The franchisee owner of Domino’s Pizza and Dunkin Donuts in India on Thursday bought 10.76 per cent in Barbeque Nation for Rs 92 crore but analysts say that the stock price gains may be capped because of recent surge.
Barbeque Nation is planning to raise Rs 1,000-1200 crore through an initial public offer soon. “New forays may not be ROCE (return on capital employed) accretive in the near term but would create long-term value given growing out-of-home food consumption,” said Ritesh Gupta, analyst, Ambit Capital. “However, recent stock run-up leaves no upside through Jubilant may continue to trade at a rich valuation given strong earnings growth and high post-tax ROCE.”
The consensus estimate of 27 analysts suggest a 12-month target price of Rs 2,437 as against the current market price of Rs 2,794.
Last month, Jubilant Foodworks expanded its platter by foraying into the biriyani segment under the brand name — Ekdum! and opened three restaurants in Gurugram. Biriyani is among the most ordered food items on digital platforms in recent years. About 44.3 lakh orders were placed on Zomato while 5.5 lakh orders were placed on Swiggy during the Covid-19 lockdowns.
“Jubilant is confident that the proposed investment will create value for shareholders in the long run,” said Kaustubh Pawaskar, analyst, Sharekhan. “Recent initiatives of biriyani and Chinese food provide opportunity for the company to grab a large pie in the QSR space and augur well from long-term perspective.”
The Jubilant stock, which rallied 18 per cent in the last three months and 60 per cent in the last six months, is currently trading 33 times its book value, or 71 times its FY22 estimated earnings. The stock has always been traded at rich valuations as the company has delivered a profit growth of 22 per cent CAGR over the last 5 years with a return on equity (ROE) three-year track record of 25.3 per cent.