Diversified base offers several growth opportunities for Jubilant FoodWorks

While the market opportunity is large, the company’s ability to scale up the business and achieve volumes as is the case with its core pizza portfolio will be key.
Shares of quick-service restaurant (QSR) Jubilant FoodWorks were up over 5 per cent on Thursday, aided by higher growth expectations after the firm’s entry into the biryani space. 

This was the third entry for the Indian franchisee of Domino’s after it added Chinese cuisine and sauces to its portfolio. With this addition, the company has a presence in the top three categories of the Indian food space. 

While the organised food market in biryani is pegged at over Rs 3,000 crore by Kotak Institutional Equities, analysts believe the unorganised market is at least 5x that number. With its brand ‘Ekdum!’, the firm is targeting a share of both. In addition to biryani, the company also offers kebabs, curries, breads, desserts, and beverages under this brand. 

While the market opportunity is large, the ability to scale up the business and achieve volumes, as is the case with its core pizza portfolio, is key. 

The company has kicked off its entry into the business by opening three restaurants in Gurugram for delivery, takeaway, and dine-in. It is also planning to open more in Delhi-NCR over the next few months. An analyst with a domestic brokerage says: “Like the attempt with Hong’s Kitchen to expand its presence in the Chinese food segment, the company has to figure out the right format in terms of taste and price, before scaling up. If executed well, the same could contribute substantially to revenues in the first year itself.”

Kotak Institutional Equities believes the firm has a template in place to accelerate store additions to 100-125 a year for Domino’s and 30-40 aggregate additions between Ekdum! and Hong’s Kitchen. What will enable the expansion are the Rs 800 crore in cash and healthy cash flows. 

Brokerages say the strategy of expanding its food menu is the right one, even though its pizza business is already exhibiting strong growth trends. 

Given the slew of burger brands that have come into the market, there could be some shift towards this segment, which may put pressure on the pizza segment, say analysts. 

While this (expansion) is positive from a long-term perspective, the surge in the Jubilant FoodWorks stock, along with other QSR players, is factoring in near-to-medium term growth prospects brought on by the need for hygiene in the midst of the pandemic, as well rapid consolidation in the food market. 

The stock has risen over 30 per cent since the start of November, and is trading at 66x its FY22 earnings estimates. Investors should, however, await a meaningful correction before making an entry.

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