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Brokerage Recommendations

Monday, November 09, 2015

Religare calls a ‘Buy’ on Jubilant FoodWorks
CMP: Rs. 1420    Target Rs. 1900

JUBI reported a weak Q2 with net sales/EBITDA/adj. PAT growth of 17.2%/ 4.1%/(17.7%) and muted SSSg of 3.2% (RCMLe 6%) even off a low base (Q2FY15: -5.3%). Margins too disappointed (10.8% vs. RCMLe 12.9%) on negative operating leverage and higher employee costs. While management maintained its guidance of high single digit SSSg over next 4 quarters, we slash our FY17/FY18 EPS by 13%/11% given muted consumer sentiments and lower margin expectations. BUY; Sep’16 TP Rs 1,900.

Net sales up 17.2%:  Net sales grew by 17.2% YoY to Rs 5.9bn on weak SSSg of 3.2% (RMCLe 6%), even off a low base (Q2FY15: -5.3%), which management attributed to muted discretionary spends. JUBI opened 39 Dominos/7 Dunkin Donuts (DD) in Q2, in line with its FY16 store addition target of 150/30 stores. The company continues to see higher traction in delivery sales as against dine-in sales led by a surge in online ordering (OLO). OLO contributed 36% (Q1: 33%) of delivery sales as mobile ordering sales rose to 30% (as a percentage of OLO) from 28% in Q1. JUBI took a price hike of 3.8% YoY across its product portfolio.  Management remains optimistic on attaining high single-digit growth in the next four quarters.

Margins contract 135bps to 10.8%: EBITDA grew 4.1% YoY to Rs 635mn with EBITDA margins declining 135bps YoY to 10.8% (RCMLe 12.9%). Gross margins expanded 145bps YoY on lower food inflation, but were more than offset by a 245bps/25bps YoY increase in staff/rent costs due to negative operating leverage. Adj. PAT spiraled down 17.7% YoY to Rs 239mn with a 30% YoY increase in depreciation and a higher tax rate of 31% (Q2FY15: 26.7%).

Maintain BUY with Sep’16 TP of Rs 1,900: We cut our FY17/FY18 earnings due to continued weakness in SSSg and margins. However, we maintain BUY with a revised Sep’16 TP of Rs 1,900 (Rs 2,200 earlier) as a likely recovery in demand pushes up  SSSg and JUBI’s store addition focus boosts revenue growth over FY16E-FY18E.

Emkay calls a ‘Buy’ on HSIL
CMP: Rs. 278    Target Rs. 400

Steady quarter – Revenues up 1.3% at Rs 4.3bn, EBITDA grew 1.1% yoy to Rs 756mn and APAT at Rs 243mn, up 27.6% yoy. Building products grew by 8.9% challenged by weak real estate demand; packaging products reports revenue decline due to weak user industry demand. Expanding reach in consumer electrical to aid revenues. EBITDA margins flat as lower fuel cost benefit channelized towards higher A&P spends and increase employee cost. Hereon, margin expansion would depend on revenue uptick. Cut revenue guidance by 4%/5% considering weak interim demand, but there is positive change in earnings by 6%/4% owing to shift of capex in new segments to H2FY16. Retain BUY with price target of Rs 400/share.

Steady quarter; Profitability beat led by lower interest cost: Q2FY16 results revenue were in line, while profitability beat was led by lower interest cost. Key highlights: (1) Standalone revenues at Rs 4.3bn, up 1.3% yoy; Building products grew 8.9% yoy and packaging products declined 7.5% yoy. (2) EBITDA at Rs 756mn, grew 1.1% yoy with EBITDA margin were flat 17.6% lower fuel cost was offset by higher ad spends & employee cost. (3) APAT at Rs 243mn, up 27.6% yoy led by lower interest outgo and lower depreciation vs our expectation of capex & debt addition of pipes and caps and closures.

Fuel cost benefit channelized towards higher A&P spends: EBITDA margin was flat yoy to 17.6% as gains from fuel mix change in packaging products (-370bps yoy, 14.2% of sales) was channelized on other expenses (+250bps yoy, 24.8% of sales), function of higher A&P spends and higher employee cost (+180bps yoy, 13% of sales). Hereon, margin expansion would depend on revenue uptick.

Cut revenue by 4%/5% on near-term weak demand outlook; Retain BUY: Weak outlook on demand in both segments in the near-term has led to 4%/5% cut in revenue estimates. Against our earlier assumption of capex from Q2FY16, the initial round of capex for new segments (pipes & closures) will start in H2FY16; thus there is positive change in our earnings estimates by 6%/4% for FY16/17E. Gradual uptick in demand should drive growth in building products segment. We maintain BUY with SOTP target price of Rs 400/share.

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