Deutsche Bank has maintained a buy call on the Jubilant FoodWorks shares after the company management clarified that Domino’s oregano packets are safe for consumption. Jubilant FoodWroks is the exclusive India franchisee of Domino’s Pizza. Jubilant FoodWorks shares were trading at Rs 1,379 on Thursday morning, up by more than 4.2%.
Shares of Jubilant FoodWorks, fell by more than 6% and closed at Rs 1,338 on Wednesday, after Deutsche Bank had raised concerns on reports of bugs being found in Domino’s Pizza’s seasoning sachets. The global bank had compared the incident to ‘pesticides in Cola’ faced by Coca-Cola and Pepsi in 2004. Further, Deutsche Bank told CNBC TV18, “Worms in pizza, reminds us of ‘worms in chocolate’ faced by Cadbury in 2003 and ‘lead in noodles’ faced by Maggi.” According to the bank, such issues can snowball into a much bigger problem if not managed effectively.
Now, Deutsche Bank has maintained a buy call on the stock with a target price of Rs 1,450. The global firm says that Jubilant FoodWorks remains a top pick in the consumer discretionary space as the industry is undergoing a cycle recovery.
Earlier this week, Rahul Arora, a resident of Delhi, posted a video on his Facebook page where insects could be seen crawling out of a Domino’s Pizza seasoning packet. Arora had ordered pizza on September 8 but it was only the next day did he notice live bugs in the oregano packets. The company had issued a statement to media saying that “we maintain the strictest hygiene and quality standards in all our products and processes,” and the company sought to “reassure” its customers that it has “thoroughly checked oregano sachets in all its restaurants and across the value chain.”
The shares have returned more than 55% in the year so far. CLSA has revised it’s target on the stock to Rs 1,900 from its earlier target of Rs 1,600. The brokerage house raised its same-store sales growth and FY19-20 EPS forecasts for the company by 6-12 per cent, while it raised the target PE multiple for the stock to 60 times from 55 times saying it is convinced that the company’s measures will yield results.