Recently, Jubilant met with analysts to provide an interim update. Overall consumer demand still weak but Jubilant consolidated its leadership position, as its market share increased from 70% to 74% in CY14 while nearest competitor, Pizza Hut, trails at 19%. Market share improvement was buttressed by faster network roll out and higher same store sales reflecting superior execution. Management believes that worst is behind and same -store sales growth (SSSG) trend may only strengthen in coming quarters as company expects high single digit to low double digit SSSG in next 2-4 quarters. Management is proactively making sure very tight quality norms in the background of recent concerns related to food safety in packaged food industry.
We believe a revival to return to high single digit/double digit SSSG will be a key catalyst for stock performance.
While the SSSG revival should imminently happen, margin base for the next two quarters is very benign, which will help Jubilant report solid earnings growth in the range of 30-40%. The stock run-up in anticipation of these gains appears to already reflect this. Valuation builds in (ex- Dunkin) growth of c19% for the next 15 years, which in our view is rich. Hence any sharp stock run-up from these levels will likely be exploited as opportunities to book profits by investors. Hence, we retain our Hold rating but increase target price from Rs 1650 to Rs 1750.