Buy Large Cap Tourism & Hospitality Sector Stock For 21% Gain: ICICI Securities

ICICI Securities has placed buy call to this large cap Tourism & Hospitality sector stock Jubilant FoodWorks Ltd for a target price of Rs 750 with a potential return of 21%. According to ICICI Securities, "We remain longstanding believers of QSR opportunity and Jubi's superior execution skills. We believe JUBI remains best positioned to realise industry tailwinds driven by (1) already existing digital infrastructure and delivery capability & relationships, (2) lower competition thanks to industry consolidation (~25% of restaurants have closed as per National Restaurant Association of India) and (3) strong balance sheet."

Jubilant FoodWorks Ltd Stock Outlook

The current market price of the stock is Rs 616 apiece with an intraday decline of 1.41%. The 52-week high of the stock is Rs 915 apiece and 52-week low is Rs 451 apiece, respectively. According to ICICI Securities, if you buy the stock at its current market price, it is showing a potential to surge to Rs 750 apiece within a target time of 1 year. The company has a market capitalization of Rs 40,540 crore.

Jubilant FoodWorks Ltd 5 Years Return

The stock has given a return of 340% in last 5 years and 147% in last 3 years. It has fallen 25% in last 1 year.

Probability of Popeye's success higher than expected

We believe JUBI can surprise consensus in Popeye's execution unlike its own brands (Hong's Kitchen, Ekdum!). Two reasons: Firstly, KFC is the only organised QSR player in fried chicken category while there are multiple smaller and unorganised players in fried chicken category having concepts similar to KFC India.

Presence of multiple such similar players tells us market opportunity exists. Secondly, consensus has been disappointed with execution in scale up of JUBI's own brands Hong's Kitchen, Ekdum!. However, extrapolating JUBI's execution capabilities in these brands to Popeye's wouldn't be fair, in our view.

Lower incremental impact of fortressing strategy

JUBI had implemented fortressing strategy to protect its key markets by splitting its stores in key areas to improve consumer experience. While this strategy has been there for some time now, it was further accelerated in FY22. We believe that the impact of this strategy is likely to be low incrementally due to 1) JUBI has already split many of its stores in last couple of years, and 2) revenue of the mother stores generally dips in Year 1 due to some cannibalisation but it recovers back to its original revenues within 12-18 months and provides significantly higher profitability together as both of these stores starts serving a larger area with improved consumer experience. Therefore, considering that fortressing strategy has been there for ~2 years now, benefits of fortressing strategy will offset the impact of further splitting of stores implying lower incremental overall impact.

Valuations and risks

According to ICICI Securities, "Our earnings estimates are largely unchanged, modelling revenue / EBITDA / PAT CAGR of 21 / 24 / 29 (%) over FY22-24E. Upgrade to BUY (from ADD) with DCF-based revised target price of Rs750 (was Rs640). Key downside risk are higher-than-expected competitive intensity and inflation."

About Jubilant FoodWorks Ltd

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'. The Company also entered into the exciting world of Biryanis with the launch of "Ekdum!". It offers the widest range of Biryanis curated from various parts of India using authentic ingredients along with extensive range of Kebabs, Curries, Breads, Desserts and Beverages, according to its official website.

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. 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.