Popeyes, COFFY, And Tech Initiatives Will Attract Future Customers

Key Takeaways

• The transition to a 7-region structure and investments in product innovation are likely to enhance operational efficiency and drive revenue growth.
  
• Expansion plans and improved unit economics for emerging brands are expected to increase profitability and market presence.
  
• Strong competitive intensity and high inflationary pressures may lead to reduced margins and earnings, while expansion and strategic investments could strain financial resources and profitability.

Catalysts

Operates as a food service company.

• Jubilant FoodWorks is focusing on enhancing operational efficiency by transitioning to a 7-region structure, which is expected to improve team agility, performance, and the effectiveness of implementing strategies like faster delivery, thus potentially impacting revenues positively.
  
• The company is investing in product innovation and new campaigns, such as new pizza flavors and a national launch of the chicken range, which are expected to drive incremental sales and attract new customers, consequently boosting revenue.
  
• Jubilant FoodWorks plans on continuing store expansion in India and entering new cities, which should contribute to top-line growth through increased geographical coverage and market penetration.
  
• The focus on scaling and improving the unit economics of emerging brands like COFFY and Popeyes, coupled with strategic location choices, is expected to enhance profitability in the long term, supporting improvements in net margins.
  
• Technological advancements and a robust digital platform are being leveraged to improve customer engagement and manage delivery efficiency, which could lead to higher order volumes and greater cost control, thereby enhancing earnings.

Jubilant FoodWorks Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Jubilant FoodWorks's revenue will grow by 14.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.1% today to 6.8% in 3 years time.
• Analysts expect earnings to reach ₹7.7 billion (and earnings per share of ₹11.56) by about March 2028, up from ₹3.9 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₹10.2 billion in earnings, and the most bearish expecting ₹5.1 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 95.6x on those 2028 earnings, down from 108.8x today. This future PE is greater than the current PE for the IN Hospitality industry at 32.6x.
• Analysts expect the number of shares outstanding to grow by 1.34% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.21%, as per the Simply Wall St company report.

Jubilant FoodWorks Future Earnings Per Share Growth

Risks

• The competitive intensity continues to be strong, leading to higher discounting during peak seasons, which could pressure margins if sustained. This may impact net margins.
  
• High inflationary pressures, particularly in the Turkey operations, could result in reduced consumer spending power and pressure on wage revisions, potentially impacting revenues and earnings.
  
• Strategic investments in new brands and markets, such as free delivery initiatives and advertising, could strain financial resources and result in lower short-term profitability. This may affect EBITDA margins.
  
• Growth in delivery and discounts to maintain market share may not be sustainable, and a reduction in customer value propositions, like the cheese offerings, could impact customer loyalty and future revenues.
  
• Expansion into new cities and markets carries the risk of higher operational costs and challenges in achieving the desired unit economics, potentially affecting overall profitability and net earnings.

Valuation

• The analysts have a consensus price target of ₹700.484 for Jubilant FoodWorks based on their expectations of its future earnings growth, profit margins and other risk factors. 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 ₹450.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹113.3 billion, earnings will come to ₹7.7 billion, and it would be trading on a PE ratio of 95.6x, assuming you use a discount rate of 15.2%.
• Given the current share price of ₹637.4, the analyst price target of ₹700.48 is 9.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.