Jubilant Foodworks: Limited upside in near term
- Same-store sales (SSS) growth of 33%: Jubilant FoodWorks (JUBI) reported Q4 sales, EBITDA and PAT of Rs1.94 bn, Rs331mn and Rs193 mn as against Prabhudas Lilladher's expectations of Rs2.02 bn, Rs368 mn and Rs231mn, respectively.
SSS growth of 33.2% surprised us positively as it comes on the back of higher base of 38% in Q4FY10. During the quarter, JUBI opened 14 new stores, taking the total store count to 378. Seeing the robust demand momentum, management has upped the guidance for store openings to 80 for FY12e.
- Operating margins up 160bps y-o-y: Inflationary pressures in key RM constituents did not impact gross margins significantly (down 50bps y-o-y). However, employee costs remained firm and presents a challenge, going forward, given the high attrition prevalent at store level and base of 11500 employees.
Beneficial impact of strong SSS growth was visible in the operating leverage as rental and other expenses declined 120bps and 150bps, respectively. Consequently, operating margins were up 160bps y-o-y.
Rich valuations limit near term upside: Strong SSS growth of 37% in FY11 on the back of 22% growth in FY10 indicates a robust demand momentum in the Indian QSR space. Current quarter once again demonstrates the inherent superiority of JUBI’s business model.
The stock is currently trading at Rs697. After outperforming the markets by 110%/25%/45% in the last 12/6/3 months and at 31.6 times FY13E, Prabhudas Lilladher believes the stock price reflects all the positives; however it has limited upside in the near term.
Thus despite a long term bullish stance on JUBI, Prabhudas Lilladher maintains an accumulate rating on the stock with a revised target price of Rs700.
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Prabhudas Lilladher has a nationwide distribution network, consisting of branches, franchisees and associates, providing a comprehensive gamut of financial services in the Institutional and Retail domain. Their services includes Equity, derivatives; margin funding, mutual funds, PMS, IPOs and online trading.
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