After no negative surprises from Titan Industries in September 2012 quarter (Q2 FY 13), investors have started building hopes on another consumption story-led stock - Jubilant Foodworks.
The company’s stock has gained close to 6% in the last one week and has outperformed Sensex in anticipation that the company will also report a robust financial performance especially on the sales front on November 7, when it announces its Q2 FY 13 results.
Though Jubilant’s expected sales growth (based on analysts’ estimates) of 40.7% in Q2 FY 13 (Rs 338 crore) will be commendable given the base of same quarter last year (47.5%), the rate of growth is certainly lower than the seven quarter average of 51.7% or in other words expected sales growth will be lowest in past eight quarters.
Gautam Duggad, analyst, Motilal Oswal expects same store sales growth of 25% in Q2 FY 13, lower than the average 26% reported in last four quarters despite aggressive expansion in terms of stores and number of cities ( which will improve SSG sequentially though).
Analysts attribute the slowdown in SSSG and revenue growth to price hikes and depressed discretionary spends. The company hiked prices twice in 2011 and once in 2012. Further it had indicated it will go for a further price hike of 2-3% in November.
But price hikes will certainly help maintain profitability besides gains from operating leverage. The company’s operating profit and net profit is expected to grow 43% and 35% respectively to Rs 60.5 crore and Rs 33.5 crore. Consequently, margins are likely to remain stable at around 18% and 10% respectively.
But quick service restaurant (QSR) company like Jubilant, which is trading at peak valuation of 56 times FY 13 estimated earnings (40 times for FY 14), reporting robust sales growth is an imperative as all the efforts of store expansion, introduction of new products/launches and promotional activities should lead to rising product penetration (QSR concept, consumption of pizza and donuts being at a nascent stage in India) and inturn higher volumes.
The company’s chief executive officer, Ajay Kaul was quoted on October 12 as saying that the kind of growth which the company saw last year is not there. Weak sentiment is continuing though not in an alarming manner. In light of this, the management’s comments on the impact of price hikes on volumes and consumer sentiments is most awaited by analysts.
