The company, which runs a number of food chains in India, acquired the master franchise rights for Popeyes — the world’s second-largest quick service chicken restaurant after KFC — in India, Bangladesh, Nepal and Bhutan.
“Popeyes can substantially increase the addressable market size for Jubilant. The chain QSR chicken market size is estimated at more than Rs 3,000 crore, in which KFC is a major player with Rs 2,000 crore in revenues. Recently, Westlife Development has also entered this space in South India,” said Ashit Desai and Devanshu Bansal of Emkay Global.
They, however, said Popeyes is smaller and lesser known outside the US, and Jubilant would need to invest strongly to establish the brand and scale up the franchise in India.
Emkay Global maintains a ‘buy’ rating on the stock with a price target of Rs 2,750. The stock traded 1.50 per cent higher at Rs 2,918 on Tuesday morning.
The company said Popeyes, along with four other brands that it manages – Domino’s, Dunkin’ Donuts, Hong’s Kitchen and Ekdum – would offer the firm cost synergies and higher bargaining power for rentals and store locations at food courts.
CLSA also welcomed the deal. It maintained an ‘outperform’ rating on the stock with a target price of Rs 3,000, saying that the company is quick to address opportunities and is strategically reshaping the business.
One should keep in mind that Covid severely impacted the revenues of QSR chains, including those that Jubilant FoodWorks manages. However, there has been a recovery in recent months. With a resurgence in Covid cases, it needs to be seen how these chains cope up with the new realities.
Nihal Mahesh Jham of Edelweiss said the key aspects to evaluating Popeyes’ potential and value would for Jubilant will be: one, tracking any restaurant opening targets, similar to Burger King India; two, royalty rate and store economics for the brand; three, menu localisation and extension plans.
“Led by Domino’s store expansion potential (195 stores over FY20–23) and its strong expected same store growth of 6 per cent average in FY20:23 and past growth of 10 per cent during FY17–20, we estimate Jubilant to clock 11 per cent CAGR in revenue and 15 per cent in Ebitda over FY20–23,” said Jham.
Edelweiss said the stock remains its top pick in the QSR space and maintained a ‘buy’ rating with a price target of Rs 3,575 at 40 times expected June 2022 EV/Ebitda.
Some other commentators said lack of success in new formats and brands can be margin-dilutive and poses a risk to the stock.
