Its market capitalization last week touched an all time high of $ 1.4 billion or Rs 6,190 crores, which was 50 times more than its estimated future revenue. The firm's market value at 31 December 2010 was $890 million, which shows its exorbitant rise in the past few months. Its owner Domino's Pizza has a market capitalization of $1.5 billion on the New York Stock Exchange. Analysts believe that such high valuations cannot be justified even if the company was to add a few strong brands to its portfolio.
Jubilant Foodworks earned revenue of $ 150 million in 2010-11 and its net profit for the same year stood at $ 15.94 million. In comparison, the company's owner Domino's last year's revenue was $ 1570 million and net profit stood at $ 87 .9 million. Domino's total debt stands at $ 1.5 billion, whereas Jubilant is a debt free company.
Jubilant issued shares at Rs 145 per share to investors through its IPO in February, 2010. The stock of the company closed 2.05 percent higher on Bse on Tuesday at Rs 834.05.It is the most expensive consumer goods company and its current valuation is, more than 51 times its 2011-12 expected earnings of Rs16.9 per share, while the Price -earnings ratio of the consumer goods segment is 26.
While the Sensex has lost 8.6 percent this year, the firm has reported a gain of 40 percent in its share price. Analysts believe the firm should be valued at Rs 3-4 crore per store.
The firm's share in India's organized pizza market is 50 percent and it has a 70 percent share in the Pizza home delivery segment. It is also present in Sri Lanka, Nepal and Bangladesh. It had 378 stores as of March 31, 2011 in India. The company is set to partner with Dunkin' Donuts from next year, and it may add international coffee brand Starbucks to its portfolio, too.
India's food and restaurant service market is valued at Rs 70,000 crore, with organized food chains accounting for 10 percent of the total market. With rise in disposable income and increase in the upper middle class society, organized food chains are expected to constitute 20-25 percent of the food market in the next five year period.
In the rising interest rate scenario ,stock of consumer goods companies have outperformed the market, but stock experts believe there is little chance of further surge in these stocks, if input prices continue to rise . The all time high valuations of some consumer goods stocks leaves little room for further appreciation.
View: Our view on such companies is no different. While FMCG is an excellent sector to bank on during tough times but it is not a good idea to invest in companies where valuations are too high.