Last night I was looking over the recently concluded IPO launch of Speciality Restaurants a.k.a. Mainland China. From the front, it immediately reminds you of Jubilant FoodWorks a.k.a. Domino's Pizza and it bullish run in past two years. Speciality Restaurants owns a number of other brands too like Oh!Calcutta, Bengali Sweets, Flame n' Grills etc. They have disclosed their statements from 2009 to 2012.
What's notable about the statements is the massive expenditure on fixed assets. The expenditure on fixed assets grew by 5 times from 2009 to 2012, while the sales only grew 3 times during the same period. Return on Capital Employed (RoCE) is 25%-40% for the past two years. Operating Cash Flows are good.
Whatever the money they're raising from IPO, its meant to aid their expansion and further expenditure on fixed assets. Being in the fine dining sector, its understood they need heavy expenditures on interiors which makes it different from Jubilant FoodWorks. The expenditure on fixed assets is suppose to continue further into the future, which is going to be a drag on RoCE.
Current valuations are high with the company trading at a PE of 33 with massive expenditures still to go on, through growth rate over the past financial year is close to 50%.
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