1. Underweight on Jubilant Foods on delayed SSS growth: Barclays

Underweight on Jubilant Foods on delayed SSS growth: Barclays

We initiate coverage on Jubilant Foodworks with an Underweight rating and a price target of Rs 1,250.

Updated: December 5, 2014 10:21 AM

We initiate coverage on Jubilant Foodworks with an Underweight rating and a price target of R1,250 (potential downside of 15%). While we expect Jubilant to benefit from an improving macro, the recovery is likely to be only gradual as we expect: 1) material same-store sales (SSS) growth recovery to be still 8-10 quarters away due to high competition, evolving customer preferences and a series of recent price hikes; 2) Jubilant has  400 new stores planned over FY14-17, which should dampen near-term returns; and 3) Dunkin’ Donuts  to remain margin- dilutive (c150-175bps over FY15E/16E) and make a nominal revenue contribution. As a result, we think Jubilant’s 35% valuation premium to peers is likely to narrow on a muted outlook (reflected in accelerating earnings downgrades, per Bloomberg consensus), and weak returns (ROIC likely to compress by 190bps over FY14-17e).

While we expect SSS growth to have bottomed out, we believe double-digit SSS growth is unlikely before FY17 due to: 1) key competitors having closed the gap in terms of product offerings and brand positioning; 2) increasing number of players in the unorganised segment and multinational companies ; and 3) rising saturation in tier-1 cities in terms of store expansion, meaning incremental new store growth is likely to be derived from tier-2 and -3 cities.

Barclays

Calculate your income tax post budget 2018 through this Income Tax Calculator, get latest news on Budget 2018 and Auto Expo 2018. Like us on Facebook and follow us on Twitter.

  1. No Comments.

Go to Top