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Reliance Acquires Just Dial - What it Means for the Industry?

Jul 17, 2021 1:13 PM 6 min read

Reliance Industries (RIL) is going on a shopping spree resembling the zeal of an A-list actress checking out boutiques on Rodeo Drive (shame on you if you are not aware of the reference)! ;)

The latest goody in RIL's bag is Just Dial, where it took a controlling interest of 40.95% for ₹3,497cr ($466m), and will make an open offer to acquire up to 26% more. The acquisition is supposed to be done in two phases. 

In phase one, Just Dial will make a preferential allotment to RIL for a 25.33% stake in exchange for the infusion of ₹2,165cr ($289m) to the company and take another 15.62% from Just Dial’s founder VSS Mani for ₹1,332cr ($178m).

Phase two would involve a secondary share purchase from the shareholders for the remaining 26%. Following this open offer, the total payout would be around $700m, with about 41% going to the company and the rest to existing shareholders. 

The acquisition is a strategic call by RIL which is trying to expand its retail and digital operations across the country. Just Dial, with its B2B (business-to-business) search engine capabilities, is expected to power the competitiveness of RIL (we'll see how shortly). 

Here's a layout of the stakes involved here. 

Phone-a-Business, or Anyone

In 1996, VSS Mani (currently owning 35.5% of the company) launched Just Dial with a seed investment of ₹50,000 ($671). With just six employees at the beginning, the company successfully created a software that could search for phone numbers and other information from its database within seconds. It was aptly called the "Indian Google" even though Just Dial is actually older than Google

The idea was to create an online yellow pages company for phone numbers and related business information. It was one of the earliest players in the information search media domain. In the early days, the company even engaged in door-to-door promotions to expand its reach. 

The product was initially a phone-based directory software but later transitioned to an internet-based search engine, and is now a full-stack mobile app service. The subscription-based database product gave way to a publicly-available database which attracted paid B2B listings.

Free access to the company's database attracted more queries and hence more paid listings. Addition of the "Search Plus" services in 2013 also enhanced searches for users by adding more SME (small business) options. 

Diminished Utility Puzzle

As of March 2021, Just Dial's existing database includes 30.4 million listings and consumer traffic hovers around 129.1 million unique users every quarter. It opted for an IPO in 2013 which was the second-biggest issue at the time after Bharti Airtel.

Towards 2015, Just Dial made a soft entry into the e-commerce space by partnering with restaurants, grocers, pharmacies and other local businesses to service home delivery. In 2017, it introduced JD Pay to enable quick digital payments for users and vendors. In fact, just last year it launched JD Mart, an all-in-one version of its app with features like map-aided search, live TV, videos, news and real-time chat messenger. 

One would assume that such diversification would boost the company's integration and adaptation of today's hyperlocal business models. Sadly, no. 

In 2014, Just Dial was India's "most valuable consumer internet company" with a staggering valuation of $1.8bn which was more than Flipkart's valuation ($1.6bn). Today's it is valued at ₹2,387.9cr ($320m) in what has been an interesting case study into how going horizontal too quickly (instead of picking a vertical and drilling down) can sometimes hurt. 


The Flaws in its Dials

Just Dial operates with more than 25 verticals on its website offering a multitude of services like recharge, bills, grocery, food delivery, ticket bookings, etc. Basically, it is designed to cater to any manner of consumer needs starting from information, navigation, e-commerce, payments etc (a “super-app” of sorts). 

The problem is, there are already other players out there with their own specialised and improved services which cater to these individual needs. If you need an address, Google Maps will do it. If you wish to order food, Zomato will do it. If you need local services, Urban Company will do it. For online shopping and payments you have more alternatives than you can count. 

The absence of specialised verticals has eroded Just Dials' utility. It makes it easier for other competitors to eat into its businesses. 

But that isn't the only problem. Just Dial's operation of putting people in touch with businesses (B2C) through calls and SMSes is considered to be a flawed model in today's world. Many believe it is still living in an age of "directory search" which has been outlived by Google Search. 

Just to clarify, creating a super-app in itself is not necessarily a worthless exercise. In fact, Tata has been chasing the super-app dream for over a year now. But it is going about it in a completely different manner. Tata Digital's focus is more on market consolidation through high-profile acquisitions in multiple verticals (Big Basket, 1 mg, Curefit etc.). This is again a massive capex exercise which Tata has the means (and pockets) to do, unlike Just Dial. 

FYI: Tata was in talks with Just Dial for an "investment opportunity" earlier. Needless to say, those talks are now moot.

This is where the RIL acquisition becomes relevant. 

Relying on Reliance

Going by the analogy we presented at the beginning, if RIL is the A-list actress bagging high-end designer goods, then Tata is an Italian billionaire in a Ferrari showroom. 

Point is, RIL has similar means as well as motives for all-round market domination. Its plans to acquire the Future Group was a big step in the direction. Just Dial is next. 

In spite of significant value erosion, Just Dial remains profitable. It has been turning reasonable revenues (7% up YoY in FY20) and making profits (Net profit 31.7% up; EBITDA margin 30.4% up) consistently. The lockdowns had mired its performances but the company has reworked its pricing to regain those losses. 

This gives RIL a solid opportunity to build on. The full-stack B2C promise of Just Dial that remains undelivered could use the help of Reliance's digital and retail resources. This is in addition to the capital infusion, of course, which will help retain personnel and build on existing projects. 

Just Dial maintains a physical presence in over 11 cities. It also has a strong sales presence and traffic in tier-2 and tier-3 cities which was built through decades of capitalisation on middle-income household growth, paid campaigns and retail relationships. 

The gargantuan business database of Just Dial is its most significant USP that is certain to be used in RIL's ambitious plans of digitally connecting kirana stores (B2B) which will in turn serve as a back-end for B2C commerce. Over time they could expand beyond grocery, electronics and apparel (segments where Reliance has a significant retail presence now) and become a complete horizontal platform. 

Mr. Mani's bets are likely in the money now. With over 52.4% appreciation in Just Dial stocks over the last six months and an up-top ₹2,000cr+ capital infusion, Just Dial's fate seems to be looking up. It remains to be seen what new disruption this business association brings for the industry, like most RIL associations do. 


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