We maintain our ‘reduce’ rating on Jubilant Foodworks with a target price of Rs 770, valuing the stock at 25x our one-year forward earnings forecast of Rs 30.7 a share. We believe given the risk to earnings in the short term and weak consumer demand, valuations should converge to the sector average.
Jubilant’s Q4FY14 results were below our estimates. While sales were 2.8% below estimates, PAT was 27% below our estimates and 22% below consensus. Net revenue increased 18.6% to Rs 434 crore against our estimate of Rs 446 crore and the Street expectation of Rs 455 crore.
Same-store sales growth (SSSG) for the quarter was -3.4%, below our estimate of -2%. Full-year SSSG now stands at 1.6%. The company opened 47 Domino’s outlets during the quarter and the total count now stands at 749 outlets as at end-FY14. Total Dunkin’ outlet count now stands at 29 with operations being launched in Mumbai recently.
Ebitda came in at Rs 55.7 crore versus our estimate of R67.5 crore and consensus at R66.2 crore. Ebitda margin came in at 12.8%, down 390 bps y-o-y. We were expecting Ebitda margins of 15.1% (down 160 bps y-o-y) and the Street was at 14.6% (down 210 bps y-o-y).
According to the management, rising A&P spends and the development of Dunkin’ Donuts network was the main contributors to the cost rise. The key positive was gross margins which improved 140 bps from a low base.