Jubilant FoodWorks Shares Fall Despite Q2 Earnings Beat; Analysts Cautious

Shares of Jubilant FoodWorks Ltd. fell for the fifth straight day early morning trading even as its second-quarter earnings surpassed analyst estimates.

Net profit of the operator of Domino's Pizza and Dunkin' Donuts in India rose 74% sequentially to Rs 119.8 crore, it said in an exchange filing.

Despite Jubilant FoodWorks’ aggressive plans to boost growth, analysts tracking the company expressed concerns about the company’s high valuations. They are also cautious citing the impact of commodity inflation and margin.

Shares of Jubilant FoodWorks fell as much as 7.07% in intraday trade to Rs 3,685 apiece on Thursday. The stock closed 8.45% lower on Wednesday.

Of the analysts tracking the stock, two suggests 'hold', two each recommend 'accumulate', and 'buy', and one has a 'sell' rating.

Here’s what brokerages have to say about Jubilant FoodWorks’ Q2 performance:

Emkay

• Maintains ‘hold’ rating on the stock with a revised target price of Rs 3,900 apiece, a potential upside of 1.6% from Wednesday's close.

• Expects rich valuation and lower upside to its existing optimistic estimates limit near-term upside potential.

• Downgrades stock based on 60x Dec. ’23 earnings per share vs 55x Sep 23E earnings per share.

• Sequential softening in delivery trends may pose a risk to assumptions going ahead as eat-out trends rise.

• Growth outlook encouraging but best appears priced in.

Dolat Capital

• Maintains ‘accumulate’ rating, ‘buy’ on dips considering a significant run-up a target price of Rs 4,128 (likely upside of 4%)

• Introduced FY24E earnings per share at Rs 61.4.

• Has increased FY22E and FY23E estimates to Rs 39.8 (up 14.7%) and Rs 50.4 (up 3.4%) to factor in better Q2 performance.

• Despite significant inflation, Jubilant was able to restrict gross margin fall to 50 basis points, which the brokerage attributes to increase in delivery charges during the quarter.

• While commodity inflation and brand investments may pressurise margins to some extent, Ebitda margins are likely to sustain at 25-26% levels with calibrated pricing, cost control initiatives and introduction of new products.

• Jubilant would add 40-50 stores per quarter fuelling further growth.

Edelweiss

• Maintains ‘buy’ rating and upped target price of Rs 5,045 per share from Rs. 3,965, an upside potential of 27.2%.

• Jubilant has increased store addition expectation with improved traction which drives up our FY22/23E Ebitda by 3%/2%.

• While margins need to be monitored in the immediate term, the company has levers in place to mitigate any adverse impact thereof.

• Popeyes’ likely launch in FY22 can drive a further re-rating for the company.

• Dominos remains the top pick in the QSR space.

• Over the long term, the brokerage expects Jubilant’s same-store-sales growth to be aided by likely recovery in urban sentiments.

Goldman Sachs

• Maintains ‘sell’ on the stock with a 12-month target of Rs 1,539, implying a downside 61.2%.

• Raises FY22-24E EPS estimates by 12% to 24% to reflect higher revenue growth.

• Based on the increase in store networks and price hikes (including delivery fee), the brokerage believes Domino's volumes declined by mid-teens during the quarter vs Q2 FY20.

Motilal Oswal

• Maintains ‘buy’ rating with a target price of Rs 4,870 (23% upside).

• Raised FY22 earnings per share estimate by 7.1% on account of the earnings beat. However, there is no material change to its FY23 forecasts.

• Jubilant has historically had the best business model among QSRs in India with 70% of sales prior to the Covid-19 outbreak from the delivery channel.

• It has had the best balance sheet, with a return on capital employed of over 20% for many years now (barring the blip in FY21 due to the Covid-19 outbreak).

• High valuations are justified in view of the immense opportunity and proven right-to-win.

Prabhudas Lilladher

• Maintains ‘accumulate’ with a lower target price of Rs 4,111 per share (4% upside) from Rs 4,135 earlier.

• Q2 dine-in recovery at 46.9% provides strong headroom for growth as post-Covid delivery sales are expected to settle at higher than pre-Covid levels despite moderation in ticket size from the peak levels.

• It increased FY22 earnings per share by 2.6% on account of easing restrictions, strong festive demand and T20 World Cup, but slashed FY23 earnings per share by 1.6% on account of higher personnel cost and launch of Popeyes.

• Popeyes and new ventures key to re-rating.

Jefferies

• Maintains ‘hold’ rating on the stock with a revised target price of Rs 4,100 (4% upside) from Rs 3,850, following 40% rally in the last six months.

• Despite cost inflation across a few heads, confidence is high on maintaining margins.

• The research firm trims FY22-24E EPS by 3-4% to factor in slightly lower delivery revenues.

• In a downside scenario, it forecast 8% annual growth in revenues over FY20-24.

• It sees stiff competition from food aggregators as a downside catalyst.

Kotak

• Downgrades a notch to 'Add' from 'buy' with a fair target price of Rs 4,200 (6% upside) from Rs 3,550 in view of strong stock performance.

• The broking firm increases FY2023-24E revenue forecast by 7% and earnings by 9-12% as we model higher average revenue per store led by higher delivery volumes, marginally higher store addition and better profitability in view of relatively modest raw material inflation and margin levers.

• It raises FY2023-24 EPS estimates by 9-12%.

Credit Suisse

• Retains 'neutral' call with the target at Rs 3,800 (4% downside) from Rs 3,130.

• Same-store sales growth trend was underwhelming in the context of strong consumer discretionary recovery.

• Domino’s has a relatively lower market share in food delivery compared to dine-in and in the current phase, where consumers are going back to dine-in, Domino’s may see a slower recovery.

Morgan Stanley

• Maintains an overweight rating on Jubilant FoodWorks with a 12-month target of Rs 5,000, a potential upside of 26%.

• The management reiterated its aim to become a multi-country, multi-brand, technology-driven QSR business.

• The recent correction in the stock price could be a good buying opportunity for long-term investors.