Shares of Jubilant FoodWorks, the master franchise owner of Domino’s Pizza in India, surged 4.1 per cent and hit a fresh 52-week high of Rs 3,074 on the BSE on Monday after the company said it would fully acquire Netherlands-based Fides Food Systems Coöperatief U.A. via its wholly-owned subsidiary—Jubilant Foodworks Netherlands B.V.
“We wish to inform that Jubilant Foodworks Netherlands B.V., wholly-owned subsidiary of the company, has entered into a purchase agreement with Turkish Private Equity Fund II L.P. to fully acquire Fides Food Systems Coöperatief U.A. Jubilant FoodWorks Limited has also executed the Purchase Agreement as guarantor in connection with the investment obligations of Jubilant FoodWorks Netherlands B.V.,” the company said in a statement. READ HERE
Following the acquisition, Jubilant Foodworks Limited will indirectly hold 32.81 percent shares of Fides held by DP Eurasia, it added. DP Eurasia is the exclusive master franchisee of the Domino’s Pizza brand in Turkey, Russia, Azerbaijan and Georgia. It (together with its subsidiaries) offers pizza delivery and takeaway/eat-in facilities at 771 stores (568 in Turkey, 190 in Russia, 9 in Azerbaijan and 4 in Georgia as on 31 December 2020).
Noting that the deal looks promising in terms of strategic investment, the stock price may have already priced-in the positives, say analysts.
Jefferies, for instance, opines that while the deal is at attractive valuation, it raises concerns regarding volatility and bandwidth.
“DPE acquisition comes after a series of initiatives undertaken by Jubilant in the past few quarters. While diversification entails risks, overseas expansion adds to complexity given the increase in risks including related to country & currency,” it said in a note dated February 20.
That said, Jefferies believes the local team will continue to drive the business. “In addition, the quantum of investment is small and Jubilant has a net cash Balance sheet. Acknowledging our limited understanding on DPE’s operations & future prospect, valuation appears attractive and there could be potential upside should DPE be able to leverage on JUBI’s experience in India,” it added. The stock of Jubilant has surpasses Jefferies’ target price of Rs 3,050 but the brokerage has a ‘buy’ call on the stock.
HDFC Securities, on the other hand, has ‘reduce’ rating on the stock with a target price of Rs 2,500.
“Considering its strong FCFs, reinvestment spree was always on cards, which is why the stock has seen this rerating. Capital allocation is a more critical aspect as we have noticed that many companies have de-rated after wrongly allocating capital. Considering DP Eurasia will continue with the existing management, it would not consume JFL’s management bandwidth for operations. We continue to believe that most near to medium term drivers are priced in,” it said in a report.
The brokerage, however, likes the strategic rationale of the deal and believes that Jubilant’s attractive valuation, potential to revive loss making business, JFL’s expertise in running Domino’s, stronger global footprint, and synergy in terms of technology, sourcing adds more legs of growth in the existing business.
Kotak Institutional Equities, meanwhile, views the acquisition as a financial/strategic investment at attractive valuations with potential optionality.
“At a consideration of Rs 250 crore, valuation is inexpensive (~1X CY2019 EV/sales and ~8X adjusted EV/EBITDA). JUBI would drive structural improvements through board-level engagement (no role in operations; no drag on management bandwidth). We view this as a strategic investment at attractive valuation with potential,” it said. The brokerage has ‘buy’ call on the stock with a target price of Rs 3,150.