scorecardresearchJubilant Foodworks: Strong cost control & aggressive store additions makes the stock a hot pick, says Bonanza

Jubilant Foodworks: Strong cost control & aggressive store additions makes the stock a hot pick, says Bonanza

Updated: 12 Oct 2022, 09:23 AM IST
TL;DR.
JBL is the largest food service brand in the QSR industry, with the benefit of being the first mover. The company leads far ahead of its competitors in terms of the number of stores (1,625 in Q1 FY23). The company reported a 63.01% increase in its consolidated net profit.
The company makes a mark in its international markets in Sri Lanka with the highest ever system sales growth of 80.9% as on FY22, which increased to 83% in Q1 FY23 despite inflationary and political headwinds.

The company makes a mark in its international markets in Sri Lanka with the highest ever system sales growth of 80.9% as on FY22, which increased to 83% in Q1 FY23 despite inflationary and political headwinds.

Shares of Jubilant Foodworks were trading lower in morning trade on Wednesday October 12, 2022. The stock was trading at 598.40 per share on the BSE, down 0.58% at 9.24 am. 

The stock finished lower for the fourth consecutive trading day on Tuesday, losing 15.55 to close at 600.20. During the trade, the stock reached an intraday low of 597.10. In the last four trading sessions, the stock has lost 6.10% of its value.

The stock has been declining since the beginning of the year and has dropped 22.60% to date. After reaching a 52-week high of 918 in October 2021, the stock went into a declining trend and has continued to stay in the same momentum to this day by falling 35%.

Despite such weak performance, domestic brokerage firm Bonanza portfolio remains bullish on the stock, believing it has the potential to skyrocket from here. The brokerage firm expects that strong cost control and JFL's focus on aggressive store additions, along with its thrust on digital and tech initiatives, will act as key positives, providing a strong growth outlook. "The resultant robust performance in Q1 FY23, led by strong revenue growth, recovery in LFL growth, and positive expectations from the new brands' portfolio, makes JFL a hot pick," said Bonanza.

Jubilant Foodworks is the largest food service brand in the QSR industry, with the benefit of being the first mover. The company leads far ahead of its competitors in terms of the number of stores (1,625 in Q1 FY23), market presence (14% market share) and robust delivery model, which further aims to grow up to 3,000 stores in the medium term, said the brokerage firm.

The brokerage said that the company has always remained aggressive in terms of expansion and growth. The number of split stores being opened during the year has increased significantly from 5 new split stores in FY18 to 90 new split stores in FY22. Hence, like-for-like (LFL) growth, which is the same-store sales growth of non-split stores, is a more relevant comparator for the business as the company intends to continue executing its fortressing strategy. Domino’s LFL stood at 26.4% for FY22, which has further gone up to 28.3% in Q1 FY23.

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Stock price chart of Jubilant Foodworks

The company has added 230 new stores and entered 48 new cities in FY22, which topped at 58 new stores and 12 new cities in Q1 FY23. It aims to achieve a milestone of 3,000 stores in the country in the medium term, up from the current level of 1,625 stores. The speed of delivering quality service to consumers is a key metric for the company. Increasing reach has helped JFL reduce its average delivery time (70% of its orders are now delivered in under 20 minutes), the brokerage firm highlighted.

In terms of competitors, Bonanza said Devyani International, the closest competitor to JFL, which has a market share of 7% of the total QSR segment with a store presence of 1,008 stores as of Q1 FY23. The other competitors include Sapphire foods, Westlife development, Restaurant Brands and Barbeque Nation hospitality, which have a market share of 6%, 5%, 5% and 3% respectively.

JFL has shown the strongest profitability with PAT margins at a decent 10%, the best amongst its peers, and ROE/ROCE at 26% & 43% respectively as at FY22. Meanwhile, the peers pose tough competition with PAT numbers - Devyani/Westlife/Sapphire/RBA/Barbeque stand at a PATM% of 7%/-0.11%/3%/16%/-3%, according to the brokerage.

The company makes a mark in its international markets in Sri Lanka with the highest ever system sales growth of 80.9% as on FY22, which increased to 83% in Q1 FY23 despite inflationary and political headwinds.

JFL’s aggressive expansion, capacity utilization, and superb execution capabilities have made a strong impact in the market, due to which we expect the company to deliver revenue/EBITDA/PAT CAGR of 28%/27%/37% respectively during FY22–25E.

Bonanza initiate coverage with a 'BUY' and valued the stock at a P/E of 76x (10yr average P/E of JFL) CY24E EPS of 11.8 to arrive a target price of 891 with a potential upside of 48.50% from the stock latest closing price.

The company reported a 63.01% increase in its consolidated net profit at 112.58 crore in the April-June quarter as against a net profit of 69.06 crore in the same quarter of last year. The revenue from operations increased by 40.51% to 1,255.09 crore in Q1, compared to 893.18 crore in the same quarter last year.

Jubilant Foodworks Limited (JFL) is part of the Jubilant Bhartia Group and is one of India’s largest food service companies. JFL holds the master franchise rights for Domino’s Pizza and Dunkin' Donuts, along with Popeyes, which was added in the previous fiscal. The company has launched its first home-grown brand – Hong’s Kitchen in the Chinese cuisine segment in India.

An average of 30 analysts polled by MintGenie have a 'buy' call on the stock.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.

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First Published: 12 Oct 2022, 09:23 AM IST