Deutsche Bank puts a 'buy' on Jubilant Foodworks

Deutsche Bank Markets Research has recommended a ‘Buy’ rating on Jubilant Foodworks with a target price of Rs 1,260.”Jubilant has underperformed the consumer sector by 40% over the past one year on worries that slowing same store sales growth (SSSg) will result in moderate earnings growth. Deutsche said in a report that while there is a moderation in discretionary spend growth, which would affect Jubilant’s SSSg, it believes the company has other levers to maintain 42% earnings CAGR over FY13-15E — critical for valuation confidence.

Deutsche’s confidence on the sustainability of strong earnings growth is based on the company’s ability to accelerate store expansion to prop up growth and leverage gross margins of 64% (highest in the industry) through discounting to tide over a moderation in growth. The brokerage said that the Street’s sole focus on SSSg ignores the huge opportunity that exists for the business, which can be leveraged at times when consumer sentiment is low.