We, Generation-next urbanites are always eager to hang out and looking out for various occasions to dine out – be it pubs, theme and upscale restaurants to satisfy our tasting buds. In midst of that we now have a company running fine dine restaurants –Mainland China, Machan, Oh! Calcutta…So just like in US which had TACO Bells, Dunkin Donuts, McDonalds etc. we too now have the companies operating restaurants.
The restaurant business is pretty simple to understand and is usually cash flow positive. This was the primary reason of evaluating whether to invest in Specialty Restaurants owning these above brands of Mainland China, Machan, and Oh! Calcutta. The company currently runs 69 restaurants and 13 confectionary stores across 22 cities in India. Mainland China, its biggest brand, accounts for 60.3% of its revenues, followed by Oh! Calcutta at 12.3%.
The company is planning to raise Rs.182 crores
•FY 11 Sales – Rs. 173 crores
•Operating Profit –Rs.38 crores (OPM of 22%)
•NPM - 9%
•Debt / equity -0.28x
•ROE – 17%
•Zero dividend
Looking at above why won’t I invest:
PE is ~40x – Given the company is only growing 40% CAGR since 5 years, it doesn’t give any significant bargain. Also, the ROE is just 17%. There are other companies available on exchanges which has +20% ROE, consistent dividend payers but still available at the cheaper rates. Also, the company said it wants to focus more Company Owned Company operated stores (COCO) instead of franshise operations. This won’t be helpful for the company as it has to divert money in expensive real estate in metros and Tier 1 cities. So 40% growth in the long-run looks somewhat far-fetched.
Yes, one may miss out on listing gains (don’t know if there will be any) but one has to know the difference between investment and speculation. So parting with the quote of Ben Graham - "An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative."
As usual, Guinea Pigs, pl do your own research
The restaurant business is pretty simple to understand and is usually cash flow positive. This was the primary reason of evaluating whether to invest in Specialty Restaurants owning these above brands of Mainland China, Machan, and Oh! Calcutta. The company currently runs 69 restaurants and 13 confectionary stores across 22 cities in India. Mainland China, its biggest brand, accounts for 60.3% of its revenues, followed by Oh! Calcutta at 12.3%.
The company is planning to raise Rs.182 crores
•FY 11 Sales – Rs. 173 crores
•Operating Profit –Rs.38 crores (OPM of 22%)
•NPM - 9%
•Debt / equity -0.28x
•ROE – 17%
•Zero dividend
Looking at above why won’t I invest:
PE is ~40x – Given the company is only growing 40% CAGR since 5 years, it doesn’t give any significant bargain. Also, the ROE is just 17%. There are other companies available on exchanges which has +20% ROE, consistent dividend payers but still available at the cheaper rates. Also, the company said it wants to focus more Company Owned Company operated stores (COCO) instead of franshise operations. This won’t be helpful for the company as it has to divert money in expensive real estate in metros and Tier 1 cities. So 40% growth in the long-run looks somewhat far-fetched.
Yes, one may miss out on listing gains (don’t know if there will be any) but one has to know the difference between investment and speculation. So parting with the quote of Ben Graham - "An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative."
As usual, Guinea Pigs, pl do your own research
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