Hold Jubilant FoodWorks; target of Rs 3900: Emkay Global Financial

Emkay Global Financial's report on Jubilant FoodWorks

Q2 operating performance was largely in line, except for a slight miss on margins due to overhead cost inflation. However, EBITDA was 4% better than street estimates. Revenues recovered to 112% (6% 2yr CAGR) vs. Q2FY20, while margins declined 70bps YoY. JUBI added a record 60 stores net in Q2 and maintained guidance of 150-175 store additions in FY22. It indicated plans to take Hong's beyond NCR and open the first Popeyes store in FY22E. Given a strong response in new tier 3-4 cities, management sees a huge penetration opportunity in the existing and new markets. Demand trends remained positive, with the order count reaching pre-Covid levels and ticket sizes settling at higher than pre-Covid levels. Sequential softening in delivery trends, however, may pose a risk to assumptions going ahead as eat-out trends rise.

Outlook

We like JUBI's aggression and appetite for growth; however, rich valuations and lower upside to our existing optimistic estimates limit near-term upside potential. We, hence, downgrade JUBI to Hold with a revised TP of Rs3,900, based on 60x Dec'23E EPS (55x Sep'23E EPS earlier).