Jubilant Foodworks Ltd. (JFL) is entering capital markets with an initial public offering (IPO) of 22,670,447 equity shares of Rs. 10 each with a price band of Rs. 135- 145 per share, on January 18, 2010. The company is going to raise upto Rs. 3,290 mn through this issue. The offer comprises a fresh issue of 4,000,000 equity shares by the issuer and an offer for sale of 18,670,447 equity shares by the India Private Equity Fund (Mauritius) and Indocean Pizza Holding Limited. The offer comprises of a net offer to the public of 20,403,403 equity shares and a reservation of 2,267,044 equity shares for subscription by eligible employees, at the offer price. The offer shall constitute 35.63% of the post-offer share capital of the Company. The promoters' shareholding will be reduced to 62.1% post issue.
In the Indian market, there are no comparable listed companies with the same business as JFL. However, at the international level, when we compare JFL with Domino’s UK and Australia, we find that, at a price band of Rs. 135-Rs. 145, the Company proposes an EV/EBITDA for FY11E of 14.1x and 15.1x as against the average EV/EBITDA of 11.6x of its international peers. This in our view is a justified premium as the Asian markets provide high growth prospects to JFL as against the highly penetrated and highly competitive organized food retail markets of UK and Australia. As per our estimates, JFL has a strong revenue growth trajectory of 29.5% for FY09–11E whereas its international peer offer an average CAGR of 10.2% for the same period. Moreover, with the partial prepayment of its debt obligations from the proceeds of the issue, JFL would be able to transfer the expected top-line growth to its bottom line and thus, improve its net margin position as well.
We have arrived at a target price of Rs. 154, by using the DCF method (WACC: 12.6% and Terminal Growth 5%), which offers an upside of 14% and 6% over the lower end and the higher end of the price band, respectively.Thus, we recommend investors to Subscribe to the issue.
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