Institutional Equities Jubilant FoodWorks 10 December 2014 Reuters: JUBI.BO; Bloomberg: JUBI IN Immense Operating Leverage ‘In Store’ BUY We have assigned Buy rating to Jubilant FoodWorks. We like its business model with the strong emphasis on delivery in large cities which enables it to circumvent high lease Sector: Restaurants rentals, a big barrier to profitability for food and retail players in India. We also admire the consistent innovation, willingness to expand during slowdown and the investments in CMP: Rs1,341 advertisement and promotion (A&P) that the company has made in the past few years, Target price: Rs1,737 despite slowdown and its impact on margins, all of which will stand it in good stead during the recovery phase. While we expect the recovery to be slow owing to a gradual Upside: 30% recovery in disposable income (hence our FY15 and FY16 earnings estimates are below street expectations), we believe Jubilant FoodWorks is an extraordinarily impressive Krishnan Sambamoorthy business that is likely to embark on a phenomenal earnings growth spree over FY15E-
[email protected] FY18E, leading to tripling of EPS (EPS growth at 46%CAGR, with 35.1%, 58.1% and 46.7% +91-22-3926 8033 growth in FY16E, FY17E and FY18E) and near doubling of return ratios to over 35% in these three years. The stock trades at 60.3x one-year forward EPS for the past three years and 51.9x since its listing in FY10. Potential high earnings growth will sustain valuation. Aditya Joshi The stock trades at 34.7xFY17E and 23.8xFY18E EPS.