Hold Jubilant FoodWorks; target of Rs 2255: Prabhudas Lilladher

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Prabhudas Lilladher's research report on Jubilant FoodWorks

We are cutting FY21 estimates by 23% but increase FY22 and FY23 EPS by 15.2% and 25.2% and assign Hold rating to the stock. Dominos is on a path of recovery and is likely to emerge stronger from Covid 19 scenario given that 1) Sharp recovery in delivery and takeaway in July and August (110% and 154% of last year) 2) lower competition as several smaller players have gone out of business 3) closure of mall/ food court based 100 stores which have more dine in share of sales 4) Delivery charge of Rs30/order imposed industry wide is a game changer and will hep improve margins in longer term. Although near term irritants like periodic closures and inability to operate on weekends etc remain, we expect JUBI to be back n black from 2Q. We believe JUBI will have higher margins in the new age and estimate margins to expand to 27-28% given benefits of 1) delivery charge 2) exit from loss making 100 stores 3) lower lease rentals post negotiation and 4) variable manpower cost rather than just varibale cost for delivery staff. Despite near term pressures due to lower dine-in sales, foray into ready to cook segment and expansion of Hong’s kitchen can provide additional growth levers for the company.

Outlook

We value the stock at 46xFY23 EPS and arrive at a target price of Rs2255. We assign Hold rating (Under review earlier) and recommend accumulating the stock on declines for long term gains.

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