A stock out of nowhere propelled to new highs today (ok, technically anything is a new high for a freshly listed stock). A 58% listing gain saw Jubilant Foodworks close at 229 today: (HT: @prashantsolanki)
A spectacular debut by Jubilant FoodWorks, which runs the Domino’s Pizza chain in India, on the bourses on Monday has come as a welcome break for a market spooked by a string of subdued first-day performances by companies newly listing their scrips. At the end of the day Jubilant Food-Works was valued at Rs 1,456 crore which compares favourably with the $622 million (around Rs 3,000 crore) market cap of the New York Stock Exchange-listed Dominos Pizzas Inc on Monday evening. The Rs 330-crore IPO proved to be an exception to most recent issues, as it offered hefty returns to investors on the first day of listing.
You would think this was a little shady, because Jubilant has 286 stores in India and, er, the US company is 8,000 stores. Jubilant is only a franchisee and can’t do a thing other than what it’s got agreed with Dominos. They’ve made about 12 cr. in the first 6 months of this financial year, on a turnover of about 182 cr. – a margin of 5 to 6%. With the 6cr. shares outstanding the Earnings per Share was about Rs. 4 (annualized) and at the current price, the P/E ratio is 55.
With 6 crore shares outstanding, and most of the IPO proceeds (nearly 80%) going to existing shareholders, the company wouldn’t have benefited much. Only 40 lakh shares would be a fresh issue (of an issue size of 2.2 cr. shares) – which at a price of Rs. 145 would have raised only 58 crores.
It’s a low margin business; Even with the fresh cash they are unlikely to earn a lot more. As Deven Choksey says, this is a stretched valuation by most means. The stock should go down, though I don’t know when. Classic Pump-and-dump, don’t get caught.