21 highlights
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When Reliance Retail Ventures Ltd, part of Mukesh Ambani’s Reliance Industries Ltd, announced last week that it would pay as much as Rs 3,497 crore to buy a 40.95% stake in Just Dial, a company that makes nearly all its money by listing small businesses on its website, there were two things about the deal that didn’t add up.
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Just Dial appeared to be a company that didn’t have much of a future, as much of the information on its website was increasingly available for free on the internet.
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The Just Dial deal is the biggest domestic acquisition in Reliance’s history (its Rs 24,713 crore deal with the Future Group is yet to close as US-based e-commerce major Amazon has contested it).
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Reliance has shown a studied reticence to spend more than $200 million, or about Rs 1,500 crore, on acquisitions, mostly choosing to buy firms that are on the brink of running out of cash cheaply
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That, again, seems very unlike Reliance—to fork out a higher price for a company when its underlying business isn’t really justifying it. Why then is Reliance doing a deal where it is already beginning to look suckered?
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A plausible answer would be that Just Dial has something that Reliance wants badly enough to be willing to fork out a premium. Current and former Reliance executives who have worked on building its e-commerce business tell us that Ambani’s plans have fallen way behind schedule due to the pandemic and he hopes to use Just Dial’s organizational setup and its connect with local businesses to make up for lost time in building a business-to-business play.
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The Just Dial buy is expected to give Reliance access to a readymade backend in JD Mart, a recent addition to the Just Dial stable that enables listed businesses to directly transact with customers.
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Reliance has put together a team to examine the idea of building a marketplace with its e-commerce offerings. If and when that happens, customers will be able to buy directly from small and medium enterprises.
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Now, Just Dial boasts of an estimated 30 million listings of mom-and-pop stores as well as small and medium enterprises, and its consumer traffic is at 129.1 million quarterly unique users (as on 31 March 2021). The database is sorted by category and location, making it easier to find for customers. Nearly 90% of the listings are free; the rest pay a premium to promote themselves on the Just Dial website.
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As it stands today, a vast majority of the listings have nothing in common with Reliance’s online businesses, which largely fall into the grocery, apparel and consumer electronics baskets.
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Ambani’s vision spans SMEs, street corner shops and consumers, and aims to facilitate seamless transactions between them. He calls it his B2B2C or business-to-business-to-consumer strategy, work on which began in early 2019.
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Though Ambani formally announced the launch of JioMart at the same annual general meeting, the truth was that Reliance did not even have the software in place to handle its e-commerce business
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“Though Netmeds was acquired to get into the [online] pharmacy business, the acquisition helped more in putting together JioMart’s online piece. If you didn’t notice, it was subsequent to the acquisition that JioMart could finally kickstart its hyperlocal delivery model better,” says the Reliance executive quoted earlier.
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In its 25 years of existence, Just Dial’s turnover peaked at Rs 953 crore in March 2020. It fell to Rs 675 crore in March 2021.
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Though it has Rs 1,500 crore in cash on its books, the market has taken a dim view of its business.
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In comparison, Indiamart, which lists small and medium enterprises, is valued at more than three times as much even though its revenues are around the same as Just Dial’s.
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Over the years, analysts have questioned Just Dial’s Mani on the future of his business. They pointed out to him how the listing of restaurants on his website had become redundant after the likes of Zomato and Swiggy came along. Similarly, the listing of travel agents became redundant with the coming of the online travel portals. Services like AC repair or plumbing also got hit with the coming of the Urban Company (earlier known as UrbanClap).
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Analysts pushed Mani to move his business to an e-commerce model, a shift he was reluctant to make. Indiamart, however, embraced e-commerce as its customers (who posted listings) were mostly industrial suppliers and SMEs who had nothing to do with the consumer e-commerce sites that Just Dial competed with.
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With JD Mart, Mani also built tools that allowed business owners to quickly create their own websites with built-in payment mechanisms.
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These are some of the building blocks that are expected to be useful to Reliance, rather than the $100 million in sales Just Dial generates every year.
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After having stabilized the B2C business in grocery and staples with JioMart, Reliance now wants to focus on B2B, which has been branded as JioMart B2B.