Rising Health Trends Will Pressure Fast Food Profitability

Key Takeaways

• Shifting consumer preferences toward healthier food and regulatory pressures threaten demand, margins, and increase operational complexity for the company.
  
• Margin pressures persist as competition intensifies, digital aggregators grow, and investments fail to yield proportional bottom-line gains.
  
• Strong store expansion, digital engagement, cost efficiencies, brand innovation, and disciplined management support sustained growth, margin improvement, and diversified revenue streams.

Catalysts

Engages in food service business in India, Turkey, Bangladesh, Sri Lanka, Azerbaijan, Nepal, and Georgia.

• Ongoing rise in health consciousness and increased consumer preference for fresh, organic, and healthier food options threaten the core demand for fast food and QSR offerings; this secular shift is expected to reduce long-term revenue growth potential for Jubilant FoodWorks, especially as Indian urban consumers become more discerning.
  
• Fast-accelerating growth and leverage of food delivery aggregators like Zomato and Swiggy erode direct customer relationships for established QSR brands, subjecting the company to margin pressure from higher commissions and promotional expenditures and diminishing earnings quality over time.
  
• Intensifying regulatory scrutiny on processed foods, single-use packaging, and labor practices within the fast-food industry exposes Jubilant FoodWorks to rising compliance costs and operational complexity, which are likely to impact future net margins adversely.
  
• Continued heavy investment in new store openings and digital infrastructure, while top-line growth remains solid, has not translated into proportional bottom-line gains. Depreciation and cost pressures are expected to persist, with company management highlighting that much of their margin decline is structural rather than transient, suggesting protracted weakness in earnings growth.
  
• The proliferation of both domestic and international QSR competitors, combined with persistent food, labor, and rent inflation, places sustained downward pressure on gross margins. Attempting price hikes in such an environment is made more difficult by highly price-sensitive consumers empowered by digital tools, likely resulting in subdued future profitability.

Jubilant FoodWorks Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Jubilant FoodWorks compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Jubilant FoodWorks's revenue will grow by 11.7% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 3.1% today to 5.8% in 3 years time.
• The bearish analysts expect earnings to reach ₹6.8 billion (and earnings per share of ₹10.33) by about August 2028, up from ₹2.6 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 80.4x on those 2028 earnings, down from 158.2x today. This future PE is greater than the current PE for the IN Hospitality industry at 35.4x.
• Analysts expect the number of shares outstanding to grow by 0.52% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.64%, as per the Simply Wall St company report.

Jubilant FoodWorks Future Earnings Per Share Growth

Risks

• Continued strong like-for-like growth and store expansion, especially in Tier 2 and 3 cities, suggest high long-term demand and operating leverage, which could drive sustained revenue and earnings growth for Jubilant FoodWorks.
  
• Rising digital engagement with a rapidly growing base of app users and loyalty members supports stickier customer behavior and the potential for higher frequency and average order values, benefitting top-line revenue growth and customer lifetime value.
  
• Ongoing investment in supply chain efficiencies and technology is already yielding lower delivery and supply chain costs, which could improve gross and net margins as sales scale up across both new and mature stores.
  
• Successful brand and menu innovation, including new product launches (e.g. Big Big Pizza, Chicken Burst, lunch propositions) and Popeyes' momentum, demonstrate the company's ability to adapt to consumer trends and broaden its revenue streams, reducing dependence on a single offering and supporting long-term revenue and EBITDA.
  
• Management commitment to disciplined cost control, capital allocation, and margin expansion-while completing heavy upfront commissary and technology investments-positions the company for higher return on invested capital and an improved net profit margin trajectory in coming years.

Valuation

• The assumed bearish price target for Jubilant FoodWorks is ₹532.9, which represents two standard deviations below the consensus price target of ₹727.97. This valuation is based on what can be assumed as the expectations of Jubilant FoodWorks's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1000.0, and the most bearish reporting a price target of just ₹516.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be ₹118.0 billion, earnings will come to ₹6.8 billion, and it would be trading on a PE ratio of 80.4x, assuming you use a discount rate of 15.6%.
  
• Given the current share price of ₹631.85, the bearish analyst price target of ₹532.9 is 18.6% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.