Thursday, July 14, 2011

Eww-phoria

Dropbox might have a USD 5 Bn valuation :)
Jubilant Foodworks, which holds the exclusive franchisee rights for India and other neighbouring countries for Dominos (364 stores) in addition to a new contract with Dunkin Donuts (0 stores), is valued close to Dominos' valuation (The US owner of Dominos Pizza) (USD 1.24 Bn vs USD 1.6 Bn).
Netflix is valued at USD 15.7 Bn on revenues of USD 2.4 Bn and a PAT of USD 0.188 Bn.
Facebook and Linkedin are valued at absurd levels (I hate linking every damn thing!!)

Point?

Understandings and beliefs tend to manifest themselves into eww-phoria. It is amazing how the 'promise' of growth overshadows rationality.
Jubilant Foodworks for example, is valued at USD 1.24 Bn or INR 55.8 Bn on revenues of (here) INR 6.78 Bn and a PAT of 720 Mn. The story is that Dominos is the largest pizza player in India with a 50%+ market share; the company's cash flows are wonderful due to a negative working capital which keeps growing and the new Dunkin Donuts brand will work wonders.
There is a difference between a good company and a good valuation. People tend to forget that.

Wild prediction; the stock is priced at INR 865 odd. I see the market cap eroding to at least INR 25 Bn, implying a share price of INR 385. Even if we don't reach 385, a short play ought to make sense methinks. The price is quite irrational.

This post wasn't about me giving a stock view; rather, it was about pointing out the vagaries of the market and how there are grossly mis-priced assets in many places :)
So the next time you think that the African story is a better bet than the Indian story, remember that BRK still invests primarily in the US.

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