The period of high growth (2007-13), when Jubilant Foodwork delivered a 47% revenue CAGR, is now behind us and our expectations are for a modest period of growth ahead. The Dominos business, we believe, is nearing full potential in the larger cities, while smaller cities? potential is likely to be much more modest than market expectations, in our view. The Dunkin Donuts business is still in the nascent stages and we believe it will not be a meaningful contributor to revenue or profits over the next three years. The stock?s current high valuations suggest investor expectations that SSSG (same-store sales growth) will recover strongly once economic growth picks up. We believe its SSSG is unlikely to go back up to the 20%+ levels of the 2007-13 period and, hence, valuations should see a correction. Therefore, we maintain a ?reduce? rating on the scrip.
The company?s growth has seen a slowdown over the past six quarters and earnings estimates have seen a significant cut. We believe a pick-up in growth is likely, but not to the historical high levels. This means that, over the next 3-5 years, the company should trade at sector average multiples. We reiterate our ?reduce? rating on the stock and would advise investors to exit the stock at the current high valuations.
Nomura
