Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
JUBILANT FOODWORKS
Strong results; valuation expensive
Strong SSS growth again, but high base effect to kick in here on
Jubilant Foodworks (JFL) recorded 35.7% same store sales (SSS) growth in
Q3FY11 after posting similar high growth in H1FY11. Sales, at INR 1.85 bn, were
up 58% Y-o-Y and 13.7% Q-o-Q. JFL opened 25 new stores this quarter and 58
for 9mFY11, taking the total number of stores to 364. We believe SSS growth will
taper off, going forward, due to the high base effect. We maintain our average
store sales growth of 30% and 20% for FY11 and FY12. The company is on target
to achieve its 70 stores addition guidance in FY11.
Food inflation and rising staff costs dent otherwise strong EBIDTA margin
JFL recorded 17.4% EBIDTA margin in Q3FY11 against 18.2% in Q2FY11 and
16.8% in Q3FY10. Q-o-Q, raw material costs and staff costs were up 70bps each.
To retain employees at the store level, the company increased salaries at
September end and also introduced an EBIDTA led incentive plan. Two continuous
quarters of margin contraction makes us more confident of our assumption that
Q1FY11 EBIDTA margins of 18.5% were close to peak. JFL reported PAT of INR
190 mn, 10.2% against 9.7% in Q3FY10 and 11.3% in Q2FY11. The sequential
decline is due to 80bps decrease in EBIDTA margins and increased tax rate to
24% (20% in Q2FY10). Tax rate will normalise at 33% in FY12, after accumulated
losses exhaust in FY11.
Outlook and valuations: Expensive; maintain ‘REDUCE’
While we continue to expect the company to deliver strong earnings growth, we
believe that slower SSS growth could disappoint. Further, EBIDTA margins have
contracted, after having peaked, in our view. We are building in only marginal
decline in margins here on in our forecasts. We maintain our FY11 and FY12 EPS
estimates of INR 12 and INR 15, respectively. At CMP of INR 490, JFL is trading at
FY12 3x EV/Sales, 16.9x EV/EBIDTA and 32.7x P/E, which we find expensive. We
maintain our DCF-based target price of INR 434 and ‘REDUCE’ recommendation
on the stock.
Company Description
JFL is the largest pizza chain in India and is also one of the fastest growing multi-national
fast food chains. The company, part of the Jubilant Bhartia Group, was founded in 1995
and opened its first store in January 1996. Since then it has expanded to gain leadership
position with 339 stores across 79 cities located in 22 states and more than 10,000
employees. The company offers both dine-in and delivery options. JFL commands 50%
market share in the Indian pizza market and 65% in the home delivery segment. The
master franchise agreement with Dominos International is till 2024 and is renewable for
another 10 years.
Investment Theme
JFL is currently trading at 32x PE FY12. We believe that the company is in a sweet spot
due to its business model. As the Indian consumer is developing taste for fast food
products especially pizza, the company with its dominant strategy of opening stores in
Tier 2 and 3 towns is clearly paying off in terms of above average growth rate. But we
believe that at current valuations where margins are close to its peak, there is hardly
any cyclicality risk factored in the model.
Key Risks
Faster than expected roll out of stores, better than estimated SSS growth along with
continuous roll out of new products are some of the risks on the upside.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
JUBILANT FOODWORKS
Strong results; valuation expensive
Strong SSS growth again, but high base effect to kick in here on
Jubilant Foodworks (JFL) recorded 35.7% same store sales (SSS) growth in
Q3FY11 after posting similar high growth in H1FY11. Sales, at INR 1.85 bn, were
up 58% Y-o-Y and 13.7% Q-o-Q. JFL opened 25 new stores this quarter and 58
for 9mFY11, taking the total number of stores to 364. We believe SSS growth will
taper off, going forward, due to the high base effect. We maintain our average
store sales growth of 30% and 20% for FY11 and FY12. The company is on target
to achieve its 70 stores addition guidance in FY11.
Food inflation and rising staff costs dent otherwise strong EBIDTA margin
JFL recorded 17.4% EBIDTA margin in Q3FY11 against 18.2% in Q2FY11 and
16.8% in Q3FY10. Q-o-Q, raw material costs and staff costs were up 70bps each.
To retain employees at the store level, the company increased salaries at
September end and also introduced an EBIDTA led incentive plan. Two continuous
quarters of margin contraction makes us more confident of our assumption that
Q1FY11 EBIDTA margins of 18.5% were close to peak. JFL reported PAT of INR
190 mn, 10.2% against 9.7% in Q3FY10 and 11.3% in Q2FY11. The sequential
decline is due to 80bps decrease in EBIDTA margins and increased tax rate to
24% (20% in Q2FY10). Tax rate will normalise at 33% in FY12, after accumulated
losses exhaust in FY11.
Outlook and valuations: Expensive; maintain ‘REDUCE’
While we continue to expect the company to deliver strong earnings growth, we
believe that slower SSS growth could disappoint. Further, EBIDTA margins have
contracted, after having peaked, in our view. We are building in only marginal
decline in margins here on in our forecasts. We maintain our FY11 and FY12 EPS
estimates of INR 12 and INR 15, respectively. At CMP of INR 490, JFL is trading at
FY12 3x EV/Sales, 16.9x EV/EBIDTA and 32.7x P/E, which we find expensive. We
maintain our DCF-based target price of INR 434 and ‘REDUCE’ recommendation
on the stock.
Company Description
JFL is the largest pizza chain in India and is also one of the fastest growing multi-national
fast food chains. The company, part of the Jubilant Bhartia Group, was founded in 1995
and opened its first store in January 1996. Since then it has expanded to gain leadership
position with 339 stores across 79 cities located in 22 states and more than 10,000
employees. The company offers both dine-in and delivery options. JFL commands 50%
market share in the Indian pizza market and 65% in the home delivery segment. The
master franchise agreement with Dominos International is till 2024 and is renewable for
another 10 years.
Investment Theme
JFL is currently trading at 32x PE FY12. We believe that the company is in a sweet spot
due to its business model. As the Indian consumer is developing taste for fast food
products especially pizza, the company with its dominant strategy of opening stores in
Tier 2 and 3 towns is clearly paying off in terms of above average growth rate. But we
believe that at current valuations where margins are close to its peak, there is hardly
any cyclicality risk factored in the model.
Key Risks
Faster than expected roll out of stores, better than estimated SSS growth along with
continuous roll out of new products are some of the risks on the upside.
No comments:
Post a Comment