Jubilant's dough refusing to rise

Market cap once close to franchiser Domino's, now barely a third as much; latest results and forecasts worry investors

A month after a disappointing quarterly show and a poor forecast, the shares of India’s largest organised pizza seller, Jubilant FoodWorks, are under immense pressure.

The counter, one of the top favourites of foreign institutional investors (FIIs), having held above Rs 1,000 for almost 15 months, has finally cracked and slipped decisively below this mark. The stock is close to a 52-week low at a time when its US counterpart, Domino’s Pizza Inc (to market whose products Jubilant possesses exclusive rights in India) is hitting a 52-week high.

Today, Jubilant closed at Rs 979.75 on the BSE, a fall of 30 per cent against an all-time high of close to Rs 1,400. Whereas Domino’s Pizza is trading at about $60 on the NYSE, a rise of 100 per cent over the past year.

Not long after getting listed on Indian bourses in February 2010, Jubilant’s shares surged uncomfortably higher, with a valuation at 50 times its forward earnings. At one point in time, after a year of listing, the market cap had come at a kissing distance to Domino’s Pizza Inc. In fact, market participants had then said it might overtake its parent brand’s valuation.

Today, the market cap of Jubilant, at Rs 6,396 crore, is only a third of Domino’s Pizza’s current valuation of Rs 19,580 crore ($3.4 billion).

In May, when Jubilant posted a 13 per cent sequential decline in net profit for the quarter ended March at Rs 32.7 crore, brokerage firms were quick to cut their targets. What further worried market participants was the lowest same-store sales (SSS) growth in 16 quarters, at 7.7 per cent in Q4, signifying the current poor macro situation was taking a toll on discretionary spending. This pushed the counter briefly, in intra-day trade, to Rs 988 the day after the results announcement but the stock jumped back and managed to close at Rs 1,023.

Another factor, which made market experts jittery was Jubilant’s forecast of only 10 per cent SSS growth in FY14, far lower than what the Pizza seller had in FY13, at 16.2 per cent. International brokerage firm Jefferies reduced its target price on the company to Rs 1,045 from Rs 1,119, while Kotak Institutional Equities advised clients to sell the stock with a reduced target of Rs 900, from Rs 1,000.

Despite several downgrades, the counter remained defiant and after a few days of weak trading, zoomed 14 per cent to as high as Rs 1,138 in a matter of weeks, before again losing strength. The sudden rally, which did not last long, could also be attributed to the ‘buy’ call given by foreign brokerage Citi on Jubilant, with a target of Rs 1,300.

FIIs, interestingly, for 11 quarters in a row have been on a shopping spree for the counter, irrespective of the apprehensions flagged by various market participants. After listing, barring one quarter (April-June 2010), all the others till date have seen FIIs’ rising interest in the company. According to the statistics available from the BSE, foreign institutions’ holding in the company has almost doubled since its listing from 21.09 per cent to 41.63 per cent. Ironical, as domestic institutions have almost completely vacated the counter.

Jubilant is a Jubilant Bhartia group company. It operates the Domino’s Pizza brand with the exclusive rights for India, Nepal, Bangladesh and Sri Lanka. As on March, it had a network of 576 Domino’s Pizza Stores and controls 62 per cent of the organised pizza market and 70 per cent  in the pizza home delivery segment in the country.