Sell Jubilant FoodWorks; target of Rs 420: Emkay

Emkay's research report on Jubilant FoodWorks

JUBI is up 10% over the last 1 week. Our channel checks indicate considerable pick up in order growth for Domino’s in Apr-24 and continued traction should help it deliver a low-to-mid-teen topline growth in FY25E (vs. 5-6% in FY24E). Initiatives such as free delivery (for order value >Rs149), a 4-course meal at Rs99, and loyalty program (cheesy rewards) are likely to propel this order growth albeit at the cost of a single-digit decline in bill-size.

Outlook

In our view, the gross-margin impact of the delivery waiver could be partially or fully offset by operating leverage on fixed expenses (employee costs, rentals, etc) and by gross-margin gains from the new Bangalore commissary (Exhibit 1). Though we do not see much scope for increase in Street estimates, the growth revival phase should drive a 15% re-rating, in our view. Given the sustaining trends, there is 30% upside to our TP, but we remain conservative for now. Faster expansion for Hong’s and better traction in DP Eurasia hold potential upside.