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Buy This Large Cap Multibagger Restaurant Franchise Stock For Target Price Of Rs 720: Motilal Oswal

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The brokerage firm Motilal Oswal its recently published report on Jubilant Foodworks has suggested buy the stock of the company, a large cap restaurant franchise company, for a target price of Rs 720 apiece. Investors who buy the stocks of the company at the current market price can expect potential gains of 24% in 12 months.

 

Jubilant FoodWorks Limited is part of the Jubilant Bhartia Group and is India's largest food service Company. The Company holds the master franchise rights for three international brands, Domino's Pizza, Dunkin' Donuts and Popeyes®addressing three different food market segments. The Company launched its first homegrown brand - Hong's Kitchen in Chinese cuisine segment & has also begun offering brand-owned ready-to-cook range of sauces, gravies and pastes, 'ChefBoss'.

Stock Outlook

Stock Outlook

On NSE, the Current Market Price (CMP) of Jubilant Foodworks is Rs 581.25 apiece after a gain of 3.06%. Its 52-week low is Rs 451.20 apiece recorded on 12 May 2022, and the 52-week high is Rs 918 apiece recorded on 18 October 2021. The market capitalization of the stock is 38,353.50 crore. 

Returns on investments

Returns on investments

In the past 1 week, the stocks gave a negative return of 0.51%. Whereas, in the past 1 month it surged roughly 0.03%. In the past 3 months, the stocks gave a positive return of 19.75%. Over the past 1 year, it has given a negative return of around 23.35%. In the past 3 and 5 years, the stocks have given multibagger returns of 151.73% and 321.1%, respectively.

Growth prospects attractive, moats widening
 

Growth prospects attractive, moats widening

JUBI continues to build extensively on its three key moats of delivery expertise, supply chain efficiency and technological superiority. The emphasis on its 'value for money' proposition was also highlighted with the company choosing not to hike the price of its 'Every Day Value (EDV)' offering even as it took price increases on other parts of the portfolio. Management also indicated a good initial response to Popeyes with medium- term targets of 250-300 stores. We had highlighted in a detailed note earlier this month about: a) how Popeyes has fared globally, b) what JUBI brings to the table and c) why do we believe it is the most scalable among JUBI's non-Domino's businesses. Quick-service restaurants (QSRs) are our preferred picks to play the discretionary consumption growth story. JUBI, DEVYANI and SAPPHIRE are our top picks in this domain.

Changes impacting the food services industry post Covid-19

Changes impacting the food services industry post Covid-19

The structural changes to consumer behavior led to a massive shift in the market structure, as the organized market grew more than the unorganized one and online ordering channels as envisaged grew at a much faster pace than offline channels, propelling the growth in delivery and takeaway channels. While Dine-In and On-Premise consumption will return, there is growing evidence of incremental occasions and habit-build in favor of the off-premise consumption, which will sustain and endure even in post-Covid period. The last two years have also led to non-home food becoming a lot more acceptable outside of special occasions, especially so in the smaller towns.

Store additions and reduction in delivery time

Store additions and reduction in delivery time

JUBI added a record 230 new stores and entered 48 new cities in FY22. Increasing reach is helping reduce its average delivery time. Now more than 70% of the company's delivery orders are being delivered under 20 minutes and customer satisfaction scores grew to their highest-ever levels (best-in-class in the industry).

Value for Money

Value for Money

JUBI has endeavored to improve its value-for-money quotient continuously in an effort to recruit new consumers from the unorganized space (66% of the FSI by value). Through improvement in process efficiencies and other cost improvement measures, the management believes it can offer high-quality meals at an affordable price and even maintain those value price points on a like-to-like product basis.

Technology and Digital

Technology and Digital

Technology, both customer-facing and back-end, will become an increasingly important source of competitive advantage. Recognizing that digital and data strengths need to encompass the entire breadth of the organization to become an agile and customer-centric company, JUBI continues to make requisite investments in Cloud Architecture and Data Lake, creating dedicated Product, Engineering and Data teams and upgrading its backend platforms. It is very interesting to witness the tremendous amount of work that the company is putting into both pre-order and post-order customer experience to strengthen a huge moat that JUBI enjoys v/s peers as a dominant share of orders are generated from their own app.

Shared competencies

Shared competencies

The management believes that the Foodservice category has entered an exciting period of sustained growth and there will be a significant increase in the formation of big brands across multiple cuisines and various categories. In the journey of supporting the growth of Domino's, the company has invested in key shared competencies and curated organizationwide learning that lend support to the entire portfolio of brands. These shared competencies are: resilient and robust pan-India supply chain, digital and data capabilities, business development capabilities and other support functions.

Store expansion roadmap

Store expansion roadmap

It is important to examine how effectively JUBI is executing on its bold expansion plans especially given the rapid store network expansion for all QSRs.

  • The key enablers in the process were predictive modeling and data-driven site selection approach.
  • The site selection team meticulously evaluates potential catchment areas and micro-markets by analyzing a range of internal - actionable insights from existing store data analysis as well as external data sources. This helps in deriving predictive sales and return models around potential sites.
  • Polygons and delivery radius are then carefully mapped to ensure drive times according to the defined SOPs.
  • The proposed sites are then processed through a layered evaluation and approval process that ensures robust checks and helps minimize store attrition.
  • Through suitable interventions by cross-functional teams, the company has been able to reduce the time from inception to store launch.
  • Every new store is then evaluated against forecasted sales and the feedback from the entire process is fed back into the system for making further improvements.
 Taking advantage of the improved post-Covid opportunity; top pick in the QSR space

Taking advantage of the improved post-Covid opportunity; top pick in the QSR space

JUBI remains our top pick in the QSR space. The company is well placed to capture the enhanced post-Covid opportunity presented to QSRs in India, underpinned by its three strong moats of delivery, value, and technology.

JUBI has historically had the best business model for QSRs in India, with its emphasis on delivery (at 70% of sales prior to the pandemic). With the additions of technology and 'value' moats, the business has only intensified further. Even as the dependence of FSI players on aggregators continues to increase, JUBI remains relatively insulated because of: a) having its own last-mile delivery fleet and b) the majority of its orders originating from its own app.

The company also enjoys the best balance sheet, with an RoCE of over 20% for many years now (barring a blip in FY21 due to the pandemic). The balance sheet strength helps fund its profitable store expansions as well, which is supported by its triumvirate moats of delivery, value, and technology.

 

Buy for target price of Rs 720

Buy for target price of Rs 720

The brokerage said, "We expect JUBI's EPS to post a CAGR of 23.5% over FY22-24. Since its new brands, including PLK, are still at nascent stages of development, our forecasts do not factor in any meaningful contribution from any of these businesses. The stock trades at 35.9x FY24 pre-IND AS 116 EV/EBITDA. While not inexpensive, we believe the company deserves premium multiples for the abovementioned reasons. We maintain our BUY rating and value the stock at 40x Jun'24E pre-IND AS 116 EV/EBITDA to arrive at our Target Price of Rs 720."

Disclaimer

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.

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