Jubilant FoodWorks: Brokerages Cut Target Price Despite Sevenfold Profit Jump

Despite Jubilant FoodWorks, the operator of Domino's, reporting a seven-fold increase in net profit, brokerages remained unimpressed, resulting in a reduction in target prices.

Jubilant FoodWorks witnessed a remarkable surge in consolidated net profit to ₹208.25 crore in Q4FY24, representing a staggering 630% year-over-year growth. Compared to the previous year's ₹28.54 crore profit in Q4FY23, the company's latest profit marked a significant seven-fold increase. The consolidated revenue from operations for Q4FY24 witnessed a notable 24% YoY rise to ₹1,572.8 crore, surpassing the ₹1,269.8 crore recorded in Q4FY23.

Domino's Pizza operator reported a significant revenue increase of 23.8% in the recent quarter, reaching ₹1,572.7 crore compared to ₹1,269.8 crore in the same period last year. However, the EBITDA margin experienced a decline of 210 basis points year-on-year, settling at 6.9%.

For Jubilant's valuations to improve further, Nuvama Institutional Equities said same-store sales growth would have to revive, which remains a challenge.

"Jubilant has taken multiple initiatives— loyalty, reducing delivery time, brand re-haul with IHOP, improvement in delivery or order growth — which are positive, but not enough," said the brokerage. It kept its hold rating intact, slashing its target price from ₹498 to ₹487 per share.

Morgan Stanley lowered its rating on Jubilant FoodWorks to 'equal-weight' and reduced its target price to ₹427 per share. This decision was based on the company's Q4 earnings missing expectations due to weaker margins. The revised target price represents an 11% downside from the current share price. According to Morgan Stanley, the current operating deleverage cycle has led to substantial cuts in earnings estimates. The brokerage emphasizes that improved underlying demand is crucial for any future recovery in Jubilant FoodWorks' performance.

International brokerage Jefferies also cut its target price on Jubilant FoodWorks to ₹475 apiece, as margins contracted to multi-quarter lows.

Prabhudas Lilladher maintains a 'Hold' rating on Domino's stock, lowering its target price from ₹507 to ₹480 based on a discounted cash flow (DCF) analysis. This revised target price incorporates a price-to-earnings (PE) ratio of 68.2xFY26 standalone EPS. According to Prabhudas Lilladher, Domino's achieved positive like-for-like (LFL) sales in the fourth quarter of fiscal year 2024, with this positive trend continuing into April 2024. While competitive pressures may have peaked, as all major pizza players face challenges, the report highlights that growth visibility remains uncertain.

Motilal Oswal maintains a 'Neutral' rating for Jubilant FoodWorks with a target price of ₹480, citing challenges in the quick-service restaurant (QSR) industry. While the company reported strong revenue growth of 24% YoY, reaching INR 13.3 billion in Q4FY24, driven by the DP Eurasia acquisition, profitability took a hit. Gross profit and EBITDA increased by 26% and 25% respectively, but higher depreciation and interest expenses resulted in a 42% YoY decline in PBT. Despite the challenges, Domino's saw a positive like-for-like (LFL) sales growth of 0.1% in Q4FY24, marking a turnaround after four consecutive quarters of decline.

Jubilant FoodWorks has been assigned a 'Neutral' rating by JP Morgan, with a price target of ₹515. The report anticipates that improved like-for-like (LFL) sales will bolster stock performance, while margins have declined but are projected to stabilize. Key initiatives, including the elimination of delivery fees, the implementation of a seven-region structure, and increased brand investments, contributed to a significant increase in delivery orders during Q4FY24.

Jubilant opened 67 new Domino's stores in the quarter, which contributed to an overall revenue growth of approximately 24% to ₹1,572.8 crore. Despite the store expansion, like-for-like sales, a critical metric for comparable store performance, remained flat at 0.1%, ending a streak of four consecutive quarters of decline. Total expenses for the quarter experienced a significant increase of 28.2% to ₹1,545 crore.