Jubilant Food Works the owner of Dominos Pizza India has come up with its IPO to raise around 300 crore rupees with the purpose of
- Repayment of Loans, and
- General Corporate Purposes
Thus, not using the IPO money for any substantial growth purpose, but the promoters just wants to en cash an opportunity to mint money in this IPO frenzy.
Jubilant operates its pizza delivery stores pursuant to a Master Franchise Agreement with
Domino’s International, which provides it with the exclusive right to develop and operate
Domino’s pizza stores and the associated trademarks in the operation of pizza stores in
India, Nepal, Bangladesh and Sri Lanka. This provides the ability to use Dominos’ globally
recognized brand name, as well as operational support for pizza and food technology,
commissary & logistics management support, global marketing and vendor development
know-how. Some facts regarding the company are
- As of November 30, 2009, Jubilant operated 286 stores in India located in 22 states including 59 cities and through a sub-franchisee
- On average, 1.81 million pizzas, including add-ons were sold each month throughout its pizza stores in India in FY09 and for the six months period ended September 30, 2009, 2.46 million pizzas (including add-ons) were sold each month
Despite the company being in a growth segment is faced with too much of competition from players like Pizza Hut, Papa John's and other local/regional food joints, because of which the margins remains subdued.
At INR145.00 the upper end of the price band, Jubilant is priced at 34.8x times of its FY2010 Diluted EPS of Rs4.16. However, based on FY09 Diluted EPS, it is at a P/E of 125x at the upper price band. This is much higher compared to the other global listed players like Domino’s (US), Papa John’s and Mcdonald’s.
Hence, I strongly believe that a retail investor should avoid subscribing to the IPO as it is an highly expensive offering and the application from the anchor investors (Not completely subscribed) front clearly highlights this fact.
