Macquarie reduced target prices of Jubilant Foodworks Ltd., Devyani International Ltd., Sapphire Foods India Ltd., and Westlife Foodworld Ltd. as it sees that the demand trends remained muted. The brokerages said that all hope regarding demand recovery shifted to festival season.
Macquarie has reduced earing-per-share estimates for all companies by 4–7% to factor because of the first-quarter miss. Devyani International got the biggest EPS cut because of the greatest margin weakness. Jubilant Foodworks, Sapphire Foodsm, and Westlife Foodworld followed, Macquarie said.
Macquarie is expecting that Jubilant Foodworks will likely to see its normalisation of its like-to-like growth as delivery cost reduction has helped the double-digit growth in same-store sales. This will start to into base in third quarter.
Focus has moved to same store sale momentum in festive period and potential uptick in urban consumption after the GST reforms take place post September, according to the brokerage.
Delivery promotions have supported Jubilant Foodworks’ same-store double-digit growth. Its peers saw a flattish low single-digit growth same-store sales growth, Macquarie said.
Devyani International, Jubilant Foodworks have suggested to focus on value and targeted promotion will sustain growth. Westlife Foodworld sounded most optimistic because of the green shoots the McDonald operator has seen in its early initiatives improve South India growth.
According to Macquarie, GST cuts are pivot to increase income of consumers. The brokerage believes that it will aid the mass-end demand. This policy initiative enhances the comfort on the demand recovery panning out in the second half as festive season aids demand recovery, Macquarie said.
Macquarie prefers Devyani International and Westlife Foodworks. KFC and McDonald’s formats impressed the brokerage to prefer above mentioned restaurants.
Jubilant Foodworks’ India Ebitda margin may remain flattish given the need for growth investments. These indicates that downside risks to street estimates remained, which is not adequately represented in current valuation, the brokerage said.
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