Neutral on Jubilant Foodworks - Motilal Oswal

JUBILANT FOODWORKS: SSS growth to soften; Material and staff cost to impact margins; Lowering estimates 1-2%; Neutral

JFL has reported 37% Same Store Sales (SSS) growth during 9MFY11; however the current growth rates are unsustainable.

Excluding FY09 (meltdown year) SSS growth has averaged 18% in the past 5 years, sustainable SSS growth is estimated at 18-20%.

JFL has reported 570bp margin expansion over FY09-11; however, margin expansion is likely to be muted during coming years.

JFL has entered 8 new cities in the current quarter, most of which are tier 2 cities; ~50% of the stores being launched by Dominos are in Tier II and Tier III cities.

JFL has been in talks with some global brands for a possible tie-up for India entry; any concrete announcement is likely over a period of 4-6 months only.

We are lowering our estimates by 1-2% for FY11-13E to factor in lower margin expansion and higher tax rate in FY11. We believe JFL's earnings upgrade cycle has come to an end, which can result in lower valuation premium for the stock. We believe the stock is fully priced at 33.6xFY12E and 22.6xFY13E. Maintain Neutral with target price of Rs477 (v/s Rs483 earlier) valuing at 22x FY13E.

Source : Equity Bulls

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