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Emkay Global
Jubilant Foodworks (Hold)
Target: ₹3,900
CMP: ₹3,879.40
Q2 operating performance was largely in line, except for a slight miss on margins due to overhead cost inflation. However, EBITDA was 4 per cent better than street estimates. Revenues recovered to 112 per cent (6 per cent 2 year CAGR) vs. Q2-FY20, while margins declined 70 bps y-o-y.
Jubilant FoodWorks added a record 60 stores net in Q2 and maintained guidance of 150-175 store additions in FY22. It indicated plans to take Hong's beyond NCR and open the first Popeyes store in FY22. Given a strong response in new tier 3-4 cities, management sees a huge penetration opportunity in the existing and new markets.
Demand trends remained positive, with the order count reaching pre-Covid levels and ticket sizes settling at higher than pre-Covid levels. Sequential softening in delivery trends, however, may pose a risk to assumptions going ahead as eat-out trends rise.
We like Jubilant Foodworks aggression and appetite for growth; however, rich valuations and lower upside to our existing optimistic estimates limit near-term upside potential. We, hence, downgrade Jubilant Foodworks to Hold with a revised target price of ₹3,900, based on 60x Dec'23E EPS (55x Sep'23 EPS earlier).
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