BNP Paribas India in its latest note suggested 'Outperform' ratings on ITC Ltd and Titan Company Ltd and 'Underperform' rating on Jubilant FoodWorks Ltd. Given the continued weak demand across the QSR sector, Bloomberg consensus estimates for FY25 EPS have been cut by 14-60 per cent for QSR firms over the last three months, the brokerage noted as it continued to prefer jewellery maker Titan Company over QSR Jubilant Food.
"Bloomberg consensus expects QSR companies to report 13-23 per cent revenue CAGR and 17-24 per cent Ebitda CAGR over FY24-27, implying that consensus is building a strong recovery compared with recent trends. QSR stocks are trading at 65-80 times FY27E EPS. In consumer retail, we prefer the jewellery sector over the QSR sector given the demand resilience," it said.
ITC (Outperform, Target Price Rs 520) BNP Paribas India said ITC has reported 9 per cent earnings CAGR over FY14-24, which is the median for its FMCG coverage over this period. The company offers the highest dividend yield in BNP's FMCG coverage. Its growth outlook has improved over the years, due to a stable taxation regime, following the implementation of GST, the brokerage said.
"We think its valuation looks attractive in an expensive Indian consumer stock universe. We value ITC using the sum of the parts (SOTP) method, with 90 per cent of our fair value estimate coming from its Cigarette and FMCG divisions. We value the cigarette division at 20x EV/EBITDA, which is at a 50 per cent discount to its FMCG peers' average to factor in a relatively weaker volume growth potential and regulatory risk," BNP Paribas India said.
The brokerage values the FMCG division at 4 times EV/Sales, which is at the lower end of its FMCG coverage due to its lower-than-peers' margins.
Jubilant FoodWorks (Underperform, Target Price Rs 460) Jubilant FoodWorks' revenue per store has stagnated over the last five years as competition from the organised and unorganised sectors intensified. Jubilant FoodWorks is experiencing Ebitda pressures and incurring higher capex, which are hurting its free cahs flow (FCF) generation. Jubilant FoodWorks saw a sharp consensus earnings estimate downgrades over the last one year, but the stock has been resilient due to hopes of a recovery and a strong Q3 revenue disclosed by Jubilant FoodWorks in its business update.
"Jubilant FoodWorks has focused on improving its revenue growth which it has delivered but we will remain watchful of the margins as some of its initiatives seem to be margin dilutive. We find the valuations expensive and rate Jubilant FoodWorks as Underperform," BNP Paribas said.
The brokerage continued to value Jubilant FoodWorks on SoTP basis, valuing the core business at 55 times December 2026E EPS. It continued to value the DP Eurasia business at 1.5 times its acquisition cost.
Titan Company (Outperform, Target Price Rs 4,050) Titan is India's largest jewellery and watch company by FY24 revenue. Despite being the market leader, it accounts for only 7-8 per cent of the industry's revenue, BNP Paribas noted. The jewellery industry has gone through structural changes, such as mandatory disclosure of PAN card and hallmarking of jewellery, which benefit large, national, and trusted brands such as Tanishq (owned by Titan), it said.
Titan's management has set ambitious goals for each division and expects the jewellery division's sales to grow at a CAGR of 15-20 per cent in the medium term. The company has met this target, despite the slowdown in the broader consumption space.
"We see opportunities such as expansion of store count, market share gains and international expansion to help drive revenue and earnings growth. Titan is likely to see earnings decline in FY25 due to margin issues, part of which are one-off. We expect strong earnings rebound with 39 per cent YoY earnings growth in FY26," BNP Paribas India said.
"As the concerns on margins and lab grown diamonds ease, we expect Titan to be a relative outperformer in our coverage," it said.