Shares of Jubilant Foodworks Ltd. fell on Wednesday as most brokerages downgraded the stock after the pizza operator reported another quarter of weak earnings.
While the June quarter was expected to remain under pressure on account of persistent high inflation and weak demand, an uncertain near-to medium-term outlook has led to target price cuts, according to analysts. They expect FY24 to be a challenging year for the Domino's Pizza chain operator.
The consolidated net profit of the country's largest food service company fell 74.3% year-on-year to Rs 28.9 crore in the April-June period, which was a miss on the already-weak Q1 estimate. Revenue grew just 6%, despite a 15% growth in store count. Jubilant's gross margin contracted by 70 basis points due to high inflation in key commodities like flour and milk prices.
The dual impact of no price hikes and sluggish demand also impacted the Ebitda margin significantly, which declined 350 bps to 21% in Q1.
Demand environment remains uncertain, according to the management. While cheese inflation is peaking out, the company continues to see cost pressures on account of the recent increase in vegetable oil prices. However, it may refrain from price hikes as demand is still fragile, squeezing margin.
The average daily sales for mature and non-split stores fell 1.3% year-on-year, which analysts said implies a 5% decline in same-store-sale growth.
Investors didn't show much enthusiasm for the stock. Shares of Jubilant Foodworks were trading 2.12% lower at Rs 466.55 apiece as of 11.42 am on Wednesday, compared with a 0.61% advance in the benchmark NSE Nifty 50.
Of the 35 analysts tracking the company, 20 maintain a buy rating on the stock, eight recommend hold and seven suggest sell, according to Bloomberg data. The average 12-month consensus price target implies a potential upside of 8.2%.
Brokerages' View About Jubilant Foodworks' Q1 FY24 Results
Jefferies
Maintains hold rating on the stock with a target price of Rs 450 per share, implying a potential downside of 4%.
The brokerage has further cut earnings per share by 4-5%.
Ebitda down 9% year-on-year, declining for the third straight quarter.
Stiff competition from food aggregators, reversal of delivery fees and weak consumer sentiments remain key downside catalysts.
Upside risks include aggressive ramp-up in store additions and strong delivery sales from metros as employees return to work.
Dolat Capital
Downgrades to sell rating with a lower target price of Rs 426 as against Rs 489 earlier, implying a potential downside of 11%.
Remains positive on quick-service-restaurant growth in the long run, but cost-led headwinds are likely to put pressure on performance in the near term.
In the near term, the milk prices would remain elevated and if the company would not be able to take price hike, the gross margin will continue to remain under pressure.
With lower same-store sales growth and ticket size, the operating leverage would decline significantly which in turn would put pressure on Ebitda margin.
Nuvama Institutional Equities
Retains buy rating but lowers the target price to Rs 549 from Rs 553, implying a potential upside of 15%.
There has been no major uptick in demand. A slight positive, if one were to read it, is the stabilisation of cheese prices.
The brokerage has trimmed FY24 estimates for profit after tax by 6%. It values the core business at 50 times Q1FY26E EPS (20% discount to five-year average) to factor in the current growth outlook.
For Jubilant Foodworks' valuations to improve further, Nuvama said like-for-like sales growth will have to revive, which remains a challenge at present.
Jubilant Foodworks has taken multiple initiatives—loyalty, reducing delivery times in work—whose impact hasn't yet showed up fully.
Key near-term risk is non-cheese inflation affecting margin again.
On a long-term perspective, competition from Pizza Hut and other brands could structurally lower growth.
Motilal Oswal
Retains buy rating with a target price of Rs 570, implying a potential upside of 20%.
No material change in its revenue/PAT estimates for FY24/FY25.
The management's efforts on improving dine-in like-for-like growth, its decision not to hike prices amid the transient high-cost environment in wheat and cheese, and building the technological and analytical edge are welcome moves that will create value in the medium term.
There are strong long-term opportunities in QSR and Jubilant with its moats is poised to take advantage of the same.
After a steep stock price correction of about 25% from its peak, valuations appear reasonable at 29x FY25E pre-Ind accounting standards Ebitda for a business that has return on equity superior to QSR peers.
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