Jubilant Foodworks Ltd – BUY Initiating Coverage Report By IIFL

Jubilant Foodworks Ltd: The rise of the Quick Bite!!! – BUY
CMP Rs1,433, Target Rs1,937, Upside 35%

Jubilant Foodworks Ltd (JUBI), the master franchisee for Domino’s pizza chain and Dunkin Donuts in India, is a great play on Indian consumption story. To go with its focus on menu innovation, new technology and capex-light/margin positive formats like delivery-centers, the company is aggressively promoting its online food ordering system, which will help it expand reach. We are betting big on urban cycle story driven by revival in discretionary spends due to: 1) boost from the 7th Pay Commission, 2) lower interest rates, and 3) boost in household savings. JUBI is well placed to benefit from the growing QSR (quick service restaurant) penetration in India. Further, the company has immense potential in terms of strong execution capability, as it continues to outperform peers, not only in same store sales growth (SSSG) but also with a faster store rollout, better margins, higher absolute ad-spend, a much stronger balance sheet and superior cash generation. As the company i! s on an expansion phase, operating leverage will play out once the SSSG materializes. We expect the SSSG growth, that fell from 27%+ FY11-13 to zero in FY15, to recover to 10% by FY18E. We believe the calibrated price hikes, core business strength and A&P spends will help JUBI outpace competition. We recommend BUY rating with a TP of Rs1,937 (based on 43x PE and 22x EV/EBITDA FY18E), an upside of 35%.

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