Jubilant Foodworks, the franchisee for Dominos Pizza in India, enjoys a valuation far higher than that of the company whose pizzas it sells. Investors are willing to fork out a hefty premium for Jubilant’s shares, betting the company can sustain its high earnings growth in the foreseeable future. It is also a marked investor preference for consumption shares in a volatile market contributed to the upswing in its stock price.
Analysts, however caution that at some point, high inflation will start hurting consumption. And when that happens, overpriced consumption stocks like Jubilant may take a beating.
As seen from the chart, Jubilant Foodworks’ market-cap since listing is almost neck-to-neck with its parent company Domino’s Pizza listed on the New York Stock Exchange. After some number crunching, we discovered that Domino’s Pizza has 4898 stores in the United States, that’s 10 times more than its Indian subsidiary’s 465 stores. Its US counterpart also clocks in revenues which is 5 times higher. The parent company is trading around 18 times (P/E), trailing its twelve months earnings while Jubilant is currently trading at 73 P/E.
Already, many analysts have turned cautious on Jubilant Foodworks after it reported its fourth quarter earnings, saying that growth was likely to moderate because of growing competition.