Crude Oil : What next??

We have discussed Brent Crude on the 10th of January.


Crude Oil - Big Move

Thankfully this was not as horribly disappointing as the call on the Nifty :)
125$ has not been touched yet. But the basic directional call has been proven reasonably fine. So I thought, maybe its not a bad time to see if the call can be taken further.

   Source : Bloomberg


So ATC moves on and has managed to visualise a standard "flag" pattern. That can be seen in the white coloured parallel lines on the chart. "Flag" patterns are supposed to be consolidation moves for a previous move and the slope of the "Flag" is generally opposite to that of the previous move.


In this case that move happens to be the one from roughly 80$ to 125$ for Brent. Then we have now had a one year weekly "Flag" pattern. Brent has now broken out of the downward sloping pattern.


This would suggest Brent is headed for a substantial move, as "Flags" generally are a continuation patterns. The path of Least Resistance also suggests a move up.


But ATC suggests we watch out for the 125-126$ levels for Brent. That is where it had stopped last time. So it will probably find it a little tough to overtake that. (Unless there is Iran war tomorrow). If those levels are taken out convincingly then we might be headed for life time highs.


But technical analysis has ways to fool people and requires expert eyes. ATC surely doesnt have those. Maybe its not a bad idea to just keep seat belts ready....!! 

Pizza Mania!!

Every now and then comes a story which catches everyone's fantasy. Creates frenzy like there is no tomorrow or as if there is nothing else which is good enough to be paid attention to. I dont think it would be an overstatement if I suggest that Jubilant Foodworks is one such story.


(Disclaimer : I have tried my best as far as background work is concerned before writing my opinion/observations here. But would be grateful to readers who find out any mistake and point it out, particularly silly mistakes. They really make one look like a complete idiot. I will be really obliged.It also helps avoid future mistakes!)


For the uninitiated, Jubilant Foodworks runs a highly successful pizza store chain by the brand name, "Dominos Pizza". It has a particular focus on the home delivery business and has set new benchmarks there.
Rising disposable income, favourable demography and changing palates have helped create a story, which could not have been missed by any investor in the Indian markets, domestic or foreign.
Fantastic growth, great profitability and a raging bull market have taken Jubilant Foodworks to dizzying heights, looking eerily similar to the one time favourite technology stocks in 2000.


As I said, no investor would have been left untouched by this story and I am no exception. But writing on such a well discovered story and attracting attention will require that I come up with something that has not been discussed before, or at least I think has not been discussed before. 
I hope what I have written below is ,at least, worth the time spent in reading it!!


-   Dominos had 306 stores as of March 2010 and ended March 2011 at 378 stores. So roughly 342 stores were operational for the year FY11 on an average.If we go by the number of pizzas that were sold, as per the information in the Annual Report, it roughly comes out to a number of 300 pizzas sold per store per day. Going by the growth numbers in the first nine months of FY12, this number should roughly be around 350 for FY12.


  If the company is averaging 350, I think it would be reasonable to assume that the mature stores in cities like Mumbai, Bangalore, Delhi etc would be clocking closer to 450-500 pizzas per day on an average, with stores in smaller towns clocking lower volumes. The stores are open from 11am to 11pm. I think its fair to assume that out of these 12 hours, roughly 10 hours would constitute almost the whole volume with some part of the morning and late afternoon being really slow.


 That roughly means around 45 pizzas in an hour. Company has indicated that roughly 50% of the volumes are towards home delivery and the remaining are dine-in orders.Going by that it looks like a pizza is delivered every 2-3 minutes. So a bike moves out of the store every 2-3 minutes. If there are 2 pizzas per order, it would be 5-6 minutes. I have to say, these numbers are really fascinating and suggest how frenetic a place the store would be.And mind you, these are average numbers, the peak hours would be even more exciting!!!


And can you imagine how it will look once the store volumes grow by another 15-20% next year, which is what the company seems to be indicating right now.




-   As I have said before, Dominos specialises in home delivery and thus has smaller stores. My guess is that the average size of the stores is around 700 sq. ft. (Its a guess, if somebody has better calculations, it would help). The company paid a rent of about 53.6 cr for FY11. If we take the average number of stores calculated above, average size of 700 sq. ft., then some mathematics would conclude that the average rent paid per sq. ft per month is around Rs. 186!! (I pinch myself every time I read that number!!!) 


-  Dominos requires roughly 8 mn Rs. for every new store that they open.Given the modest interiors of a Dominos store, I think its safe to assume that it will not cost more than Rs 1000 per sq. ft. of interiors. They need to have around 25 bikes for the deliveries. So roughly Rs 7 lacs for the interiors and 8 lacs for the bikes. So about 60-65 lacs is spent on the kitchenware, which will include ovens, freezer, cutlery etc!!!  I am sure its worth that much money!!


-  The final interesting observation is the "Sundry Creditors". If we were to compare them with the "Raw Material Consumed", it turns out that they get a credit period of around 6 months!! It is called the "economies of scale"!!


Jubilant had done a successful campaign called "Pizza Mania".
With the stock trading at close to 60x P/E on FY12 , "Pizza Mania" is well and truly on!!!


Enjoy while it lasts!!! :)