JustDial announces Rs 220 cr share buyback

At a time when companies are hoarding cash, Indian online classifieds pioneer JustDial Ltd has announced plans to return up to Rs 220 cr to its shareholders via a stock buy back.

A stock buyback is one of the two key ways to give excess cash generated by a company back to shareholders, with the other being to issue a dividend.

Such moves are also resorted to frequently when the management feels that the company’s stock is undervalued, and wants to take advantage of the low share price to bring down the equity base. It is also sometimes resorted to before a company sells shares to a strategic investor to prevent over-dilution of the share capital.

JustDial is soon expected to report a full-year profit of around Rs 250 crore on revenue of around Rs 1,100 cr for the ongoing financial year.

This would imply a per-share profit (EPS) of around Rs 40, while the current price of the stock is only around Rs 400, indicating a profit yield of around 10% or a PE of 10x.

Typically, companies in the internet sector command much higher valuations. Amazon, for example, commands a PE multiple of around 100 times, which means its profit yield is only around 1%.

Even a relatively stable and not-so-fast-growing company like Infosys commands a PE multiple of around 17, indicating that JustDial may be significantly undervalued.

However, often, investors undervalue a company’s stock in the expecation that earnings will fall going forward.

In fact, Just Dial, which used to be valued in the Rs 550-600 range before the Coronavirus correction, had hit a low of around Rs 271 late last month.

The company, meanwhile, is cash-rich, with liquid reserves of over Rs 1,500 cr.

JustDial said the buyback would be carried out via a ‘tender offer’, rather than via open market purchases.

The maximum price at which it will buy shares is Rs 700.

At most, it said, it would buy back 4.84% of its paid-up equity capital.

The record date and other details would be announced later, the classifieds company said.

At present, promoters hold only around 33% of the shares in the company, with the public holding the remaining.

“Since, the actual number of securities to be bought back and category of shareholders from whom it will be bought back is uncertain, post shareholding pattern will be provided on completion of the buy-back,” it said.

JustDial stock has gone up by 6.6% to Rs 416 on the National Stock Exchange after the announcement.