Recommendation from Miscellaneous Sector

Recommendation from Miscellaneous Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

JUBILANT FOODWORKS LIMITED - A TASTE OF GOOD TIMES 

HERE IS WHY
☛Strong market position
☛Good growth prospects
☛Visible revenue during lockdown.

Jubilant FoodWorks Limited (JFL), part of the Jubilant Bhartia Group, is one of the largest food chain operating companies in India. JFL has exclusive rights to develop and operate Domino’s Pizza brand in India, Sri Lanka, Bangladesh and Nepal. The company also has exclusive rights for developing and operating Dunkin’ Donuts brand in India. JFL has entered into the Chinese cuisine segment with the launch of its first indigenous restaurant brand, ‘Hong’s Kitchen’. The company dominates the QSR pizza market with over 70 per cent market share. 

Domino’s Pizza India has become the brand’s largest market outside of the US. The company has been a pioneer in home delivery in India. In recent years the company has witnessed increasing competition from online food aggregators. However, it has survived this competition and even collaborated with the competitors while maintaining its growth, which has been driven by a strong performance in delivery, especially online sales. In fact, its online sales now contribute 87 per cent of delivery sales.

The lockdown has been harsh on the hospitality and restaurant business. However, during this period, Domino’s India is one of the few QSR players that have continued to operate and provide delivery. Domino’s was proactive in projecting its precautions with campaigns like ‘Zero Contact Delivery’, which instilled confidence in the minds of consumers and has helped it continue its business. Lockdown has hit the food aggregators with many restaurants being closed and the ones that are operating are finding it difficult to gain customer confidence. As such, this will divert more traffic towards players like Domino’s India. The company operates 10 regional supply chain centres that source and supply primary raw materials, ensuring consistent quality and timely delivery to its stores.

The company has enough cash balance which can be used for expansion. The company has been adding new stores and closing the less profitable ones. It has gradually been increasing the effective store counts of Domino’s from 1,200 in Q3FY19 to 1,325 in Q3FY20. In the same period, the effective Dunkin’ Donuts stores have remained more or less constant at 32. Domino’s India has been the main contributor of the company’s topline and is more profitable than the Dunkin’ Donuts’ part of the business. The selective expansion in Domino’s Pizza relative to Dunkin’ Donuts will improve profit margins going forward. 

On a consolidated basis, the gross sales has increased 14.3 per cent to Rs 1,071.36 crore in Q3FY20 from Rs 937.31 crore in Q3FY19. EBITDA showed an increase of 51.37 per cent to Rs 254.44 crore in Q3FY20 from Rs 168.09 crore in the same quarter last year. PAT for Q3FY20 stood at Rs 101.80 crore as against Rs 92.92 crore in the same quarter last year, showing an increase of 9.56 per cent. The stock is trading at a PE multiple of 61.08x. By virtue of these factors, we recommend our reader-investors to BUY this stock.

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