Motilal Oswal neutral on Jubilant Foodworks

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Motilal Oswal neutral on Jubilant Foodworks

Motilal Oswal has maintained neutral rating on Jubilant Foodworks with a target of Rs 875, in its February 10, 2012 research report.

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Motilal Oswal has maintained neutral rating on Jubilant Foodworks with a target of Rs 875, in its February 10, 2012 research report.

"Jubilant Foodworks, same store sales (SSS) growth at 30.1% is healthy, especially considering the environment of high inflation and pressure on growth in discretionary categories. Same store orders grew 23-24% (20% in 2Q) with ticket size growth of 6-7% which is indicative of inferior sales mix and cutback in order size as price increase has been ~12-13%. Price hikes led to 100bp QoQ pick up in gross margins; operating leverage led to 80bp QoQ and 120bp YoY EBITDA margin expansion; higher other expenditure (up 90bp) is due to higher branding expenses to compensate for the weak operating environment and provide for the faster store rollout (28 stores in 3Q v/s 33 in 1H)."

"JUBI has increased its FY12 store opening target for Dominos to 85 (80 earlier). For FY13, a store rollout of less than 75 stores looks unlikely. SS orders growth has been in the ~20% range over the last 2 quarters and is unlikely to accelerate from these levels in the coming quarters as we approach 4Q FY12 and 1QFY13 which have very high base due to Cricket world cup and IPL. The company has mentioned that some weakness in consumer demand is visible; we believe this increases the risk for slowdown in SSS growth in Dominos."

"SS volume growth has been in the ~20% range over the last 2 quarters; we do not expect acceleration from these levels in the near term. The company has mentioned that some weakness in consumer demand is visible; we believe this increases the risk for slowdown in SSS growth in Dominos and slower acceptance of Dunkin Donuts in initial launch year. We raise our estimates by 4-8% for FY12E and FY13E to factor 1) higher store openings from 80 to 85 in FY12 and 70 to 75 in FY13, 2) higher operating leverage and consequent improvement in EBITDA margin. Our revised EPS estimate is INR16 for FY12 (INR15.4 earlier) and INR24 for FY13 (INR22.2 earlier)."

"We remain positive on the QSR growth opportunity and strength of Dominos brand and USP in delivery based own store model. We remain uncomfortable with valuations of 64.5x FY12E and 43x FY13E EPS. Neutral," says Motilal Oswal research report.  

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To read the full report click on the attachment