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JPMorgan, IPEF To Exit In Jubilant Foodworks IPO

20 October, 2009

JP Morgan and India Private Equity Fund (IPEF), a joint venture between Chase Capital Partners and Oppenhiemer, who together hold 31% stake in Jubilant Foodworks–the master franchisee that operates Domino’s Pizza chain in India– are exiting their decade-old investment through share sale in a public issue. This would be one of the few IPOs in the country which has been necessitated by the desire to exit by the existing PE investors.

This will make it the first restaurant chain in the country to be traded publicly.

As per VCCircle calculations, the two financial investors are hoping to pocket 3x returns for their 10-year-old investment of around Rs 55 crore ($12.5-13 million) that was spread over three tranches.

Jubilant Foodworks is coming up with a proposed issue with 22.67 million shares comprising fresh issue of 4 million shares and offer for sale by IPEF and Indocean Pizza Holdings(JP Morgan investment entity) cumulating to 18.67 million shares. Kotak Mahindra Capital is managing the issue which would translate into IPO worth close to Rs 200 crore (including the shares on sale).

The Delhi-based Bhartias owns close to 67% stake in the company. 

The company, which operates over 270 Domino’s Pizza fast food outlets in the country, is looking at raising over Rs 35 crore for prepayment of term loans besides other corporate purposes. However, the main reason for the issue is to provide an exit route to PE investors that include JP Morgan. It has been, reportedly, looking to sell the stake but has not been able to find a buyer at the valuation it wants.

Besides being a PE-backed IPO, the issue will also be one of the biggest in terms of quantum of stake on offer. The issue will comprise as much as 35% of post issue capital. Besides promoters and existing employees, the company counts amongst its shareholders former CEO Arvind Nayar, who holds close to 2% of the company after conversion of options into equity.

Domino’s Pizza competes with Pizza Hut and Papa John’s in the pizza space and McDonald’s and KFC in organised fast-food market in India. For the year ended March’09, it had net sales of Rs 280 crore with net profit of Rs 6.7 crore. For the quarter ended June’09, it had revenues of Rs 85.5 crore with net profit of Rs 4.1 crore.

Last year, the company opened 60 stores and plans to add another 70 stores this year to consolidate its position. In the next 18 months, the company is aiming to hit 440 stores to become the fourth-largest business outside Domino’s US operations.

Given that the firm is looking to raise over Rs 35 crore through the fresh issue of shares, it could be eyeing a valuation of around Rs 88/share. According to our estimates, the PE firms had invested at an average cost of Rs 30/share and they could be looking to churn close to 3x returns in the 10-year period. The two investors could pocket Rs 165 crore together against the estimated investment of Rs 55 crore.

There has been a slew of PE deals in the limited organised restaurant and fast food chain business in India. IHC had acquired Mars Restaurants and SkyGourmet Catering and SAIF Partners had picked up 20% stake in Mainland China.

Malaysian private equity firm Navis Capital has been looking to partially exit from Delhi-based restaurant chain Nirula’s for over a year now, but the transaction has been delayed due to a similar issue of big difference over valuation.


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JPMorgan, IPEF To Exit In Jubilant Foodworks IPO

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