HDFC Securities recommended buy rating on Jubilant Food Works with a target price of Rs 1405 in its research report dated July 18, 2017.
HDFC Securities' research report on Jubilant Food Works
JFL’s net revenue was up 11.5% YoY at Rs 6.8bn, higher than our expectation of 7%. EBITDA and PAT increased by 38% and 26% YoY, respectively. JFL’s strong 1QFY18 performance has delivered on time after stock was under pressure on consistent weak performances. SSG at 6.5% (our expectation 3%) was much better than -7.5/-3.2% in 4QFY17/ 1QFY17 respectively. QSR industry growth was muted, but JFL’s mgt is confident of sustaining healthy SSG, going ahead. The new CEO has been focussing on controlling store level costs, as against a focus on aggressive store expansion earlier. JFL opened only eight Domino’s outlets (net) vs. the previous average of ~35 stores in a quarter. JFL also closed eight Dunkin Donuts’ stores (net) in 1Q.Outlook
JFL is a strong player in the QSR industry, with >1,100 stores. Therefore, it commands a high valuation, despite its uninspiring performance in the past. We expect JFL’s performance to improve in ensuing quarters. We upgrade the rating to BUY from NEUTRAL, with a TP of Rs 1,405 based on 45x June-19EPS.
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