Domino’s operator Jubilant FoodWorks share price tanked 15 per cent to a fresh 52-week low of Rs 2,444 apiece as analysts see CEO’s exit a risk. Most of the brokerage firms have downgraded the stock. Analysts say that consistent exits at senior management level further add a question mark on the company’s ability to retain talent. “Although we remain positive on the longevity of QSR industry and Jubilant’s superior business model, rich valuation remains a concern for us. We cut our EPS estimate by 6% and 4% for FY23 and FY24, owing to steep RM inflation, and macro headwinds,” analysts at HDFC Institutional Research said.
Jubilant FoodWorks share price surpassed its previous low of Rs 2,475.30, hit last week. In the traded volume terms, 4.07 lakh shares have been traded on BSE, while 58.26 lakh shares exchanged hands on NSE, so far in the day. Analysts at Kotak Institutional Equities said that CEO’s exit came at a crucial time when the company has stepped up Domino’s store addition and is on the verge of accelerating its transition into a multi-brand QSR. The leadership change in this challenging macro environment adds to the uncertainty and is a setback for Jubilant FoodWorks, Ravi Singh, VP & Head of Research, told FinancialExpress.com. “The resignation of CEO raises concerns around it’s execution and earnings growth. In this scenario, the stock may witness continuous selling pressure and go up to the levels of 2100 in short term,” Singh added.
HDFC Securities
Rating: Reduce Target: Rs 2,400 Fall: 16.2%
We cut our target P/E multiple to 45x (earlier 60x) on FY24 EPS, due to uncertainty around various aspects post the exit. Our revised target price is INR 2,400, based on 45x P/E on Mar-24E EPS for Domino’s India and INR 150/share (earlier INR 300/share) for ex-Domino’s India. We maintain reduce rating on the stock. We have seen CEO changes for various other consumer companies in the past, and most changes have been value accretive. However, we remain cautious until the new CEO showcases his execution capability. The implied growth for Jubilant is high with rich valuation, and change in core assumptions will further impact valuations.
Kotak Institutional Equities
Rating: Add Target: Rs 2,850 Fall: 0.5%
We cut FY2023/24E revenues by 3%, EBITDA margin by 50-60 bps and EPS by 8-9%. JUBI has re-rated to 50-55X PE from 20-25X PE over FY2017-22. Execution slippage during CEO transition could result in some de-rating. We revise FV to Rs2,850 valuing Domino’s at Rs2,400 implying 43X FY2024E pre-Ind AS 116 PE and option value of Rs450 from new brands.
Edelweiss
Rating: Buy Target: Rs 3,761 Rise: 31%
JFL, before Mr. Pota’s entry, was trading at one-year forward PE of 45x, which re-rated to 60x (average of the next 18 months) post the business turnaround. We lower our target multiple to 36x (25% cut to 48x FY23 EV/EBITDA earlier) with a revised TP of INR3,761 to factor the same. The event does not call for a sharper de-rating beyond what has been factored-in. Appointment of a CEO, partially, and execution post that, will drive valuations back
Philip Capital
Rating: Neutral Target: Rs 2,550 Fall: 11%
We downgrade Jubilant FoodWorks to Neutral from BUY with TP of Rs 2,550 (50x FY24 EPS), as a perfect storm is brewing as near-term business challenges persist along with uncertainty at the helm. We cut our EPS estimates by 21-23% for FY21-24 as new set of business challenges have cropped up 1) Persistent consumer inflation (CPI : 6%+) will lead to reduction in discretionary spending 2) With company already taking double digit price hikes in past 18 months (inclusive of delivery charge of c7% imposed in July, 2020 + 6% price hike taken toward end of December, 2021), we think it will difficult to take another round of price hikes, if current inflation continues to persist 3) Higher probability of significant increase in petrol / diesel price in coming weeks will significantly weigh on company’s freight and delivery bill 4) Historically, we have seen employee cost inflation (increase in minimum wages) to follow post significant increase in food and fuel inflation.
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