Chart of the day: Who pricked the Jubilant FoodWorks bubble?

Jubilant FoodWorks, once the favourite of foreign and local fund managers, has underperformed the broader and sectoral benchmarks this year.

Its stock is down 11% year to date compared with a 2% gain for the Sensex. In 2012, Jubilant had risen 70%. The stock currently trades at 49 times its FY14E earnings, one of the most expensive in the consumption space.

Increasing competition in the quick service restaurant space and a spike in raw materials is forcing many analysts to review Jubilant’s sky-high multiples. For the first time since listing in 2010, Jubilant missed its earnings estimates for January-March 2013.

This season’s bountiful monsoon and expected record foodgrain harvest is making many fund managers and analysts focus on stocks with large, meaningful rural exposure. Jubilant, with its multiple pizza joints focused on the upwardly mobile, metro crowd, figures nowhere in the picture. Leading foreign brokerage UBS recently downgraded the stock to Sell with a target price of 900, 23% discount to the current market price. It said that “valuation looks expensive and more earnings cuts are likely ahead”.

Standard Chartered too expects a few risks in the near-term. "We see severe near-term risks such as decline in consumer Sentiment, economic slowdown, delay in a turnaround at Dunkin and rise in competition from pizza and non-pizza companies."