Analysts On Jubilant Foodworks’ Move To Bring Popeyes Restaurant To India

Analysts maintained their bullish investment recommendation on Jubilant Foodworks Ltd. after the fast-food chain operator signed a pact to bring U.S.-based Popeyes restaurant to India and neighbouring countries.

The operator of Domino's Pizza and Dunkin' Donuts has entered into an exclusive master franchise and development agreement with PLK APAC Pte. Ltd., a subsidiary of Restaurant Brands International Inc., to develop, establish, own and operate Popeyes restaurants in India, Bangladesh, Nepal and Bhutan, according to an exchange filing. It can also license franchisees to do the same.

Popeyes has more than 3,400 restaurants across 25 countries and uses proprietary seasonings and techniques developed by in-house chefs to make fried chicken. Since its acquisition by Restaurant Brands International, Popeyes has expanded into Spain, Switzerland, China, Brazil, Sri Lanka and Philippines over the last few years. It has also planned its foray in the U.K. and Mexico this year.

“Popeyes will be an exciting addition to the Jubilant Foodworks portfolio and is expected to become one of the key drivers of growth for us in the coming years,” the filing said.

This is in addition to Jubilant Foodworks' palette, which already includes kebabs to noodles. In the last year and a half, the company has opened the Chinese cuisine chain Hong's Kitchen and Ekdum! biryani restaurants.

Shares of Jubilant Foodworks rose as much as 4.1% in early trade on Thursday to Rs 2,984 apiece — the highest in two weeks. Of the 31 analysts tracking the company, 21 have a ‘buy' rating, seven suggest a ‘hold' and three recommend a ‘sell', according to Bloomberg data. The stock crossed its 12-month consensus price target of Rs 2,899 on Thursday.

Here's what analysts have to say...

Morgan Stanley

• Maintains ‘overweight' rating and a price target of Rs 3,070 apiece.
• Has surprised recently with continual forays into white spaces.
• New businesses can be the future growth engines alongside the pizza business.
• Experience in building and operating the Domino's franchise in India should give it an advantage in scaling up newer formats.
• Innovation in product offerings and effective marketing strategy combined with growth in overall chained food services business are key risks to upside.
• Weak same store sales growth trends, rise in cost inflation, competition from food aggregators are key risks.

CLSA

• Maintains outperform rating and a price target of Rs 3,000 apiece
• Looking to address evolved consumer demand for seasoned chicken offerings
• Optionality continues to widen
• Strategically reshaping the business
• Difficult to capture initiatives in the model
• Continue to see support to already elevated valuation multiples

Jefferies

• Maintains ‘buy' rating and a price target of Rs 3,050 apiece.
• Chicken is the most popular western quick-service restaurant cuisines and KFC is the key competitor.
• Forecasts 13% annual growth in revenue back-ended over FY20-23.
• Forecasts more than 250 new store additions over FY22-23E to support revenue growth and a strong margin expansion.
• Expects EPS to rise at about 27% CAGR despite the Covid-19 challenges.
• Recent recruitment of a business head should provide bandwidth.

Emkay

• Maintains ‘buy' rating and a price target of Rs 2,750 apiece.
• Popeyes can substantially increase the addressable market size for Jubilant.
• Popeyes offers Jubilant a new growth driver with a relatively young brand.
• Will need to invest strongly to establish the brand and scale up the franchise in India.
• Recent aggression with the launch of new formats, brands offers better growth outlook over the medium term.
• Expansion is likely to be aggressive and may drive some upsides to the revenue forecasts.

Elara Capital

• Maintains ‘accumulate' rating with a price target of Rs 3,000 apiece.
• Await more clarity on strategy for Popeye expansion in India.
• Lower store size, better product recall, traction for non-veg food, reasonable ticket size will be key monitorables for success in the medium term.
• Huge advantage versus peers for better know how of their customer base and consumption trends.
• Success of new businesses in the medium to long term will lead to rerating of valuation multiples.