The share price of Jubilant Foodworks, the master franchise for Domino's Pizza, gained 6 percent intraday on May 21, as brokerage houses remained positive on the stock expecting a strong recovery after a poor March quarter.
"The industry consolidation and efforts to improve unit economics are key positives. The company's numbers for quarter-ended March were impacted due to lockdown. Credible brand positioning with trend toward food delivery should aid market share," said CLSA.
It retained “buy” call on the stock and raised price target to Rs 1,850 from Rs 1,800 per share.
Jubilant is better-positioned to leverage position to further improve its unit economics, it said.
Morgan Stanley also has an overweight rating on the stock, with a target of Rs 1,900, saying Jubliant Foodworks has superior brand perception and value proposition.
"The company has higher proportion of delivery and lower competitive intensity. The preparedness for new normal and cost control should drive speedy recovery as management sounded extremely focussed on execution," said Morgan Stanley.
While having outperform rating on the stock with a target at Rs 1,625 per share, Credit Suisse expects steep revenue decline of more than 60 percent and profit before tax loss in Q1FY21, but feels it is likely to bounce back as its a low-ticket segment.
The delivery will pick up which is its area of strength, said the brokerage, adding it cut FY21/22 earnings estimates by 2-8 percent.
Jubilant Foodworks on May 20 reported a 58 percent year-on-year decline in Q4FY20 profit at Rs 33.1 crore on revenue of Rs 909 crore that increased 4.1 percent YoY.
"Revenue growth was ahead of expectations, led by stronger growth in the January-February period. Margins were weak due to high overhead inflation, resulting in a 38 percent comparable EBITDA decline - 11 percent below expectations," said Emkay Global which has maintained buy call on the stock with a target at Rs 1,680 (revised from Rs 1,700).
Emkay cut its FY21-22 EPS estimates by 14/8 percent. "Visibility of a strong recovery remains low, however long-term benefits of reduced competition and softer overhead inflation, along with Jubilant's stronger delivery capabilities, keep us positive."
Jubilant is now covering 87 percent of the delivery area with 938 operational stores (out of 1,335) and is expected to reach 100 percent by June, said Emkay. As per management, the demand for deliveries has been improving.
"Dine-in (one-third of sales) will be impacted but increased shift in deliveries should benefit Jubilant, with its trusted brand and delivery capabilities. The fixed cost structure is high for Jubilant, but management seems to have stepped up cost-saving efforts," the brokerage said.
Initiatives on rent negotiations, flexi-hour based staff and lower ad spends, along with a decline in commodity prices, may restrict margin impact in the near-term, it added.
The stock was trading at Rs 1,579.20, up Rs 54.80 or 3.59 percent on the BSE at 1009 hours.
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