Jubilant Food

Jubilant Foodworks has entered the capital market on 18^th January 2010, with a public issue of 226.70 lakh equity shares of Rs. 10 each, in the band of Rs. 135 to Rs. 145 per share. Of this, fresh issue is just of 40 lakh shares while offer for sale is of Rs. 186.70 lakh shares.

The company operates Domino's Pizza stores in India, with about 286 stores located in India, in 22 states and Union Territories, including in 59 cities, across the country. As stated above, 82% issue proceed will go to selling shareholders while less than 18% of IPO proceeds will come to the company, which will be largely used for repayment of loan, of Rs. 35 crores.

The paid up equity of the company, after IPO, shall be Rs. 63.62 crores, which would result in a market capitalization of Rs. 850 crores, at Rs. 135 per share. This translates into a value of Rs. 3 crore per outlet, which is definitely grossly stretched.

This is against a paltry net worth of the company, at just Rs. 35 crores, as on 30-9-09, against debt of Rs. 84 crores in the books of the company, resulting in a debt equity ratio of 2.40:1. Even, sales of the company for 6 months ending 30-9-09, was just at Rs. 183 crores with PAT at Rs. 12.10 crores, resulting in an EPS of Rs. 4.10, on an annualized basis, implying PE multiply of 33 times, at the lower band of Rs. 135 per share.

Even financial performance of the company for FY 09 was nothing great, with total income of Rs. 280 crores and PAT of Rs. 6.75 crores, resulting in an EPS of Re. 1.16 for the year. As at 30-9-09.The company had a debit balance to the P&L A/c., of Rs. 62.30 crores, being accumulated losses.

It can be concluded that an exit route is being given to PE investors, who invested in the company in 1999. Along with this, the company is also trying to raise about Rs. 50 crores, to partly retire its debts. If the promoters were unable to give the exit route to these investors, as per the terms of Investment Agreement, either it needs to have been bought back by the promoters or their stake would have been exposed and may have been used by these PE investors to recover their pre-determined price, based on formula, having specified in this Investment Agreement.

By no stretch of imagination, Rs. 3 crore per outlet is feasible, with book value per share of the company being placed at Rs. 4. However, no funds will flow to the company, out of proposed IPO, of about Rs. 305 crores. So, the company needs to achieve its organic growth from its internal accruals only, which is meager at present. Also, one outlet is not even costing Rs. 50 lakhs to the company, while, value of Rs. 3 crore is being asked in this IPO.

Considering all this, issue is steeply priced and hence not recommended for investment. It is better to use your money to buy a Domino Pizza instead.