Morgan Stanley Almost Doubles Its Target Price On Jubilant FoodWorks

An employee takes a customer’s order at a Domino’s Pizza outlet, operated by Jubilant FoodWorks Ltd. (Photographer: Prashanth Vishwanathan/Bloomberg)

Written by
Anirudh Saligrama
Written by

Anirudh Saligrama

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Jubilant FoodWorks Ltd., the operator of Domino's Pizza chain in India, is likely to clock 8 percent same-store sales growth (SSSG) during the current financial year, according to a Morgan Stanley report.

The broking firm also expects SSSG to be 10 percent and 12 percent for FY19 and FY20, respectively.

Morgan Stanley hiked Jubilant FoodWorks' price target to Rs 1,780, nearly double from its earlier price target of Rs 900 and upgraded its stock rating to ‘Over-weight' from ‘Equal-weight'.

The hike in price target implies a potential upside of 19.9 percent from Thursday's close.

Our channel checks show still-favorable demand trends for quick service restaurants in FY18, with SSSG sufficient to offset cost inflation. This is important because it allows Jubilant to realise the full benefit of ongoing cost control, rationalised losses from Dunkin and cost efficiencies after implementation of GST.

Morgan Stanley Research Report

Morgan Stanley expects the company's margins expand by 610 basis points over FY17-20 and earnings per share to grow at a compounded annual growth rate (CAGR) of 60 percent.

It also hiked EPS Estimates by 19 percent, 28 percent and 28 percent for FY18, FY19 and FY20, respectively.

“Improved consumer sentiment at urban areas and metros in particular, multiple growth levers such as new product launches, increased visibility of sharp operating margin expansion and potential for rapid acceleration in store expansion from FY19 onwards, are the combinations of factors which could drive solid earnings growth in FY18-20,” Morgan Stanley said.

It added that the market believes that new management and greater focus on cost control, product/marketing innovation, and improved value perception will structurally alter the growth trajectory.