Jubilant Foodworks reported its q2 – 2017 and half yearly results yesterday and its stock price now trading just above Rs 1,000 per share. Is this stock worth for investments now?

Jubilant Foodworks own the Domino’s Pizza and Dunkin Donut outlets. They operate in a stiff competition environment where it is hard to grow revenues and earnings and stay competitive. This completely reflects in their quarterly results.

Total income from operations for q2 jumped up 13.28% on YoY basis to Rs 665.54 crore, earnings before taxes stood at Rs 31.95 crore and net profits stood at Rs 21. 57 crore. Cost of material, rent and other expenses are the drivers for low operating income.

Here is how the half yearly results states Jubilant Foodworks financial health:

Jubilant Foodworks 1H – 2017 % 1H – 2016 % % Difference
Revenues 1,274.46 100% 1,158.22 100% 10.04%
EBT 60.17 4.72% 73.66 6.36% -18.31%
Net Profits 40.56 3.18% 49.45 4.27% -17.98%

 

Jubilant Foodworks operates with thin margins, which makes hard to forecast its future profitability. A small rise in its cost of raw material and rent could wipe out its all operational profits today. Analysts who follow Jubilant Foodworks are expecting its 2017 profits in range of Rs 76 crore – Rs 303 crore. We are expecting its profits for 2017 to stay close to lower band. This will translates its return on equity for 2017 around 10% only.

Looking at the expectations of Rs 300 crore as profits from the analysts looks ambitious today. But also reflects the potential that this business holds. And this expectation is holding its price still around Rs 1,000 per share. We calculated its intrinsic value band for 2017 to be Rs 54 – Rs 852 per share.

Jubilant Foodworks is the investment grade company for us but when we look at the performance and range of profitability we see a massive gap between the reality and expectations. So investors who are buying this stock at this price need to be prepared to see their investments can fall down by 90%. Our funds risk profile does not permit us to take that risk.

Aziz Dodhiya is the chief investment officer for the Valueoperations funds which operates in the Indian market as an FPI (Foreign Portfolio Investor). We do not offer any personal advice to buy or sell any stocks and the views that are shared by Aziz might not incline to your personal investment strategy and this is the reason we tell you to take professional advice before going ahead with our views.