Jubilant FoodWorks: Domino’s Price Hike To Offset Margin Pressure, Says Morgan Stanley
Morgan Stanley kept the target price for Jubilant FoodWorks at Rs 5,000 apiece, an upside of 47%.
Morgan Stanley expects an increase in the prices of Domino's pizzas to offset margin pressure on Jubilant FoodWorks Ltd. without hurting demand.
The research firm's channel checks suggest that Domino’s India has raised prices by 5-6% on an average across its portfolio recently, according to its Dec. 22. note. That, it said, was essential to, at least partly, offset the impact of high raw material inflation across key inputs.
“Domino’s India remains focused on maintaining its value for money proposition, and has taken minimal price hikes since 2016. Even after the price hike, Domino’s prices are lowest among pizza peers,” the note said. “We view the pricing action positively as it helps offset some margin pressure, with limited impact on demand.”
The operator of Domino’s pizza and Dunkin’ Donuts in India is in an “opportune position to capitalise on the growth prospects for the organised foodservice industry” in the country, the research house said. “Company initiatives to build its digital capabilities and increase its physical footprint along with expanding into adjacencies (non-pizza businesses) set the company up for a strong growth phase longer term.”
Valuation is high but the market will continue to be willing to pay for Jubilant FoodWorks’ strong market share gains, technology platform, revenue growth strategy and expanding addressable market, the note said.
Shares of Jubilant Foodworks rose 5.42%, the biggest single day gain in over two months, to Rs 3,619 apiece after Morgan Stanley reiterated its 'overweight' rating. The stock closed 2.99% higher compared to a 0.69% rise in benchmark Nifty 50.
It set the target price at Rs 5,000 apiece, an implied potential upside of 47% from Tuesday’s close.
Upside Triggers
Innovations in product offerings and effective marketing strategy combined with growth in overall food-chain service business in India.
Aggressive store launch strategy.
Success of non-pizza cuisines and increase in disclosure for new businesses.
Downside Risks
Same-store-sales growth trends remaining weak.
Competition from food aggregators and other food service categories.
Rise in cost inflation.
Changing consumer preferences.