Jubilant FoodWorks’ Q2 results were better than expected. Even though profits fell by 2.2% YoY on account of one-time provisioning for investments, operating revenues grew by 12.1% YoY and EBITDA margins were higher by 50 basis points. The biggest winning point was the same-store sales growth which stood at 4.9% on an already higher base.

Other than good Quarterly numbers, there are other interesting factors that make Jubilant FoodWorks a lucrative bet:

  1. Jubilant FoodWorks is a zero-debt company.
  2. The dividend yield has gone up from 0.17% in 2015 to 0.35% in 2019, indicating that the company is rewarding its shareholders by paying out cash.
  3. Margins (8.9%), ROE(28.66%) and ROCE(43.9%) are at its highest in the last 5 years.
  4. The company’s competitive advantage which is measured by a proprietary formula developed by us at Jamnadas Virji Advisory, went up from 9.66% in 2014 to 30.62% in 2019, indicating a higher expected return to stakeholders.
  5. Food inflation has dropped from around 9% in 2014 to 2% in 2019 on top of it company has been able to increase prices of its products adding to margins of the company.
  6. Per Capita GDP real growth in India came down to 5.5% in 2019 compared to 5.8% in 2018. At the same time Per Capita, consumption expenditure real growth went up to 6.8% in 2019 from 6% in 2018, indicating higher demand for the food and beverages segment as well which comprises approximately 35% of overall consumption expenditure in India.

Jubilant FoodWorks’ Valuation:

1. PE-based valuation: below chart shows the PE band, which shows that the stock is in the uppermost channel, indicating valuations are not very cheap but there is still scope for PE expansion.

2. Cash Flow based Valuation: At current price of ₹ 1546/-, market is pricing-in the growth in cash flows of the company to be around 35% CAGR for the next 10 years. Previous 4 years cash flow growth has been at 20% average. We are currently valuing the stock at ₹ 1702/-. based on our cash flow model which considers sustainable growth rate.

Technicals: Below chart shows how Jubilant FoodWorks is technically placed.