Slow down in discretionary spend to hurt Jubilant Foodworks

MUMBAI: Jubilant Foodworks will continue to face the heat of declining discretionary spend in the year 2013-14. The company's trend of declining same store sales (SSS) growth is likely to continue in this year as well. Its SSS growth has been consistently declining for the last four quarters. From SSS growth of 30% in the December quarter FY12, its SSS growth declined to 17% in December quarter FY13.

Avi Mehta, analyst with India Infoline expects the SSS growth to be as low as 10% in the March quarter and sub 10% levels in FY14. However, the overall sales growth is likely to be higher due to addition of new stores.

But this roll out of more stores of Dominos' and Dunkin' Donuts will add to the company's cost. This along with other existing fixed costs will impact the company's margins. Considering this, the return on invested capital by the company is likely to drop.

Considering this, the company's current valuation may not be sustainable. At the current market price of Rs 1111, the company's stock is trading at an earnings multiple of 68, which is quite high.