Thread by @Random_Gyan

1/N

Indian Investors have converted this famous WB quote to buy “quality” at any price! IMHO this is one of the costliest incidences of Chinese whisper!!!!!

However today I look at #Jubilant FoodWorks which appears to be a fair company at absurd valuations

2/N

My observations basis limited history of 10 yrs

Positives
•Remarkable past execution (30 mins delivery)
•Excellent historical growth
•Great Return Ratios (ROCE, ROE)
•Reasonable growth expectations going forward

3/N

Negative

•Doesn’t own the brand!! (Risk of dispute not factored)
•Questionable Promoters (Tried to extract a royalty for using the “Jubilant” brand. This for a co. which pays royalty to use #Dominos brand!!)
•Growth Slowdown (from ~40% to ~15%)
•Decline in return ratios

4/N

Disruption Risk- Earlier hardly any restaurants delivered. However post swiggy and Uber Eats the biggest USP for Jubilant is challenged

Constant Promoters selling– From 61% in Sept’10 to 57% Sept’12 to 50% in Sept’14 to 45% in Sept’16 to 42% in Mar’20 (Makes you wonder)

5/N

Scenario analysis, assuming they manage to deliver 12-18% earnings growth over the next 10 years over 2019 NP (Peak Margins) assuming 1800/- as entry price

Conclusion

For a co. with no brand ownership, questionable management, <20% growth, 8-12% expected IRR over the next 10 yrs in the best case, investors are willing to pay ~60x FY22.

Highly unfavourable Risk Reward!!

It needs to fall at least 40% to merit a 2nd look.