Jubilant Foodworks Limited is a hot pick with 41% upside potential: Bonanza

Jubilant Foodworks Limited Initiating Coverage

“The QSR Master Chef maintains its ground on the back of strong demand outlook and excellent execution capabilities”

Jubilant FoodWorks Limited (JFL), a Food-tech giant, has one of the most effective and far-reaching delivery models in the country, having the master franchise rights for Domino’s Pizza, Dunkin’ Donuts and Popeyes. The QSR industry (₹ 31,27,200 lakhs) comprises of Chained outlets (₹ 17,67,700 lakhs) and Standalone outlets (₹ 13,59,500 lakhs). JFL makes a strong pick owing to its powerful position as the market leader with 25% share (Chained) and 14% (Chained + Standalone), its focus on Digital and Tech development, its carefully articulated growth strategies for value creation, its foray into new brands, thus, resulting in geographical expansion (58 new stores added during Q1 FY23 with an aim of 3,000 stores in the medium term). JFL’s Like-For-Like growth stood at 28.3% for Q1 FY23 indicating compelling demand growth going forward. We are positive on JFL on the back of strong numbers in Revenue/EBITDA/PAT CAGR of 10%/26%/21% respectively from FY18-22, which we expect to increase to 28%/27%/37% during FY22-25E respectively, along with maintaining its EBITDA/PAT margins at 26%/11% as of FY24E.

Investment Rationale

► Maintaining its Leadership status in the QSR industry: JFL is the largest food service brand in the QSR industry with the benefit of being the first mover. The company leads far ahead of its competitors in terms of No. of stores (1,625 in Q1 FY23), market presence (14% market share) and robust delivery model, which further aims to grow up to 3,000 stores in the medium term. While its closest peer – Devyani International has a market share of 7% with a store presence of 1,008 as of Q1 FY23.

► Continued investment and focus on Tech development: The Company’s focus remains clear on developing its Digital strengths, as it remains unbeatable in areas of online presence and Digital dominance through its in-house Domino’s Pizza Mobile App (30.2 Mn App downloads in FY22). The mobile ordering contribution to OLO sales has jumped from 38% at the end of FY16 to a staggering 97% by FY22.

► Providing Value to customers by creating sought out growth strategies: JFL has never failed to impress as it has created its place in the market by emphasizing on ‘Value for Money’ philosophy and has strived hard in providing the best quality Pizza’s at affordable prices, thus, highlighting its ‘Every Day Value’ (EDV) strategy.

► Diversifying into new brands and development of own brands: The company is well placed to leverage its position to promote its new brands portfolio of home grown brands in the market–Hong’s Kitchen (14 stores), Ekdum! (6 stores) and ChefBoss, along with Dunkin (25 stores) and Popeyes (6 stores) as of Q1 FY23.

► International expansion and growth: With its dynamic expansion strategies, the company has made ripples in the international geographies of Sri Lanka and Bangladesh along with DP Eurasia despite the headwinds of deteriorating economic conditions and rising inflation amidst COVID. (Total no. of Stores in Sri Lanka and Bangladesh touched 46 and DP Eurasia standing at 842 as of Q1 FY23).

Initiate Coverage with Buy – TP of ₹ 891 Strong cost control and management focus on aggressive store additions along with thrust on digital & tech initiatives were key positives providing strong growth outlook. The resultant robust performance in Q1 FY23 led by strong Revenue growth, recovery in LFL growth and positive expectations from the new brands portfolio makes JFL a hot pick. Sustained delivery demand is also here to stay as we expect a further growth of Revenue/PAT CAGR at 28%/37% respectively as of FY22-25E and ROE/ROCE at 28%/41% FY24E. We initiate coverage with a BUY valuing the stock at 76x (10yr avg. P/E of JFL) CY24E EPS of ₹ 11.8 to arrive at our Target Price of ₹ 891 with a potential upside of 41%.