Domino's IPO set the benchmark for others

Jubilant Foodworks (JFW) is the first master franchisee to go for releasing IPO in India. Since then the company has fared quite well in the share market sending a positive vibe to QSR industry.

Dominos Pizza India made a scintillating entry in stock market. Listed over 10 per cent premium, it has battled back the problems that plagued other initial public offerings (IPOs) over the recent months. Triumphantly managing a huge fund of Rs 329 crore (approx) from this IPO, Jubilant Foodworks (JFW), which promotes Domino’s Pizza in India, looks forward to wide expansion plan, targeting especially tier I and tier II cities. Rs 58 crore of this amount is a fresh offer which will be pumped into the company and rest Rs 271 crore is an offer for sale from existing PE Investors invested about 10 years back. While explaining the reason for IPO, Mr Ajay Kaul, CEO, Jubilant Foodworks comments, “This gives the PE investors an exit route and a fair valuation as determined by the market. The IPO also opens more avenues of funds raise in the future in case there is a requirement for the same.”

Reasons that favoured Domino’s IPO

There is a lot of space to grow for QSR industry in India, which is clear from the fact that the organised food industry forms just 12-13 per cent of the total food market, while the niche market of pizzas and pastas form 2 per cent. Recently Domino’s launched its 300th store in Delhi which was also 9000th store worldwide.

JFW has been catering to an ever-larger share of the Indian mindset. Its volume and sales have increased from 9 million pizzas in FY07 to almost 22 million in FY09. The cherry on the top is represented by the almost 50 per cent growth in net profits.

Expert opinion

Experts have the opinion that post-IPO the funds that would be available would be majorly used for expansion for the companies well being.  “The QSR formats of low-price denominations did well during the global recession and the Indian slow-down at large. Those that occupied the higher peg on prices experienced the loss. In India, the food and beverages business is a killer-business that offers longevity and protected profit lines in the medium term future of 6-8 years”, says Harish Bijoor, Brand-expert & CEO, Harish Bijoor Consults Inc. Are others going to follow suit? Mr N V Sivakumar, Leader-Retail Practice, PwC, expects more participation of QSRs in IPO. “The past few months have witnessed increased transactions activities from retail organisations (E.g., IPO listings, acquisitions, etc.).  This steady increase in acquisitions and related transactions “buzz” suggests improved business/market sentiment and increased confidence in capital markets.  Given this, we believe that there is an increased likelihood of retailers embarking upon IPOs,” he explains.