The best year of gains and costliest valuations among peers won't end the party for Jubilant FoodWorks Ltd., the operator of Domino's Pizza restaurants in India.
That's what research firm Jefferies said as it initiated coverage on the company with a ‘Buy' rating and a target of Rs 3,100, an upside of 64 percent from the current market price. That's the most bullish bet on the firm among all brokerages covering the stock tracked by Bloomberg.
Higher margins from vintage stores—more than four years old—and cost cuts will fuel the rally in 2018, Jefferies wrote. Shares of the restaurant chain operator returned 106 percent in 2017, its best yearly performance. That compares with a 28 percent rise in the benchmark Sensex.
Jubilant FoodWorks trades at 188.3 times trailing 12-month earnings per share and 89 times its estimates for the coming year. That's higher than its peers like Coffee Day Enterprises Ltd., Westlife Development Ltd. and Speciality Restaurants Ltd.
In 2017, the stock also outperformed the analysts' 12-month consensus price target by 70 percent.
The brokerage expects same-store sales growth, revenue and earnings per share to grow at a compounded annual growth rate of 10 percent, 16 percent and 45 percent, respectively, over the financial years through March 2020.
The losses of Dunkin' Donuts— also run by Jubilant Foodworks—are expected to shrink as it's shutting loss-making stores and opening smaller-format outlets, Jefferies said. While the management hopes to break-even in the next financial year, the research house sees that happening by the financial year ending March 2020. Discretionary slowdown, a sharp rise in raw materials and competition are the key risks.
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