New F&O additions

National Stock Exchange (NSE) will add 8 new stocks to its Futures & Options (F&O) list. It has not announced the exact date of inclusion. Stocks to be included are Arvind, BF Utilities, Gitanjali Gems, JSW Energy, Jubilant Foodworks, TTK Prestige, VIP Industries and South Indian Bank.

All these consumer driven stocks have given great returns to investors in  the past several months. Pizza maker Jubilant Foodworks share has risen 75% in the last 3 months. Since its IPO in February 2010, Jubilant Foodworks has gained 555% from its issue price of 145. Pizza maker topline grew by 60% and bottom line grew by 117.6% in the last financial year. Company has performed well and will continue to do well in near future. But, I think upside potential is more than captured in all these consumer driven stocks. Some of them are trading at astronomical valuations.

As of March 31, Jubilant had 378 stores. Market Capitalization (M-Cap) of Jubilant as per today’s closing share price is 5385 crore. M-Cap per store is 14.25 crore. This is 10 times of US owner of the brand, Dominos which Jubilant operates in India. Pizza maker is also valued at more than 50 times of its FY11 earnings. I think its inclusion in F&O will help some sanity to valuations, since investors will be able to short the stock if they think it is overvalued. These kind of richly valued stocks normally leave a little margin of error in terms of performance. Slight disappointment in terms of sales growth or margin slippage can lead to sharp reaction. For me, it will be an opportunity in terms of writing OTM calls.


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