Investor fad for the Indian consumption story is captured in Jubilant Foodworks, a Domino's pizzas franchisee, being valued at almost the same as the US owner of the brand with ten times the revenues, raises concerns of irrational exuberance over growth.
Last week the stock market value of Jubilant touched a peak of $1.4 billion or Rs 6,190 crores, making it the most expensive popular consumer goods stocks at more than 50 times its future earnings. This compares with a market value of $1.5 billion for the New York Stock Exchange listed Domino's Pizza Inc. that owns the eponymous brand. Jubilant's market value was $890 million on December 31, 2010.
"Jubilant's current valuations are exorbitant," said A. K. Prabhakar, senior vice president-equity research, Anand Rathi Financial Services. "Even if the company adds two or three more brands, these valuations will still be expensive."
Jubilant's sales in fiscal 2011 was $150 million and net profit was $15.94 million. Domino's revenue last year was $1570 million and net profit $87.9 million. The key differentiator between the companies is the zero debt status of Jubilant and a long term debt of $1.5 billion for Domino's, according to Bloomberg data.
Jubilant shares fell 5.3% on Monday to close at Rs.817.30.
An email sent to Jubilant's chief financial officer Ravi S. Gupta seeking the company's comment for the story was not answered.
Consumer focused companies such as Jubilant are targeting India's growing food services market, which is estimated at around Rs70,000 crore, of which organized food chains form 10% of the business. Investors are betting that organized food chains would capture 20-25% of this market over the next five years as urbanisation gains momentum and income levels rise.
Jubilant, which sold shares at Rs. 145 apiece in an initial offering in February 2010, had 378 stores on March 31. It is a leader in the organized pizza market with a 50% share, and 70% share in the Pizza home delivery segment in India, according to its website. It has exclusive rights in Sri Lanka, Nepal and Bangladesh.
The company, which currently sells Domino's pizzas and add Dunkin' Donuts from next year, is valued at over 51 times 2011-12 estimated earnings of Rs16.9 per share compared, with consumer goods sector's price to earnings of 26 times. Jubilant shares have gained almost 40% this year compared with an 8.6% drop in the benchmark Sensex.
"There is no logic to such valuations even though India's consumption story remains robust," says SP Tulsian, a Mumbai-based independent investment advisor. "The cost of setting up an outlet is about Rs. 60 lakh and at the current sales volumes, the company should not be valued more than Rs3 to 4 crore per store." Current valuation works out to Rs. 16.37 crore a store.
http://economictimes.indiatimes.com/news/news-by-industry/cons-products/food/jubilant-foodworks-valued-almost-at-par-with-dominos-pizza-inc/articleshow/9109877.cms
Last week the stock market value of Jubilant touched a peak of $1.4 billion or Rs 6,190 crores, making it the most expensive popular consumer goods stocks at more than 50 times its future earnings. This compares with a market value of $1.5 billion for the New York Stock Exchange listed Domino's Pizza Inc. that owns the eponymous brand. Jubilant's market value was $890 million on December 31, 2010.
"Jubilant's current valuations are exorbitant," said A. K. Prabhakar, senior vice president-equity research, Anand Rathi Financial Services. "Even if the company adds two or three more brands, these valuations will still be expensive."
Jubilant's sales in fiscal 2011 was $150 million and net profit was $15.94 million. Domino's revenue last year was $1570 million and net profit $87.9 million. The key differentiator between the companies is the zero debt status of Jubilant and a long term debt of $1.5 billion for Domino's, according to Bloomberg data.
Jubilant shares fell 5.3% on Monday to close at Rs.817.30.
An email sent to Jubilant's chief financial officer Ravi S. Gupta seeking the company's comment for the story was not answered.
Consumer focused companies such as Jubilant are targeting India's growing food services market, which is estimated at around Rs70,000 crore, of which organized food chains form 10% of the business. Investors are betting that organized food chains would capture 20-25% of this market over the next five years as urbanisation gains momentum and income levels rise.
Jubilant, which sold shares at Rs. 145 apiece in an initial offering in February 2010, had 378 stores on March 31. It is a leader in the organized pizza market with a 50% share, and 70% share in the Pizza home delivery segment in India, according to its website. It has exclusive rights in Sri Lanka, Nepal and Bangladesh.
The company, which currently sells Domino's pizzas and add Dunkin' Donuts from next year, is valued at over 51 times 2011-12 estimated earnings of Rs16.9 per share compared, with consumer goods sector's price to earnings of 26 times. Jubilant shares have gained almost 40% this year compared with an 8.6% drop in the benchmark Sensex.
"There is no logic to such valuations even though India's consumption story remains robust," says SP Tulsian, a Mumbai-based independent investment advisor. "The cost of setting up an outlet is about Rs. 60 lakh and at the current sales volumes, the company should not be valued more than Rs3 to 4 crore per store." Current valuation works out to Rs. 16.37 crore a store.
http://economictimes.indiatimes.com/news/news-by-industry/cons-products/food/jubilant-foodworks-valued-almost-at-par-with-dominos-pizza-inc/articleshow/9109877.cms