Jubilant Foodworks (SELL): Margins and SSG will be under pressure in FY14 - Ambit

Jubilant Foodworks' same-store sales growth (SSG) moderated in 4QFY13, and this would likely sustain in FY14 as well. The impact of store splits cannibalising SSG in tier-1 cities would aggravate going forward. Also, the company would be adversely affected by the 5% increase in service tax effective from 1 April 2013 combined with the expected price increases of 5-6% in an environment where price elasticity of demand has been exceptionally high. EBITDA margins (guidance of 80bps decline YoY in FY14) are likely to remain under pressure from the incremental drag of 20bps from Dunkin Donuts expansion, rental cost escalation for Domino's, and weaker SSG-related scale efficiencies. Moreover, with a capex of Rs2.5bn in FY14, we do not expect the company to generate substantial free cash flows in FY14.

We are likely to downgrade our EPS forecasts for FY14 and fair value by ~10% on the back of these results. We reiterate our SELL stance.

Source : Equity Bulls

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