The global brokerage house, Jefferies raised its target price on Jubilant FoodWorks. The brokerage has retained its ‘Buy’ rating and increased the target to Rs 650 from Rs 600 earlier. Based on the current market price, the new target implies nearly 34% upside.
What is driving the optimism? Not just Domino’s India, Jefferies sees multiple growth engines emerging across the company. Meanwhile, the management expects the domestic business to gain momentum in the coming quarters.
Let’s take a look at the key reasons why the brokerage house is bullish on the stock –
Domino’s India: Has the recovery started?
The key factor to watch here is the growth trajectory for Domino’s India. As per Jefferies report, like-for-like (LFL) growth improved to 2.5% year-on-year in the first quarter. While that remains modest, the brokerage sees early signs that demand could improve.
Revenue from Domino’s India increased around 7%, mainly because of higher order volumes. The company also added 58 net new stores, taking its total network to 2,513 outlets.
The management has introduced targeted offers and a sub-Rs 250 menu to bring customers back. It has also identified around 400 stores for upgrades. Jefferies noted, “Q2 has started on a stronger note & mgmt expects better LFL growth vs Q1.”
That could be important because the company is also working against a relatively easier base.
Margins remain a challenge
Jubilant FoodWorks faced higher wage and raw material costs during the quarter. Yet price increases and cost-saving measures helped limit the pressure.
Adjusted standalone Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) increased 7% year-on-year to Rs 220 crore. However, the pre-Indian Accounting Standards (Ind AS) EBITDA margin slipped slightly to 12.1%.
Jefferies expects near-term margin pressure to continue because of higher prices of key inputs such as cheese and oil.
The brokerage noted, “the medium-term target of c200bps adjusted EBITDA margin expansion remains unchanged.”
Popeyes could become the second growth engine
Another key important part of the Jubilant FoodWorks is the Popeyes. The fast-food chain recorded 45% LFL growth, while revenue doubled year-on-year. Average Daily Sales (ADS) crossed Rs 95,000, with several markets recording more than Rs 1 lakh.
Popeyes also added 10 stores during the quarter, taking its network to 88.
According to Jefferies, Popeyes is “emerging as a second growth engine, with improving store economics & LFL at 45%.”
Management expects the brand to become a Rs 1,000-crore profitable business over the next three to four years and plans to add another 35-40 stores.
International business adds another layer
The international portfolio also delivered growth. DP Eurasia revenue rose around 28% year-on-year to about Rs 660 crore.
Domino’s Bangladesh and Sri Lanka performed better, while Turkey and COFFY remained under pressure.
Jefferies said, “medium-term guidance of 5-7% LFL growth remains intact.”
Why Jefferies remains bullish
The brokerage believes the current weakness could give way to better growth as demand improves, store upgrades take effect and newer growth engines scale up.
The key challenge, however, is profitable growth. Higher input costs could continue to weigh on margins in the near term.
Disclaimer: This article is based on research reports from one or more brokerage firms and is for informational purposes only. The views, target prices, and recommendations expressed are those of the respective brokerage firms and do not reflect the official policy or position of Financial Express. This should not be construed as an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor before making any investment decisions.