Jubilant Foodworks share price: Jefferies maintain price target of Rs 3050 on the stock

The recent quarters of Jubilant Foodworks have seen a series of initiatives beyond Domino's, including FMCG, Biryani, Hong's Kitchen ramp-up and 10.8% stake in Barbeque Nation. Jubilant Foodworks has now picked up a 32.8% stake in DP Eurasia, which has presence in Turkey & Russia among others, at attractive valuation. While this raises concerns (volatility, bandwidth etc.), investment is small at Rs 2.5 bn and despite being the largest shareholder, there will not be line-by-line consolidation. Jubilant Foodworks share price today opens at Rs 2970, up Rs 20 or 0.7%.

Jefferies forecast 13% annual growth in revenues back-ended over FY20-23E. Jefferies forecast over 250 new store additions over FY22-23E to support revenue growth and a strong margin expansion, driven by efficiencies primarily in rent and staff costs. Jefferies forecast EPS to rise at 27% CAGR, despite the COVID-19 challenges. Jefferies value Jubilant Foodworks at 60x FY23E earnings to arrive at a price target of Rs 3050/sh.

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In the last decade, Jubilant Foodworks has focused mainly on Domino's and there has been some effort to scale up Dunkin' which met with limited success. In 2019, Jubilant Foodworks forayed into Chinese through its own brand Hong's Kitchen, which currently has 10 stores. During lockdown last year, Jubilant Foodworks also expanded into FMCG through a range of ready-to-cook and plans are underway to expand into ready to eat as well. In 2020, Jubilant Foodworks also forayed into Biryani under its own brand, Ekdum!. Jubilant Foodworks also picked up 10.8% stake in Barbeque Nation for Rs 0.9 bn although this is purely a financial investment, per management.

DPE deal:

Jubilant Foodworks has now picked up 32.8% stake in DP Eurasia (DPE) for GBP 24.8 m from Turkish Private Equity Fund II LP. DPE is listed on the London Stock Exchange and based on Bloomberg estimates, the deal valuations comes to about <8x EV/Ebitda and <1x EV/Sales, a significant discount to JUBI's own valuations.

Uncertainty rises:

DPE acquisition comes after a series of initiatives undertaken by Jubilant Foodworks in the past few quarters. While diversification entails risks, overseas expansion adds to complexity given the increase in risks including related to country & currency. For example, over the past 7 years, Turkish Lira has sharply depreciated against INR.

While there may be concern on Jubilant Foodworks management bandwidth, Jefferies understands that the local team will continue to drive the business. In addition, the quantum of investment is small and Jubilant Foodworks has a net cash Balance sheet. Acknowledging our limited understanding on DPE's operations & future prospect, valuation appears attractive and there could be potential upside should DPE be able to leverage on Jubilant Foodworks ' experience in India.