Stock Review: Jubilant FoodWorks

THE stock of Jubilant FoodWorks' has given handsome returns since its listing on the bourses in February. It has more than doubled in six months on account of strong financial performance in the first half of FY11. Though the fundamental growth story remains intact, its valuations look stretched.

   Jubilant is the leading player in the organised Indian pizza market, with a market share of about 40%; the share is 65% in the pizza delivery segment. It has the master franchise agreement with Domino's International for India, Nepal, Bangladesh and Sri Lanka. Jubilant follows a same-store sale growth strategy and is focused on penetrating further in cities where it is already present and in new cities. It has over 300 stores in about 75 cities across India.

   In the first half of FY11, Jubilant's same-store sales grew by 41% compared with 14% in the corresponding half of FY10. The higher operating leverage has benefited the company, as evident from the strong results in the fiscal's first two quarters. In the first half, its net sales increased by 63% and net profit by 200% mainly due to the lower base. Currently, the operating margin is at an all-time high of 18.3%. This may be why the stock commands a price-earning ratio of 68.

   Jubilant's valuations seem to be based on an aggressive growth forecast for the next couple of years. The company has delivered triple-digit growth in FY 10 as well as in the half year ended September 2010. Its growth in the previous periods, however, was not impressive. The stock is trading at about . 584, which translates into a trailing 12-month P/E of 68. Considering a two-fold jump in its earnings in the next 12 months, its one-year forward P/E stands at over 33. The socio-economic factors in the country favour consumerism. Also, Jubilant's strong management, investment in brand-building and human resources are likely to lead its growth. But, its current valuations look expensive for the medium-term of one to two years.