Stocks

Westlife’s BigMac returns top Jubilant’s thin crust

Priya Kansara | | Updated on: Jan 20, 2018

westlife-table

Lower float, higher FII stake help valuation of the McDonald’s operator

Despite reporting better performance on same store sales growth compared to Westlife Development over the last four consecutive financial years, Jubilant FoodWorks’ shares are not rewarded as much as the former.

Shares of Westlife Development, which operates McDonald’s restaurants in western and southern markets, have given a three-year return of 10 per cent compared to 6 per cent loss in case of Jubilant FoodWorks (franchisee owner of Domino’s Pizza and Dunkin’ Donuts). In the last one year, the former has declined 20.5 per cent compared to 42 per cent reported by the latter.

170 times vs 44.5 times

Further, Westlife trades at 170 times FY17 estimated earnings in comparison to Jubilant’s 44.5 times. An analyst attributed better stock performance and high valuation of Westlife to its lower float. A lower float discourages an investor to sell the stock and hence prices remain firm.

As on March 2016, public, including mutual funds and foreign portfolio investors, held 38 per cent in Westlife compared to 51.33 per cent in Jubilant.

Further, Jubilant’s financials show the pan India picture compared to Westlife’s reflection of the southern and western markets, he added. Overall, western India has been performing better than other regions in the case of most discretionary spending items.

Jubilant FoodWorks has reported better SSSG and topline growth than Westlife. Even on the profitability front, Jubilant has done better than Westlife.

During bad times as well, the decline in SSSG for Jubilant has been maximum 6 per cent in a quarter compared to 10-11 per cent for Westlife.

Waning popularity

For now, a turnaround in the fortunes of Jubilant looks unlikely as the market is sensing an impending threat to the prospects of its pizza business.

Abhishek Ranganathan, analyst at Ambit believes that intensifying competition and quick service restaurants increasingly adopting the delivery route are weighing on the popularity of pizza.

Besides, Jubilant’s wage cost (23 per cent of FY16 revenues) could rise due to growing demand for delivery boys. This could limit the prospects of improving SSSG and margins in case of any resultant price hikes.

On the other hand, Westlife seems to be getting into better shape. Sonal Gandhi, analyst from Anand Rathi pointed out that revenue growth at Westlife is now on track and operating profit is showing signs of recovery.

The company reported a net profit of ₹2.8 crore in FY16 compared to a loss of ₹29 crore in FY15 on consolidated basis. Its cash profit (net profit plus depreciation) also jumped 148 per cent to ₹67 crore.

On Monday, the shares of Jubilant FoodWorks nosedived 7.95 per cent to close at ₹1,023.80, on the BSE.

Published on May 30, 2016
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