In the current uncertain times, the stock of Jubilant FoodWorks (Jubilant) – an Indian franchise of Domino’s pizza – is amongst the top outperformers in the discretionary retail space. While Jubilant’s stock has shed over 16 per cent in the last month, those of Titan, Trent, Bata, Westlife Development, among others, have fallen by 20-34 per cent during the same period.
Some analysts now believe that the recent correction adequately factors in the near-term pain for Jubilant. And, a fast recovery in topline post lockdown with support from online delivery and raw material tailwinds would support the stock. However, there are factors that could play spoilsport, which investors should be cognisant of.
To start with, there is still no clarity on the lifting of lockdown. If the latter gets extended, it would severely hurt the wallet of households and their spending power, and consequently, Jubilant’s earnings. Besides closure of mall stores, higher chances of cancellation of key events such as Indian Premier League would pull down Jubilant’s topline, say analysts. This, along with higher share of fixed-cost (approximately 60 per cent of overall cost structure) would directly take a toll on its earnings.
With just 14-day lockdown in June quarter, analysts at PhillipCapital estimate around 25 per cent decline in Jubilant's same-store-sales growth (SSSG, a key performance indicator for retailers) in June quarter, and 21-35 per cent earnings cut for FY21-FY22. This, sufficiently indicates potential damage to Jubilant’s performance in the event of a prolonged lockdown.
Nonetheless, even after the lockdown, how the demand for discretionary foods like pizza, burger, etc pans out is still a question. Pay cuts, job losses, and more preference to home-made food could eat into the overall demand for such non-essential food items. Even now, the company has witnessed pressure on delivery in the recent times, according to HDFC Securities.
Further, promoter stake sale and exuberance among online delivery players to grab market share are some other risk factors for Jubilant, say analysts at PhillipCapital, which believes the near-term pressures are priced in.
What though offers comfort is Jubilant’s debt-free balance sheet, good cash position and strong brand equity.
For now, investors may be better off waiting for clarity to emerge on lockdown and revival in delivery demand, as the stock’s current valuation of 46 times its FY21 estimated earnings is still not attractive given the current scenario.