Is Just Dial Limited (NSE:JUSTDIAL) Expensive For A Reason? A Look At The Intrinsic Value

Simply Wall St.

Tue, Oct 9, 2018, 10:10 PM

In this article I am going to calculate the intrinsic value of Just Dial Limited (NSE:JUSTDIAL) by taking the expected future cash flows and discounting them to today’s value. I will be using the Discounted Cash Flows (DCF) model. Don’t get put off by the jargon, the math behind it is actually quite straightforward. If you want to learn more about discounted cash flow, the basis for my calcs can be read in detail in the Simply Wall St analysis model. Please also note that this article was written in October 2018 so be sure check out the updated calculation by following the link below.

View our latest analysis for Just Dial

What’s the value?

We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second ‘steady growth’ period. To begin with we have to get estimates of the next five years of cash flows. For this I used the consensus of the analysts covering the stock, as you can see below. I then discount this to its value today and sum up the total to get the present value of these cash flows.

5-year cash flow estimate

	2019	2020	2021	2022	2023
Levered FCF (₹, Millions)	₹1.83k	₹2.02k	₹2.10k	₹2.44k	₹2.83k
Source	Analyst x5	Analyst x5	Analyst x3	Est @ 16.28%	Est @ 16%, capped from 16.28%
Present Value Discounted @ 15.64%	₹1.58k	₹1.51k	₹1.36k	₹1.37k	₹1.37k

Present Value of 5-year Cash Flow (PVCF)= ₹7.2b

The second stage is also known as Terminal Value, this is the business’s cash flow after the first stage. For a number of reasons a very conservative growth rate is used that cannot exceed that of the GDP. In this case I have used the 10-year government bond rate (7.7%). In the same way as with the 5-year ‘growth’ period, we discount this to today’s value at a cost of equity of 15.6%.

Terminal Value (TV) = FCF₂₀₂₂ × (1 + g) ÷ (r – g) = ₹2.8b × (1 + 7.7%) ÷ (15.6% – 7.7%) = ₹38.6b

Present Value of Terminal Value (PVTV) = TV / (1 + r)⁵ = ₹38.6b ÷ ( 1 + 15.6%)⁵ = ₹18.7b

The total value is the sum of cash flows for the next five years and the discounted terminal value, which results in the Total Equity Value, which in this case is ₹25.9b. To get the intrinsic value per share, we divide this by the total number of shares outstanding, or the equivalent number if this is a depositary receipt or ADR. This results in an intrinsic value of ₹383.79. Compared to the current share price of ₹470.25, the stock is fair value, maybe slightly overvalued at the time of writing.

NSEI:JUSTDIAL Intrinsic Value Export October 10th 18

Important assumptions

Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows. You don’t have to agree with my inputs, I recommend redoing the calculations yourself and playing with them. Because we are looking at Just Dial as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighed average cost of capital, WACC) which accounts for debt. In this calculation I’ve used 15.6%, which is based on a levered beta of 1.088. This is derived from the Bottom-Up Beta method based on comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.

Next Steps:

Valuation is only one side of the coin in terms of building your investment thesis, and it shouldn’t be the only metric you look at when researching a company. What is the reason for the share price to differ from the intrinsic value? For JUSTDIAL, I’ve compiled three essential factors you should look at:

Financial Health: Does JUSTDIAL have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
Future Earnings: How does JUSTDIAL’s growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.
Other High Quality Alternatives: Are there other high quality stocks you could be holding instead of JUSTDIAL? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!

PS. The Simply Wall St app conducts a discounted cash flow for every stock on the NSE every 6 hours. If you want to find the calculation for other stocks just search here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

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