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Research
Jubilant Foodworks - Baking growth pie - Edelweiss
Posted On : 2012-10-14 20:03:36( TIMEZONE : IST )
Jubilant Foodworks (JFL) has announced a price hike of 2-3% commencing November 2012. It has also unveiled its new brand positioning Ye Hai Rishton Ka Time, marking a change from 'happiness' to 'bonding'. Aided by planned intake of 3-4K employees in FY13, JFL's expansion plan of 100 store additions remains on track. Dunkin' Donuts' target of adding 10 stores in FY13 is on track with five store additions so far. In Q3CY12, Yum Brands' (Pizza Hut) India division has reported 29% system sales, with 5% same store sales growth. We are positive on JFL's robust brand equity, dominance in pizza delivery, rising penetration and long-term potential of Dunkin' Donuts. Maintain 'HOLD' as fairly valued over near term.
Inflationary pressure triggers 2-3% price hike
JFL has announced a price hike of 2-3% from November 2012 citing inflationary pressure. Its previous price hikes were in August 2011 (3%), November 2011 (5%) and June 2012 (3%). In Q1FY13 concall, management had stated its intention of effecting one more price hike of ~3% during the year. It had indicated that the 3% price hike in June will have an impact Q2FY13 onwards. Similarly, we expect the proposed price hike to fully start impacting from Q4FY13.
Positioning shift: From happiness to bonding
The company has also unveiled its new brand positioning Ye Hai Rishton Ka Time. For more than four years, JFL had focused on the home delivery aspect via its positioning Khushiyon Ki Home Delivery. Cadbury has made a similar positioning shift over the past few years, which has had a positive impact of 35% YoY in 2011 on its revenue growth. Ergo, we believe, JFL's new positioning bodes well for growth since the general sentiment for discretionary spends also remains weak.
Outlook and valuations: Positive; maintain 'HOLD'
We expect JFL to be one of the best plays in consumer discretionary space. We expect valuations to remain expensive given efficient execution, sharp expansion and innovation. At CMP, the stock is trading at 59.9x and 42.9x FY13E and FY14E, respectively. Maintain 'HOLD' recommendation and 'Sector Performer' rating.
