Maintain buy on Jubilant Foodworks (Jubilant) with a target price of Rs 2,100 per share, valuing the stock at 45x September 2017e EPS — a 20% discount to three-year average P/E to factor in a lower same store sales growth (SSSG).
Jubilant’s performance, while better than competitors, has lagged our and market expectations. Near-term quarterly trends are unlikely to be linear and, thus, may induce volatility in performance. Notwithstanding that, we like the long-term potential in the food service industry and Jubilant’s execution prowess to outperform the industry and capitalise on it.
Jubliant has implemented several initiatives on the ground to drive demand. During FY15, the company broadened its product portfolio by launching the highest number of new product offerings in a single year in its history. Given the increased acceptance of its side offerings (26% of sales in FY15 versus 22% in FY12), Jubilant changed its delivery policy during the year to allow delivery of only side products.
During FY15, Jubilant increased its store count by 150 — taking the total count to 876 (added 411 stores during FY12-FY15), with presence across 196 cities (almost doubled the count during FY12-15). Having surpassed the UK restaurant count, India is now the largest market outside the US in the Domino’s Pizza network.