Buy This Large Cap Multibagger Restaurant Franchise Stock For Target Price Of Rs 720
Stock Outlook
On the NSE The CMP (CMP) for Jubilant Foodworks is Rs 581.25 per piece after a rise of 3.06 percent. The 52-week low of the stock is 451.20 each, which was recorded on May 12, 2022. The 52-week high of Rs 918 apiece, was recorded on October 18, 2021. Its market cap stands at 38,353.50 crores.
Returns on investments
In the last week, the stock market posted negative returns of 0.51 percent. However, over the last one month, the stock soared by 0.03 percent. Over the last 3 months, the shares have given an increase of 19.75 percent. In the past year, it has provided a negative return of 23.35 percent. In the last three and five years the stock has given high-quality returns, with 151.73 percent and 321.1 percent, respectively.
Moats are expanding
JUBI continues to build on its three moats: delivery experience efficient supply chain, and technological innovation. The importance of its value for money proposition was stressed when the company chose to keep the price at a low level of its “Everyday Value (EDV) offer even when it faced price increases for other areas of its portfolio. Management also offered a positive initial reaction to Popeyes with a medium-term goal for 250 to 300 stores.
We’d previously discussed in a comprehensive note last month the following: 1.) the way Popeyes has performed across the globe and the company’s performance in other markets,) what JUBI can bring to the table, and c) the reasons we think it is the most flexible of JUBI’s businesses that are not Dominico. Restaurants that offer quick service (QSRs) have been our top choice to be part of the growth of discretionary consumption. JUBI, DEVYANI, and SAPPHIRE are our top choices in this area.
The food service industry following Covid-19.
The fundamental changes to consumer behavior led to huge shifts in market structure. As the market that was organized grew faster than the non-organized one and online ordering channels, as the thought of grew at a quicker rate than offline options, driving the expansion of taking-away and delivery channels. While the Dine-In and On-Premise modes of consumption will continue to increase, however, there is increasing evidence of the incremental events and the emergence of habits in favor of the consumption off-premise that will continue to continue to be popular even after the Covid period. The past 2 years have also seen eating out at restaurants becoming more commonplace in the absence of celebrations, particularly in smaller towns.
Store additions as well as reductions in the delivery time
JUBI increased its reach to a number of new stores, and also entered 48 new cities during FY22. The expansion of reach has helped reduce the average time for delivery. Today, more than 70percent of its deliveries are made within 20 minutes or less and satisfaction scores for customers climbed to their highest ever levels (best-in-class in the business).
Value in exchange for money
JUBI has been working to improve its value-for-money rating continually in an effort to attract new customers from the unorganized sector (66 percent of FSI according to value). By enhancing the efficiency of processes and other measures to improve cost The management believes that JUBI is able to provide high-quality food at a reasonable price and also maintain these value price points on a comparable basis.
Technology and Digital
Technology, both front-end, and back-end is expected to become an increasingly significant source of competitive advantages. Realizing that data and digital strengths must be embraced by all aspects of the enterprise to make it a flexible and customer-focused company, JUBI continues to make the necessary expenditures into Cloud Architecture and Data Lake and has created specific Product, Engineering, and Data teams, and updating its back-end platforms. It’s fascinating to observe the amount of effort JUBI is putting into the pre-order and post-order customer experience, which will help to build an enormous moat JUBI is able to enjoy over competitors since the majority of orders come through their own app.
Shared competencies
It is the opinion of the management that the Foodservice industry has entered a thrilling time of continuous growth, and will see exponential growth in the development of major brands across many types of cuisines and categories. As part of the process to support Domino’s growth Domino’s Domino’s has invested in shared capabilities and has curated the company’s training that aids the entire range of brands. These shared skills are robust and robust across the supply chain of India as well as data and digital capabilities and business development capabilities and many other functions of support.
Store expansion plan
It is crucial to look at how well JUBI is executing its ambitious expansion plans, particularly considering the rapid expansion of its store network across all QSRs.
The main enablers of the method were predictive models as well as an approach to site selection based on data.
The site selection team carefully examines potential catchment areas and micro-markets through the analysis of a variety of insights that are internal and actionable from data analysis of stores as well as other data sources. This assists in developing forecasting models for return and sales about potential sites.
Polygons and delivery radiuses are then meticulously mapped to ensure that drive times are according to the SOPs that have been defined.
The proposed locations are evaluated through a multi-layered assessment and approval process which guarantees robust checks and reduces the loss of stores.
With the help of teams of different functions Through the use of cross-functional teams, the company was successful in reducing the period from the beginning to store opening.
Each store is examined against sales forecasts and the results of the whole procedure is fed back to the system to make additional enhancements.
Profiting from the enhanced post-Covid market; the best choice for the QSR space
JUBI is our number one choice for the QSR market. JUBI is in a good position to take advantage of the increased post-Covid market opportunity for QSRs in India and is backed by three solid moats of delivery, value, and technology.
JUBI has always had the best business model among QSRs in India due to its focus on the delivery of its products (at 70 percent of sales prior to becoming a victim of the epidemic). Thanks to the introduction of technology and “value” moats and ‘value’ moats, the business has increased. Even as the dependency on FSI companies on the aggregators is growing, JUBI remains relatively insulated due to: a) the fact that it owns its last-mile delivery fleet, and it also has its own fleet of delivery vehicles, and) most of the orders originate via its own application.
The company also has the most balanced balance sheet having a RoCE over 20% for a number of years (barring the tiniest dip in FY21 because of an outbreak). The strength of its balance sheet can help to fund the expansion of its stores as well and is made possible by its trinity of moats of value, delivery, and technology.
Purchase for a price target of Rs 720.
The brokerage added, “We expect JUBI’s EPS to increase by 23.5 percent over FY22-24. Because its brand new offerings such as PLK and PLK, are in an infancy stage of development, our estimates don’t include any significant contribution from these companies. The stock is trading at 35.9x FY24, pre-IND AS 116 EBITDA/EV. Although not cheap, however, we believe the business merits premium multiples due to the reasons above. We have maintained our BUY recommendation and estimate the price at 40x the Jun’24E pre-INDAS the EV/EBITDA ratio of 116 to reach our target price of Rs . 720.”
Disclaimer
The stock was sourced from the report of the brokerage from Motilal Oswal. The Author and the Brokerage House are not responsible for any loss incurred due to choices based on the report.
