Jubilant Foodworks IPO – Valuation
As we all know by now, Jubilant Foodworks is the company behind Domino’s pizza stores in India. The company is the largest pizza chain in India and one of the fastest growing multi-national fast food chains between 2006-2007 and 2008-2009, in terms of number of stores.
Strengths
The company is market leader in the organized pizza home delivery segment in India with over 65% market share. Due to favourable demographics, rising income levels, growth of middle class, increase in urbanization and nuclear families and increase in number of working women, the company’s growth prospects are encouraging.
Weaknesses
The company is present in food industry, which uses agri commodities as raw material. Most ingredients used in pizza and side dishes, including cooking oil, flour, cheese, meat products and vegetables, are commodities and therefore subject to price fluctuations as a result of seasonality, weather, demand in local and international markets and other factors. This may affect the company’s margin and bottom line. The Company has accumulated loss of Rs. 62.31 crore on September 30, 2009, which has resulted in erosion of a substantial portion of net worth. Pre-issue book value as of Sep 2009 is just Rs 5.88.
Valuation
The company has shown very sharp growth for the half year ended September 2009. Its net sales stood at Rs 182.47 crore for the half-year ended September 2009 whereas the company had recorded the sales of Rs 280.16 crore for FY09. The margin has also improved to 16.1% compared to 12.5% in FY09. The company’s net profit for the six months ended September 2009 is Rs 12.10 crore compared to Rs 6.74 crore for FY09. At the issue price of Rs 135 – 145, on the EPS of Rs 1.1 for FY2009, the PE works out to 123 to 132 times. However P/E on annualized first half EPS of Rs 3.8, works out to 35 to 38 times.
Source: capitalmarket.com
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