Should you sell shares of Domino’s operator now that Zomato is going public?

By Angel Broking | Published on 16th July 2021 | 31

Should you sell shares of Domino’s operator now that Zomato is going public?

Market observers appear to have differing opinions in relation to Zomato IPO.

While some view it as an ideal alternative to a traditional tech startup, there are others who think that it’s priced too high. However, at the same time, there are some individuals who are waiting to see how this IPO performs.

With India’s first online food aggregator going public, many investors are wondering whether they’d benefit by selling their stake in Jubilant FoodWorks.

After all, the Noida-based company controls operations of the Domino’s Pizza chain in India. Jubilant has been quite successful in terms of profitability and has a proven track record that speaks volumes. Accordingly, it has been able to fend off the growing popularity of online food-ordering platforms like Zomato.

So, should investors sell shares of the Domino’s operator? One must look at various factors like the past performance of the stocks to arrive at a decision.

Jubilant FoodWorks’ performance in the past two years

Jubilant FoodWorks stock has doubled over the last two years. At the time of writing, this stock trades at Rs. 3,109.65 per share.

Nevertheless, what might be concerning for some investors is that this company’s growth rate is on the decline. Jubilant’s CAGR has dropped to 13% between FY15 to FY20, whereas it was 38% in the preceding five years.

Market observers believe that this sharp fall in growth rate has materialised owing to or despite the rapid expansion of operations. The company is a leader in terms of market share in the QSR pizza space having a 78% market share. Also, it operates through more than 1350 stores in India. However, there appears to be no scope to boost its same-store growth.

Jubilant largely benefited owing to the first-mover advantage of Domino’s Pizza chain. However, since the company has been late in exploring other food categories, it might have to make significant investments to boost brand building and facilitate store expansion.

The company has been undertaking measures actively to increase its growth rate, for example, acquiring the rights to provide food under the Popeyes brand. That said, it has not been able to be as successful as Domino’s. Accordingly, this has impacted the margins of this company directly.

Besides these, investors must consider the following aspects:

  • The year-over-year increase in costs for long term projects
  • Mutual funds decreased shareholding in the past quarter
  • Book value per share has decreased over the last two years

That said, investors must also look at the strengths of the company. Let’s find out what they are:

  • The company has no debt
  • Net cash flow from operating activity has improved in the last two years
  • The stock is trading near a 52-week high

Bottom line

With Zomato IPO attracting so much attention from investors right now, it’s crucial that individuals consider various factors mentioned above before making a decision. Also, investors must ensure to check Zomato IPO details, strengths, weaknesses, etc., of the company before parting with their savings.

 

Frequently Asked Questions

  1. What is the market capitalisation of Jubilant FoodWorks?

Currently, Jubilant FoodWorks has a market capitalisation of Rs. 40,979 crore at the time of writing.

  1. What is the lot size of Zomato IPO?

The maximum lot size for Zomato IPO is 195 shares. Also, investors cannot bid for more than 13 lots.

  1. How can investors apply for Zomato IPO?

Investors can apply for Zomato IPO through a broker. Or, they can use the net banking services provided by banks. Nevertheless, it is imperative for them to note that their application must be backed by an ASBA form.