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Dear Friends,
An Indian pizza maker Jubilant FoodWorks is coming out with an IPO
next week. The company was incorporated in 1995 under the name of
Domino's Pizza India Private Ltd and later renamed Jubilant FoodWorks
in 2009. It is a food-service company, currently operating Domino's
pizza stores in India and Sri Lanka. It opened its firstDomino's pizza
store in January 1996. As of November 30, 2009, Jubilant operated 286
stores in India located in 22 states and union territories, including
59 cities across the country and through a sub-franchisee, DP Lanka
Private Limited, five stores in Sri Lanka. On average, 1.81 million
pizzas, including add-ons were sold each month throughout its pizza
stores in India in FY09 and for the six months period ended September
30, 2009, 2.46 million pizzas (including add-ons) were sold each
month.
If investors see the attached chart of Dominos Pizza Inc (DPZ) they
would understand that the company has been one of the worst performers
in last six years post its IPO. Few people know that the company
launched its IPO at 14$ in 2004 after 44 years of existence and after
6 years of listing the stock trades at 11.33$. Before I move ahead a
standard mandatory disclosure that I enjoy my slice of Dominos pizza
and I am not a victim who identifies with the unsatisfied clientele of
the company. The market cap of the parent company is around 30 billion
rupees and the enterprise value is around 2 bln$. The company is
highly indebted and I see no reasons why the Indian venture wont be
indebted in coming days. The company's financials are nothing great to
boost about. Despite the positive picture presented by JFL, there are
a good many risks. For one, with a good portion of the offer proceeds
not flowing into the company, should debt be taken on in the future to
fund expansion, it could reduce margins and constrain cash flows.
Two, JFL has an accumulated loss of Rs 62.3 crore as of September
2009, against average yearly profits of about Rs 6 crore, precluding
dividend payouts in initial years after listing.. Once losses are
written off, the company would face increased taxes, squeezing net
margins. One major factor pointed out by one research analyst is that
the Current assets, including cash, also do not cover dues to sundry
creditors. Of the capital raised that accrues to JFL, almost 40 per
cent goes towards issue expenses and general corporate purposes, which
may be varied and difficult to ascertain. If readers remember than the
company has increased the frequency of advertisements and new launches
in last few quarters. Prominent among them was the launch of
pasta,choco lava cake and the cheese burst pizza which lead to
significant one time growth in sales. I believe these factors should
not be avoided when one tries to gauge the outcome of investment over
the long term. Do note that the company might see short term gain in
coming days but the outlook on long-term gain is certainly
questionable.
Nifty has moved up 20 points YTD. In last four months it has moved up
2%. When Nifty is range bound with less volatility one can assume two
outcomes. Either the VIX moves up sharply or continues in its state of
motion as described in my previous notes. I am personally awaiting
fresh breakout or breakdown signal in Nifty. At present the MACD is
showing a divergence in daily charts, which can be termed negative. At
the same time there is no concluding evidence about the occurrence of
the anticipated event. Time wise I am anticipating an increase in VIX
along with some weakness around the Budget session.
NIFTY SUPPORT:- 5243,5170
Nifty resistance :-5276,5305
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