The Economic Times
English EditionEnglish Editionहिन्दी
| E-Paper

    220 times P/E! Yet, investor appetite for this pizza maker is only growing


    As of Thursday, September 10, the stock had six ‘buy’, 12 ‘outperform’ and six ‘hold’ ratings on the publicly available Reuters Eikon database. There were also five ‘underperform’ calls, but no ‘sell’ rating.

    “Cost control initiatives have resulted in a positive Ebitda of Rs 24.10 crore compared with a loss of Rs 42.30 by Westlife," said HDFC Securities Institutional Research.

    Related Companies



    NEW DELHI: Covid-19 might be having a devastating impact on the revenues of quick service restaurants (QSRs), but the shares of this pizza maker have climbed 41 per cent year to date and 85 per cent in the last one year, suggesting no stress on the stock whatsoever.

    This is even when the stock commands a trailing 12-month earnings per share of 220 times! This means an investor is paying Rs 220 for every Re 1 earned by the company in last 12 months.

    The QSR, which commands a 72 per cent market share in the organised Indian pizza market last week posted a net loss of Rs 74 crore for June quarter, but that did not stop the stock from rallying 5 per cent that day.

    This company is Jubilant FoodWorks. It owns the master franchise agreement with Domino’s International valid till 2024 and renewable thereafter for 10 years. The company also has exclusive rights for developing and operating the Dunkin’ Donuts restaurants in India.

    JPMorgan says the company has all the ingredients in place. Its competitive moats have widened during the Covid crisis, and the pace of demand recovery has been encouraging.

    Morgan Stanley appreciates the fact that the company managed to report ‘positive’ Ebitda in a tough quarter. This brokerage has taken heart from the fact that the company’s delivery and take-away sales would recover fully by this month.

    As of Thursday, September 10, the stock had six ‘buy’, 12 ‘outperform’ and six ‘hold’ ratings on the publicly available Reuters Eikon database. There were also five ‘underperform’ calls, but no ‘sell’ rating.

    "Covid-19 added a share gain leg to the already-powerful exemplary execution in a fast-growing end-market story of Jubilant. Restaurant mortality in the QSR and casual dining space is likely to jump sharply. Consumer preference would shift towards more trusted brands now,” said Kotak Institutional Equities.

    What does the management say
    The company management says sales recovery stood at 70 per cent and 85 per cent in July and August, respectively over the year-ago quarters.

    The QSR management said it would continue with its recently introduced delivery charges of Rs 30 per order, suggesting that there has been no impact on the demand recovery due to the fee. The operator of Domino's expects the competition to reduce materially as many peer restaurants have shut down.

    Source: Jubilant FoodWorks
    The company itself plans to close 105 unprofitable stores that are located in malls and corporate parks with a dine-in focus. That said, it is looking forward to add another 100 stores in FY21 to maintain its store count.

    JF 1Agencies
    Source: Jubilant FoodWorks
    Demand, it said, is expected to reach normalcy by the end of FY21. The company said the pace of store opening for Domino’s and Hong’s Kitchen would pick up next year. It said new stores will be of 750-1,000 sq ft in size, curated more towards delivery and takeaway.

    While commodity prices are expected to remain soft going ahead, discounting may come back, the company anticipates.

    Q1 earnings
    The QSR reported a Rs 73.89 crore loss for June quarter compared with a Rs 71.64 crore profit reported for the corresponding quarter last year.

    Revenues fell 59 per cent YoY to Rs 3,88.41 crore. Jubilant said Covid-19 adversely hurt its dine-in operations. During the quarter, the group negotiated several rent concessions and saw a deferred tax credit of Rs 23.30 crore.

    Soft raw material prices and lesser promotional activity helped margin expansion. Employee and other expenses fell by 19 per cent and 60 per cent YoY.

    “Cost control initiatives have resulted in a positive Ebitda of Rs 24.10 crore compared with a loss of Rs 42.30 by Westlife," said HDFC Securities Institutional Research.

    Westlife Development is a wholly owned subsidiary of Hardcastle Restaurants, which holds the master franchise for McDonald's in western India and South India.

    Ebitda margin came in at 6.3 per cent compared with 23 per cent in the same quarter last year.

    What do analysts say
    Emkay Global said the company has the best financial metrics among QSRs and with competition facing liquidity issues, its stronger profitability and balance sheet make it well-placed to gain share and boost its growth momentum.

    “Strong growth and margin expansion lead to a 20 per cent increase in our FY22-23 estimates and justify a higher target multiple,” it said.

    Motilal Oswal said three events may underpin higher growth and profitability for Jubilant beyond FY21: the ongoing structural push toward delivery, introduction of delivery charge and the opportunity created by the crisis to close down 105 of its least profitable (and dine-in dependent) stores.

    "This would lead to all-time high Ebitda margins in FY22, resulting in 33 per cent upward revision in our EPS projections for FY22," it said.

    Kotak Institutional Equities has increased its FY2021-23 EPS estimates for Jubilant Foodworks by 12-46 per cent and assigned a fair value of Rs 2,500 to the stock. Edelweiss sees the stock at Rs 2,696. It values it at 27 times FY22 earnings. JPMorgan finds the stock worthy at Rs 2,450. Emkay sees the stock at Rs 2,400, based on 50 times December 2021 EPS.

    On Friday, the stock traded 2.78 per cent higher at Rs 2,328 in a depressed market.
    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice on ETMarkets. Also, is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds.)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    2 Comments on this Story

    anil44 days ago
    Rs.30,000 crores market cap. earning multiple of over 200. Market cap it twice that of Oberoi and Taj hotels combined. Totally rigged stock. These analysts who are recommending the stock should be questioned by the investors if the stock crashes. This is a big scam where all constituents viz. media, analysts, institutional investors etc. are all party to the pizza party. Surprisingly SEBI is also not concerned. Wonder Why?
    Praveen Gorthi44 days ago
    Fat n crazy expectations...
    The Economic Times