Move over Yum, Goldman sees 26% upside in Jubilant Food

Shares of Jubilant Foodworks were down 7 percent since Yum! Brandsreported Q3CY15 results on October 6. Goldman Sachs believes the correction was due to increased concerns on same-stores-sales growth (SSSG) after Yum! reported negative 18 percent SSSG in India.

October 14, 2015 / 15:03 IST

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Moneycontrol Bureau After Jubilant Foodworks was knocked off after Yum! Brands posted weak September quarter earnings, Goldman Sachs is bullish on the stock. The brokerage says recent correction offers attractive entry point for Jubilant Foodworks while tailwinds continue. It retains buy rating on the company which operates Domino's Pizza and Dunkin' Donuts has an unchanged target price of Rs 1958 per share.

Shares of Jubilant Foodworks were down 7 percent since Yum! Brandsreported Q3CY15 results on October 6. Goldman Sachs believes the correction was due to increased concerns on same-stores-sales growth (SSSG) after Yum! reported negative 18 percent SSSG in India. Yum! Brands runs quick service restaurants KFC, Pizza Hut and Taco Bells in India.

"While both are sizeable players in the Indian QSR industry, Jubilant's performance has been significantly better than Yum! India’s for the last four years. This is particularly true over the last three quarters. Jubilant's SSSG moved back into positive territory three quarters back while Yum! India’s worsened from negative 11 percent to negative 18 percent," it says in a note.

According to Goldman's estimates, long term SSSG is seen at 12 percent for Jubilant Foodworks.

Jubilant Foodworks took a price increase of 2-2.5 percent in end-Q2FY16. it states that a 2 percent change in SSSG would result in earnings per share (EPS) change of 6 percent/10 percent for FY17/FY18 and a 14 percent change in target price. "We believe downside risks to SSSG would come from lower price increases in the near term, although consumers," it adds.