HDFC Securities is bullish on Jubilant FoodWorks has recommended buy rating on the stock with a target price of Rs 1739 in its research report dated May 16, 2019.
HDFC Securities' research report on Jubilant FoodWorks
SSG grew by 6% (26.5% in 4QFY18) vs. exp of 10.5%. Moderation in SSG was on account of a heavy base and marginal impact from splitting stores. Management is not witnessing a slowdown in the industry, rather maintains a bullish outlook. Total revenues grew by 11% as JFL opened 27 stores to 1,227 stores (93 in FY19). Ex-SSG growth was at 5% (highest in 7 quarters) as the co. shifts focus towards store openings. This time around, store openings will not deteriorate profitability as JFL focuses on quality additions (splitting in metros). We model 100 store additions over FY20 and FY21E each. GM expanded by 176bps to 76.1% driven by benign dairy inflation, PepsiCo deal and richer mix. We aren’t too concerned if food inflation returns (dairy), as the co. has enough levers to sustain/expand GM. Levers like (a)PepsiCo deal, (b) New launches of in-house beverages, (c) Richer pizza mix and (d) Modest price hike. Hong’s Kitchen (HK) in its
short tenure has received positive feedback driven by dine-in initially and lately delivery growth. HK’s listing on Zomato has a respectable rating of 3.9/5. JFL guides to open 10 stores in NCR in FY20. Management is exploring opportunities in more cuisines, with a vision of a food-tech co. with a broad portfolio of brands. Employee/rent/other expenses grew by 19/2/13% resulting in 15.5% EBITDA growth. EBITDAM expanded by 68bps to 17.1%. Recent investment in tech will aid in driving cost savings (labor, RM wastage, utilities etc), data-driven decision making and higher marketing ROI (higher conversions). We believe EBITDAM expansion is inevitable, we model 150bps expansion over FY19-21E.
JFL’s 4Q performance was mixed with modest SSG growth and healthy internals. We remain bullish on JFL, this quarter does not impair our long-term thesis. Instead, our confidence rises based on management’s commentary on (a) Initiatives undertaken in technology, (b) Reimaging stores (design, self-ordering kiosks etc.) and (c) Beefing up Domino’s menu with beverages (in-house brands). We value at 46x on Mar-21 EPS, arriving at a TP of Rs 1,739.
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