NEW DELHI: Shares of Jubilant FoodWorks fell 14% on Monday morning, the most in two years, after analysts said the sudden exit of its CEO and full-time director Pratik Pota would be a short-term risk for the company. ‘business.
Brokerages view his departure as a setback to the restaurant business’s expansion plans, although Pota will continue in his current role until June 15, 2022. The board also initiated the process of identification of his successor.
Jubilant holds the exclusive franchise rights for Domino’s Pizza and Dunkin Donuts in India, Sri Lanka, Bangladesh and Nepal.
Pota had joined Jubilant FoodWorks in 2017 when the company was struggling with slow performance and is credited with turning the business around. During Pota’s five-year tenure, the company’s net sales and net income grew at a CAGR of 6.4% and 41.5%, respectively, with Ebitda margin growing from 9.4% to in FY17 to 25.5% in FY21, according to data analyzed by ET Intelligence. Even the company’s stock price has quintupled over the same period.
At 10:30 am, the title fell by 13.6% to Rs 2,487.50 on the National Stock Exchange.
Analysts called Pota’s departure a near-term risk and “raises concerns about execution and earnings growth.”
“We are seeing a knee-jerk reaction and various downward revisions in the stock price as the stock has seen a revaluation over the past few years due to Mr. Pota making many changes in the business model. where the stock fell from 60PE to 40PE of its one-year forward earnings.However, the stock has already corrected significantly from its 52-week high and the outlook for the company is still very strong as ‘IPL will be kicking off soon, so we might see buying interest at lower levels, so watch for the new CEO name ahead of any meaningful rally,’ said Parth Nyati, Founder of Tradingo.
Technically it is trading near the 2500-2400 critical demand area where buying can be expected while if it slips below 2400 then 2100 will be the next important support level. On the upside, the 2900-3000 area will act as an immediate resistance zone on any pullback, Nyati added.
JP Morgan downgraded its rating on the company due to increased demand and margin risks. Additionally, the CEO’s unexpected resignation reflects uncertainty in the business, the brokerage noted.
Brokerage Motilal Oswal Financial Services said Pota’s resignation came as a “negative” surprise since the board approved his reappointment last year for three years from April 2022 to March 2025.
“We believe the exit of Pratik Pota could have a short-term negative impact on the title, given the phenomenal efforts during his tenure. Although he has developed a good second echelon, we will have to be careful with his successor and the strategic perspectives ahead,” he said.
“Mr. Pota’s resignation adds risk on all fronts as the outgoing CEO has addressed key challenges and built confidence in the longevity of growth, during his tenure. Many key actions have been taken under his tenure that helped the franchise pivot to the top. It will be very important for the company to find a strong CEO to replace him,” said Prem Prakash, CEO of CapitalVia Global Research.
He added that despite this risk, Jubilant food‘s business model is still strong and the post-Covid environment is likely to provide an increased opportunity for QSRs in India driven by delivery, value and technology which will offer the company new opportunities to strengthen its grip on the market. “The CEO’s exit will hurt his valuation in the short term, but with the opportunities in the market and a strong grip, we still believe Jubilant foodworks is well positioned to do well in the long term,” Prakash said.
“The exit of Pota comes at a crucial time as the business has embarked on a transformation journey (multi-platform QSR from a single-brand QSR) and is poised to accelerate store additions to new brands Reliance on the CEO is high even though Jubilant Foods has strengthened its management team in the recent past A leadership change at this stage would likely slow the growth engine due to a inevitable execution slippage,” noted Kotak Institutional Equities.
Morgan Stanley also downgraded the stock from “underweight” to “overweight,” citing the CEO’s sudden exit.
“The company is still well positioned to play long-term growth in organized food, but a sudden change in leadership threatens the short-term outlook,” he said.
Short-term concerns are that the company’s operating margin could come under pressure due to rising food, fuel and employee inflation.
“As the pizza delivery business has high operating leverage, any reduction in net sales realization could have a disproportionate impact on earnings. store, if current inflation persists, as state governments are likely to raise the minimum wage across different slabs in order to combat food and fuel price inflation,” Phillip Capital noted in a report.
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Brokerages view his departure as a setback to the restaurant business’s expansion plans, although Pota will continue in his current role until June 15, 2022. The board also initiated the process of identification of his successor.
Jubilant holds the exclusive franchise rights for Domino’s Pizza and Dunkin Donuts in India, Sri Lanka, Bangladesh and Nepal.
Pota had joined Jubilant FoodWorks in 2017 when the company was struggling with slow performance and is credited with turning the business around. During Pota’s five-year tenure, the company’s net sales and net income grew at a CAGR of 6.4% and 41.5%, respectively, with Ebitda margin growing from 9.4% to in FY17 to 25.5% in FY21, according to data analyzed by ET Intelligence. Even the company’s stock price has quintupled over the same period.
At 10:30 am, the title fell by 13.6% to Rs 2,487.50 on the National Stock Exchange.
Analysts called Pota’s departure a near-term risk and “raises concerns about execution and earnings growth.”
“We are seeing a knee-jerk reaction and various downward revisions in the stock price as the stock has seen a revaluation over the past few years due to Mr. Pota making many changes in the business model. where the stock fell from 60PE to 40PE of its one-year forward earnings.However, the stock has already corrected significantly from its 52-week high and the outlook for the company is still very strong as ‘IPL will be kicking off soon, so we might see buying interest at lower levels, so watch for the new CEO name ahead of any meaningful rally,’ said Parth Nyati, Founder of Tradingo.
Technically it is trading near the 2500-2400 critical demand area where buying can be expected while if it slips below 2400 then 2100 will be the next important support level. On the upside, the 2900-3000 area will act as an immediate resistance zone on any pullback, Nyati added.
JP Morgan downgraded its rating on the company due to increased demand and margin risks. Additionally, the CEO’s unexpected resignation reflects uncertainty in the business, the brokerage noted.
Brokerage Motilal Oswal Financial Services said Pota’s resignation came as a “negative” surprise since the board approved his reappointment last year for three years from April 2022 to March 2025.
“We believe the exit of Pratik Pota could have a short-term negative impact on the title, given the phenomenal efforts during his tenure. Although he has developed a good second echelon, we will have to be careful with his successor and the strategic perspectives ahead,” he said.
“Mr. Pota’s resignation adds risk on all fronts as the outgoing CEO has addressed key challenges and built confidence in the longevity of growth, during his tenure. Many key actions have been taken under his tenure that helped the franchise pivot to the top. It will be very important for the company to find a strong CEO to replace him,” said Prem Prakash, CEO of CapitalVia Global Research.
He added that despite this risk, Jubilant food‘s business model is still strong and the post-Covid environment is likely to provide an increased opportunity for QSRs in India driven by delivery, value and technology which will offer the company new opportunities to strengthen its grip on the market. “The CEO’s exit will hurt his valuation in the short term, but with the opportunities in the market and a strong grip, we still believe Jubilant foodworks is well positioned to do well in the long term,” Prakash said.
“The exit of Pota comes at a crucial time as the business has embarked on a transformation journey (multi-platform QSR from a single-brand QSR) and is poised to accelerate store additions to new brands Reliance on the CEO is high even though Jubilant Foods has strengthened its management team in the recent past A leadership change at this stage would likely slow the growth engine due to a inevitable execution slippage,” noted Kotak Institutional Equities.
Morgan Stanley also downgraded the stock from “underweight” to “overweight,” citing the CEO’s sudden exit.
“The company is still well positioned to play long-term growth in organized food, but a sudden change in leadership threatens the short-term outlook,” he said.
Short-term concerns are that the company’s operating margin could come under pressure due to rising food, fuel and employee inflation.
“As the pizza delivery business has high operating leverage, any reduction in net sales realization could have a disproportionate impact on earnings. store, if current inflation persists, as state governments are likely to raise the minimum wage across different slabs in order to combat food and fuel price inflation,” Phillip Capital noted in a report.
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