), Justdial has struggled in its top-11 cities with mere 3% revenue CAGR over FY18-20. “But despite its failures with product launches and revenue stagnation in top cities, the company strengthened its feet on street infrastructure aggressively (2.5x headcount increase over FY15-20) in 150+ cities resulting in overall revenue growth of 10% CAGR,” said Vivekanand Subbaram, an analyst with Ambit. Its revenue from markets outside top-11 cities grew at 39% CAGR. “We are enthused by the company’s willingness to sacrifice some of its rich operating margins (25-26% in FY19-20) to incubate new products where it has a higher probability of success than its prior launches,” he adds.
The focus on B2B, launched in February of this year, has been its latest area of focus after repeatedly failing to achieve success despite ramping up additional layers to its core service offerings. “B2B platforms provide superior ROI for marketing budgets compared to legacy channels. Linking sellers to buyers saves on commission payable to distributor/trade agents and the cost of working capital. While IndiaMART is the leader, this is a fraction of the number of MSMEs in India ( 20 milliom MSMEs making up 90% of overall manufacturing companies and 45% of overall manufacturing output, according to the Ministry of MSME.) Given room for growth, we think two or more B2B platforms can co-exist,” argued Shaleen Kumar, analyst with UBS.
The earlier digital pivot through the JD app — positioned as India’s first super app — that sought to offer a variety of services, offerings, commerce and even payments between FY15 and FY17 in the form of Search Plus, JD Omni and hyperlocal delivery also didn’t deliver on its promise of ‘full stack’ B2C services forcing the latest transition. “With Indiamart, Udaan, even B2B is getting competitive. But with Reliance’s support, JD can scale up and focus on growth instead of its frugal approach so far,” said a competitor on condition of anonymity.
“Nearly 25 years ago, we had a vision to build a connected single platform dedicated to providing fast, free, reliable and comprehensive information to our users and connect buyers to sellers. Our vision has evolved to not only provide search and discovery but drive commerce across merchants through our B2B platform and enable further consumer to merchant commerce given our platform engagement. Our strategic partnership with Reliance enables us to realize this vision and transform the business going forward,” said VSS Mani, Founder and CEO, Justdial.
As per calculations of Bernstein Research, digital and New commerce (JioMart, AJIO, Reliance Digital, kiranas) contributed to 10% of Reliance’s core retail revenues implying ~$400 Mn digital revenues ($~1.6 Bn run rate). JioMart had 80% orders from repeat customers. Order frequency (1.5x) and average bill value (+20%) were higher for customers using the platform for more than 6 months. JioMart Kirana partnerships were expanded to 33 cities. The company plans to step-up pace of new store opening and expand categories on JioMart.