Jubilant FoodWorks shares up 10% in 3 days; revenue slips 60% but stock gains, should you buy or sell?

Jubilant FoodWorks, the operator of the famous Domino’s Pizza chain and Dunkin’ Donuts, posted a consolidated net loss of Rs 74 crore in the April and June quarter, despite which shares of the company managed to surge 2.3%, taking the stock up 10% so far this month. The company was hit by the coronavirus pandemic which hit the restaurant business as the dine-in option was wiped off the menu. Total income for Jubilant was down 60% on-year basis and 57% from the previous quarter. The stock has surged 82% since its March lows. However, brokerage firms remain mixed when it comes to the outlook for Jubilant Foodworks. 

In the absence of competitive discounting, Jubilant FoodWorks managed to improve its gross margins. “Going ahead full benefit of delivery charges and higher beverage sales is likely to hold it in good stead,” said Edelweiss Securities in a note. Total consolidated income for the previous quarter stood at Rs 401 crore, which was down from Rs 964 crore in the same period last year. Expenses in the quarter under review were lower, when compared to the previous year, but were higher than the total revenue. 

Jubilant FoodWorks had already invested in technology, giving the company a strong digital presence when it came to online delivery of food items during the initial lockdowns. “Jubilant FoodWork’s superior product-pricing proposition, an unwavering focus on innovation and diversification in popular cuisines keep us enthused on the company’s long-term prospects,” said analysts at Edelweiss, who have pinned at target price of Rs 2,696 per share on the stock with a ‘Buy’ call. 

The coronavirus pandemic could possibly be an opportunity for Jubilant FooWorks which has a strong delivery supply chain. Analysts at Kotak Securities highlighted that consumer reluctance to dine in would strain financials of restaurants, forcing several many out of business. According to the brokerage firm, about 20% of restaurants listed on food delivery platforms have not opened since April. Jubilant’s key offering, Pizza, makes for a convenient delivery item and with strong trust among customers, the brand could beat cloud kitchens as hygiene takes the centre stage. “Additionally, Jubilant is taking initiatives to drive structural improvement in its business model and economics,” Kotak Securities said while pinning a fair value of Rs 2,500 on the stock with an ‘Add’ rating. 

Although the delivery fee being charged by Jubilant FoodWorks will aid the operational performance this fiscal, the 60% slip in revenue is not being ignored by HDFC Securities. The brokerage firm highlighted that Dunkin’ Donut saw 4 store closure and no new stores planned for this fiscal year. “We change our EPS estimate by – 9/+15/+12% for FY21/22/23. We increased target P/E multiple to 45x (42x earlier) to factor-in faster recovery and potential share gain,” HDFC Securities said. The brokerage firm has a ‘Reduce’ rating on the scrip with a target price of Rs 1,758 per share.