Citi sees 45% upside for Jubilant Foods, says pullback a buying opportunity

Citi analysts, who have reiterated the buy rating, say the Domino’s franchise has the best in class unit economics, consumer and store base and delivery expertise among the QSR lot

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Citi has reiterated its “buy” rating on Jubilant Foodworks, the franchise for Domino’s Pizza in India, and set a target price of Rs 619 a share, indicating a 45 percent upside from April 11 closing price, citing a strong potential for medium-term earnings growth.

According to Citi’s research, Jubilant Foodworks is well-positioned to benefit from market tailwinds, faster store expansion and digital investments. The recent pullback in the stock price presents a buying opportunity for long-term investors, it said.

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At 9.20 am, the stock was quoting at Rs 431.30 on the NSE, up 2 percent from the previous day. The stock has fallen more than 30 percent in the past six months as inflation eats into consumers’ discretionary spending, hitting the company’s earnings.

Same-store sales growth has been muted over the past few quarters and the company’s consolidated net profit fell sharply by 40 percent in Q3 FY23.

Jubilant Foodworks’ operating margins have also been contracting because of high wheat and milk prices.

Analysts, however, believe it has the best in class unit economics, consumer and store base, and delivery expertise among quick service restaurant (QSR) peers. Other QSR chains have been slow in growth and rich in valuations, believes the Street.

“Jubilant Foodworks is stepping up its investments in dine-in along with strengthening its backend by setting up new commissaries in Bengaluru and Mumbai over the next 12-15 months,” HDFC Securities’ analysts wrote in a recent report.

They model Domino’s expansion of 250 stores each for FY24/25/26 and have a target of Rs 475 on the stock.

Moreover, the company’s investments in new brands Popeyes, Hong’s Kitchen and Ekdum! coupled with DP Eurasia offer excellent optionality, Centrum Broking said. It has a target of Rs 555 on the stock.

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