Jubilant FoodWorks Surges After Morgan Stanley Finds Valuation 'Compelling'

Shares of Jubilant FoodWorks Ltd. gained the most in more than three months after Morgan Stanley found the short-term valuation of the operator of Domino's Pizza and Dunkin' Donuts in India "much more compelling".

That, the research house said in a report, is because the stock has traded off recently. The shares have seen a drawdown of 28% from their peak over the past few months. The stock has also underperformed the Sensex by 8% and 21% over the past three and six months, respectively.

"We believe the share price will rise in absolute terms over the next 45 days." The research house retained its 'overweight-attractive' rating with a price target of Rs 5,000 apiece—an implied upside of 45%.

Reacting to this, the stock gained nearly 6.23%, the biggest intraday gain in over three months, on Friday. The stock closed with nearly 2% gains—biggest single day rise in over two weeks—at Rs 3,304.6 apiece.

Jubilant FoodWorks, Morgan Stanley said, is also in an opportune position to capitalise on the growth prospects for the organised food service industry in India.

It is likely to report "strong growth" in the quarter ended December, aided by the festive season, improvement in dine-in channel, and store expansion momentum, while margin pressures due to inflation are likely to persist.

The company's focus on building digital capabilities and increasing physical footprint are other key growth triggers, Morgan Stanley said.

Key Risks

• Same-store-sales growth trends remaining weak.

• Rise in cost inflation.

• Competition from food aggregators and other food service categories.

• Changing consumer preferences.

Of the 31 analysts tracking the company, 18 maintain a 'buy', nine suggest a 'hold' and four recommend a 'sell', according to Bloomberg data. The overall 12-month consensus price target implies an upside of 27.3%. The stock's trading volume is nearly two times the 30-day average volume at the time when markets closed.