Jubilant Foodworks::Core holding in India consumption basket :: Nomura research,

Core holding in India consumption basket
Moderating returns, but still an
attractive franchise to own

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Action: Delivery continues to be strong; maintain Buy
Jubilant Foodworks delivered strong same-store-sales growth (SSSG) of
29.6% for FY12. With penetration of pizza still low and consumption in
major cities continuing to hold up, we believe SSSG will continue to be in
the 20% range over the next couple of years. The company has guided for
18-20% SSSG for FY13, which could be conservative. The launch of
Dunkin Donuts will likely add another leg of growth in the medium term.
We continue to like the execution model at Jubilant and believe the
opportunity remains sizeable, which should support long-term growth.
Maintain Buy with an increased TP of INR1,490, implying 20.6% upside.
Catalysts: Strong SSSG and under-penetrated pizza market
We see two key long-term catalysts which will likely continue to drive stock
price performance over the medium term. First, we expect SSSG to
remain in the 20%-plus range over the next couple of years, which should
be the main driver of revenue and earnings. Second, we expect the
company to continue to add 90 stores each year over the next 3-4 years
given that penetration levels are still low.
Valuation: Expensive but justified, in our view
While the consensus view argues that valuation is high, we believe in the
short term, this is likely to sustain given strong SSSG. We have increased
our TP to reflect this strong growth and recommend the stock as one of
the core holdings in our India consumption basket for long-term investors.