Home Markets Buy Jubilant Foodworks, target Rs 1,820: Phillip Capital

Buy Jubilant Foodworks, target Rs 1,820: Phillip Capital

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Phillip Capital (India) has given a buy recommendation on Jubilant Foodworks with a target price of Rs 1,820.

Shares of Jubilant Foodworks traded at Rs 1,241.3 around 2:45 pm on BSE on 16 May, 2019. The brokerage has set a one-year horizon for the stock to hit the target price.

March quarter highlights:

  • Jubilant Foodworks Q4FY19 same store sales growth (SSSG) moderated to around 6 per cent which, as per the brokerage, was much lower than the consensus expectations of 9-10 per cent. Management alluded unfavourable base (27 per cent SSSG), splitting of stores and some pressure in dining-in format for sub-par performance.
  • EBITDA margin expanded about 70bps year-on-year (YoY) to 17.1 per cent despite weak SSSG prints due to solid gross margin expansion. Gross margin improved nearly 175bps YoY to 76.1 per cent owing to better trade terms and conditions from Pepsi and favourable product mix.
  • The management stated that they will try to maintain gross margin at current levels despite inflationary pressure in cheese price via increasing salience of beverage portfolio, reduction in wastages and improved efficiencies.
  • Employee cost grew at much faster rate (around 20 per cent), after seeing 10 consecutive quarters of moderate inflation due to minimum wage increases in some of the key states. The company stated it is taking required steps to improve productivity via usage of analytics.

Investment rationale:

"We believe Jubilant has all levers in place to achieve high single digit SSSG (8 per cent), despite higher base (16.4 per cent in FY19) in FY20. New product launches in core pizza segment, launch of combo offers, focus on increasing railway deliveries, intervention on analytics side to further drive salience from online delivery and cricket World Cup 2019 are expected to boost the company's SSSG," said the brokerage.

The company's management highlighted that it plans to initiate some pricing action in FY20 to offset inflationary pressure in RM costs, which the brokerage believes will further add upto SSS growth.

Store Addition guidance of 100 Dominos stores is a key positive, the brokerage said. It plans to add 100 Domino stores in FY20, (added 102 stores in FY19) which reinstills confidence about long term prospects of the Pizza market.

The company plans to open atleast 10 stores for Hongs kitchen format in FY20 and at time being restrict its geographical reach to Delhi-NCR region before expanding to other markets, given its learnings from Dunkin Donuts format.

The management highlighted Bangladesh holds long term promise given latent demand, potential to deeply penetrate via value and differentiated offerings. It will also focus on ensuring full year breakeven (FY20) and getting unit economics right for Dunkin Donuts formatRead More – Source