Jubilant FoodWorks Logs Worst Day In Two Years As Analysts See CEO's Exit As Risk
Here's what brokerages have to say about Jubilant FoodWorks...
Shares of Jubilant FoodWorks Ltd. slumped the most in two years after analysts said the sudden exit of its chief was a risk at a time when the operator of Domino's Pizza and Dunkin' Donuts in India guided for an expansion over the next five years.
Pratik Pota has resigned as the chief executive officer and wholetime director at Jubilant FoodWorks, but will continue in his current role till June 15, 2022, the company said in an exchange filing on Friday. That, even as the board approved his re-appointment for three years from April 2022 to March 2025.
Pota, according to the analysts, played a pivotal role in the turnaround of the franchise.
Also, they expect Jubilant FoodWorks' acquisition of a stake in DP Eurasia N.V., the exclusive master franchisee of Domino's Pizza brand in Turkey, Russia, Azerbaijan and Georgia, to be adversely affected by Russia's invasion of Ukraine, adding to the risks facing the company.
Its premium valuation, too, is a cause of concern.
Yet, the brokerages remain optimistic on the long-term prospects of quick-service restaurants in the country.
Shares of Jubilant FoodWorks closed with 12.24% losses on Monday, the worst since the Covid-19 pandemic struck in March 2020.
Of the 31 analysts tracking the company, 19 maintain a 'buy' and six each suggest a 'hold' and a 'sell', according to Bloomberg data. The overall 12-month consensus price target implies an upside of 39.2%.
Trading volume on the stock was over eight times the 30-day average volume when markets closed Monday.
Here's what brokerages have to say about Jubilant FoodWorks:
Motilal Oswal
Reiterates 'buy', but cuts target price to Rs 3,680 from Rs 4,200—an implied upside of 28%.
Pota's resignation comes as a surprise given the board's recent approval for his re-appointment for three years ending March 2025.
The company's acquisition of stake in DP Eurasia, the exclusive master franchisee of Domino's Pizza brand in Turkey, Russia, Azerbaijan and Georgia, has been adversely impacted by the Russia-Ukraine crisis.
Expects Jubilant to be able to write-off part of the Rs 200-crore investment in DP Eurasia in the coming quarters.
The structural opportunity for the company's growth remains intact.
Post-Covid environment is likely to offer enhanced opportunity for QSRs in India, driven by delivery, value and technology.
Increase in agri-commodity prices remains manageable except for palm oil and skimmed milk powder costs.
The company's pricing power and strong margins are likely to allow it to absorb higher raw material costs better than peers.
Places Jubilant FoodWorks as one of the top pick in the discretionary space, along with Titan Co. and Devyani International Ltd.
The company deserves premium multiples despite the valuations being high (after the recent correction in the stock by 40% from its peak).
Jefferies
Reiterates 'hold', cuts target price to Rs 3,050 apiece—still an implied return of 6.47%.
The resignation of Pota, the CEO with the Midas touch, comes as a big surprise as he played a pivotal role in the turnaround of the franchise.
Strong successor is a must for Jubilant given the rise in competitive intensity and moderation in growth.
Initiatives such as Domino's BOGO deals, increased focus on quality, launch of 'All New Dominos', brand building measures under Pota yielded strong results.
Selection of the new CEO is an important event despite the available depth for key roles, and would have a bearing on the stock.
HDFC Securities
Maintains 'reduce', cuts target price to Rs 2,400 from Rs 3,300—an implied downside of 16.23%.
The resignation of Pota adds to risk on all fronts, as the outgoing CEO addressed key challenges and boosted confidence in growth longevity, during his tenure.
The timing of Pota's exit is odd as Jubilant has been guiding for massive strong expansion over the next five years.
The investments in DP Eurasia and Barbeque Nation were not strategically aligned capital allocation.
Execution risks due to Pota's exit and overhang of weak capital allocation are key reasons for negative view on the stock.
Consistent exits at senior management level adds a question mark on Jubilant FoodWorks' ability to retain talent.
Pota's exit will hurt the valuation multiple.
Remains positive on Jubilant's business model, but rich valuation is a concern.
Cuts EPS estimate by 6% and 4% for FY23 and FY24, due to steep raw material inflation and macro headwinds.
Cuts target price-to-earnings multiple to 45x from 60x on FY24 EPS.
