After an over 30 percent decline in the stock in the last 6 months, brokerage house ICICI Securities now sees Jubilant FoodWorks rising nearly 50 percent in the next one year on account of the new store addition of Popeyes, a chain of fried chicken fast food restaurants.
The brokerage has maintained its ‘buy’ call on the stock with a target price of ₹630, indicating a potential upside of as much as 48 percent.
"We returned impressed from Popeyes first store in Chennai (Phoenix Mall, Velachery), which marks its entry into Chennai and expansion from Bangalore (12 stores), in the fried chicken market. The store atmosphere is appealing with vibrant colours and a contemporary look and feel, a self-ordering kiosk, good lighting and the highest seating capacity amongst Popeyes India outlets (with a separate section for ‘open to sky’ table seating). These features differentiate the store look with a superior proposition. Its Cajun flavour offerings are unique in India QSR and we reckon it has a high probability of consumer acceptance. A casual positioning (set between fast food and casual dining) fits well with Jubilant's strengths – focusing on value-for-money and delivery," noted the brokerage.
However, this new target price remains below its 52-week high of ₹652, hit in October 2022. After hitting its 52-week high, the stock began its downward trend on account of weak earnings and hit its 52-week low of ₹419 in February 2023, down 36 percent. It currently trades at around ₹425, as on March 16, 2023.
The stock has fallen 17 percent in the last 1 year and over 15 percent in 2023 YTD. It has given negative returns for 6 straight months from October till March so far, down nearly 32 percent in this time.
In the December quarter (Q3FY23), the company's net profit declined 36 percent to ₹88 crore versus ₹137 crore in the year-ago period. The operator of Domino's in India saw just a 10 percent growth in revenue from operations to ₹1,316 crore, driven by growth in orders for Domino's. Its EBITDA (earnings before interest, tax, depreciation and amortisation) stood at ₹290 crore, while margins declined 457 basis points to 22 percent. The performance during the quarter was mainly impacted due to high inflation.
“We reported modest top-line growth. This, along with historic high inflation, resulted in margin compression. We have sharpened our strategy to get growth back in the business," said Sameer Khetarpal, CEO and MD post the earnings.
The brokerage forecasts Jubilant to add over 100 stores in FY24. “The market may eventually expand to accommodate both brands - Popeyes and KFC; however, KFC does have an air pocket to tackle for now as we assign a high probability of new Popeyes stores in the same catchment as KFC,” it said, adding that Devyani Intl and Sapphire Foods may potentially face some growth headwinds in the interim.
New store launch looks promising: Jubilant has expanded its Popeyes network to Chennai from its existing operations at Bangalore. Popeyes is launched in a new city with a flagship store format – with an 'open to sky' seating arena which has a contemporary vibrant look and feel. The launch (a month ago), informed the brokerage, has gained a google rating of 4.4. The store is the largest Popeyes India outlet, currently with a seating capacity of 150, split into two divisions (108 indoor and 42 outdoor). ICICI believes the brand will compete fiercely with KFC and wrest some of its market shares. The market may eventually expand to accommodate both brands; however, KFC does have an air pocket to tackle for now, it added.
International flavours a potential growth story: On the menu, the Cajun-based sandwich, fries, and rice bowls are a unique offering giving consumers a choice to relish international flavour with a mild touch of Indian spice, noted ICICI. Traditionally, at other QSRs, fries are a standalone offering while Popeyes brings the twist of serving French fries pre-coated with Cajun mix (a layer coated over the potato) before frying, serving with a fusional twist. While the Cajun seasoning is available more at barbeque dine-ins (Barbeque Nation, Coal Barbeque, Absolute Barbeque) and is well preferred, the brokerage believes Popeyes menu may find customer patronage, which may help the brand gain market share.
Affordable menu: The brokerage also pointed out that the menu is affordably priced, be it an individual pick or a combo, in sync with Jubilant's value-for-money proposition. It estimates a meal for two to cost ₹300-350, for three ₹400-500 and for four/five Rs600-770 on an average. The store currently offers dine-in and takeaway options and plans to launch delivery soon. It will use its own fleet (EV vehicles) whereby delivery partners would carry the order in an insulated bag so that the food retains its freshness and is delivered hot, it added. Further, the open kitchen with a partition separating veg and non-veg sections gels well with vegetarian customers’ preference, noted the brokerage.
Back-end infrastructure: As per the brokerage, Popeyes is likely to benefit from Jubilant’s existing back-end infrastructure including in-house digital and data strength, supply chain, commissary, management team, etc. Supplies to the store will be sourced directly from Jubilant's commissary and refilled on a daily basis. The raw materials – be it the chicken, sandwich/burger patties and fries – are centrally controlled helping the brand to retain tastes and flavours across its chain, it stated. ICICI believes the firm's commissary and scale of sourcing could be a key driver to provide value-for-money without diluting company profitability.
The brokerage maintained its earnings estimates, modelling revenue, EBITDA, and PAT CAGRs at 20 percent, 21 percent, and 24 percent over FY22-FY24E. Key downside risks are raw material costs turning inflationary and an increase in competitive intensity, it added.
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