The company that is known for Dominos Pizza has posted yet another strong quarter with good sales and profit numbers. Yet, the stock price is quoting at premium valuations. Is it worth it?

We had written about Jubilant Foodworks in our Moneylife issue dated 19 April 2012 (http://www.moneylife.in/article/jubilant-foodworks-good-spread/25344.html). The company, which has the rights to use the Dominos brand name in India, has reported 39% year-on-year (y-o-y) increase in net sales for the quarter ended December 2012. It reported net sales  of Rs385.15 crore when compared to Rs277.05 crore for the corresponding period last year. Its net profit, likewise, jumped 27.9% y-o-y to Rs37.70 crore for the reporting quarter. The good results were attributed to cost efficiencies, continued preference as well as a reflection of changing tastes in Indian consumers, with increased preference for westernised fast foods.
 

A deeper insight into the Moneylife database reveals something more about Jubilant Foodworks. This is not a one-off quarter but it has been piecing together one consistent quarter after another. Its net sales has been very strong, with its three-quarter y-o-y growth rate at 42%. Even the operating profits were steadily in double-digit territory and did not show a single decline since we started tracking the company. Its three-quarter y-o-y growth rate at 35% while December 2012 quarter, operating profit grew 30%. However, there’s one catch—according to our database, the company is pricey, with its market capitalisation quoting at near 30 times its operating profit. This means the market expects the company to rapidly expand and open more new stores. Likewise, its return on networth is an astounding 62%.
 

During the quarter, the company opened 37 new stores and the total stores stood at 552 at the end of December 2012, higher than the 439 stores it was at the end of 2011. Now it is present in 118 cities and expanded to tier-II and tier-III towns such as Guntur, Navsari, Ankleshwar, Ambala and Tumur, to name a few. Same store sales growth during the December 2012 quarter was 16.1%. Same store measures how stores are doing excluding new stores to enable comparisons. Since the launch of its online ordering system, its delivery to sale was an impressive 14.6% while telephonic ordering was steady growing at 10.2%.
 

It has also launched new pizza products, including the Cheesy Boloroni Pizza, which is a mix of veg bolognese sauce and macaroni, as well as Taco Indiana, a sidedish blending Mexican and Indian flavours. Apart from selling pizzas, it has now started venturing into doughnuts. It has licensed the Dunkin’ Donuts brand and has launched eight stores as of 10 January. The company plans to roll-out 80-100 Dunkin’ Donuts stores in India.

The company has a 62% market share in the organised pizza market and 70% share in the pizza home delivery segment.
 

Commenting on the good results, Ajay Kaul, CEO, said, “I am pleased to announce that Q3 has been a promising quarter where we delivered sustained progress. It continues to be a period of action, relentless focus and strong execution. The business objectives pursued were to diversify the product range and above all to win new markets for both our brands.
 

The price of Jubilant Foodworks on Bombay Stock Exchange (BSE) was Rs1,040.75. The price has crashed since we had written about it last year but the market is still giving it premium valuations (http://www.moneylife.in/article/jubilant-foodworks-good-spread/25344.html). We had suggested that Rs900 would be an ideal price.