Just Dial raises Rs 327 crore, shelves IPO on weak rupee

Local search provider Just Dial has put off a planned share sale and instead raised Rs 327 crore from existing private equity investorsSequoia Capital and SAP Ventures, the company said on Wednesday. 

Sequoia, which has been an early investor in iconic companies such as Apple, Google and Cisco, led the round with Rs 305 crore in funding, its largest investment in an Indian company so far. 

Sequoia now owns around 19% in Just Dial. Other investors in the company include Saif Partners and Tiger Global. Private equity firms together own close to a 60% stake in the company that has raised Rs 580 crore so far. 

"We will file again the draft red herring prospectus and withdraw the primary component. It will only be secondary sale," Just Dial's founder and CEO VSS Mani said. The initial public offering, planned for this year, has been postponed to 2013. 

Founded in 1996 with an investment of Rs 50,000, Just Dial is India's bestknown local search provider, using the internet, phone, WAP and text messages. While it started as a telephone-based service, Mani said over 60% of queries originate from internet and mobile. The money from Sequoia and SAP Ventures will be used to expand and upgrade technology. Mani said the company is also planning to launch transactions soon, but declined to reveal details. 

While the company did not disclose valuation, industry experts said that for non-retail internet companies, valuations can go as high as 10 times the revenue while market leaders are able to command a premium over that. Just Dial clocked over Rs 260 crore in sales in 2011-12 and a profit of more than Rs 50 crore. 

"We believe Just Dial enjoys an unassailable market position in local search, developed through many years," said Shailendra Singh, managing director of Sequoia Capital. 

The shelving of the IPO, Mani said, could be attributed mainly to the falling rupee, which has lost about a quarter of its value against the dollar in just a few months. 

"The falling rupee was the real dampener," he said. "A number of foreign investors who wanted to anchor the IPO were concerned." 

Capital market activity, which is almost non-existent, also played a part, making Just Dial look at private equity funding to ensure availability of money, said Mayank Rastogi, who specialises in private equity at consultancy firm Ernst & Young. 

The funding comes at a time when private equity investments have declined drastically. 

The month of May saw the lowest amount of private equity investment in the last 12 months, with just $385 million in funding for 32 deals, according to data from Ernst & Young. In contrast, in May 2011, there were 44 deals, in which close to $1.3 billion was invested. 

Raja Lahiri, a partner at financial advisory firm Grant Thornton India, was also of the view that private equity funding is a better option for entrepreneurs in today's economic environment. "This funding could be potentially be triggered by M&A opportunities, apart from growth capital to fund organic expansion," he said