Jubilant Foodworks shares: 30% downside? Why falling Turkish Lira has made CLSA a worried lot

Overseas brokerage firm CLSA has highlighted its concerns on Jubilant Foodworks Ltd over potential financial risks stemming from the sharp depreciation of the Turkish Lira. The decline in the Turkish currency could increase the company’s debt repayment burden and impact its profitability. Some media reports claim that CLSA has downgraded the stock to 'hold' and see up to 30 per cent correction in it.

In early 2024, Jubilant FoodWorks had acquired DP Eurasia, the master franchisee of Domino’s Pizza in Turkey, Azerbaijan, and Georgia, in early 2024. The acquired entity contributed 31 per cent of the group’s system sales in Q3FY25, making its financial performance a key factor for Jubilant.

But the Turkish Lira's continued weakness has raised concerns over its impact on the company’s consolidated earnings. The Turkish Lira depreciated 5 per cent on Wednesday, and has posted a 8.5 per cent depreciation ona year-to-date (YTD) basis against the US dollar.

"We note Jubilant had acquired DP Eurasia in early 2024. DP Eurasia operates in Turkey, Azerbaijan and Georgia and contributed 31 per cent of group system sales in 3QFY25. We note Jubilant Foodworks’ debt is Rs 12,300 crore as of September24, of which we estimate about 80 per cent is payable from Turkish cashflow," said CLSA.

The depreciation of the Lira would lead to additional interest cost burden for Jubilant Foodworks in repayment of debt taken to acquire DP Eurasia. We believe the 5 per cent Turkish Lira today could have a 2-2.5 per cent impact on FY25 consolidated PAT estimates, it said.

"The YTD Turkish Lira depreciation of 8.5 per cent could have c.3.5-4 per cent impact (including today’s impact) on FY25 consolidated PAT. This depreciation in Turkish Lira could also impact dividend payments by DP Eurasia," CLSA added. The reports suggest CLSA's target price slashed to Rs 450 apiece, suggesting a 30 per cent downside in the stock.

Shares of Jubilant Foodworks dropped more than 2.5 per cent to Rs 618.90 on Thursday, with its total market capitalization barely holding Rs 40,000 crore mark. The stock had settled at Rs 634.95 in the previous trading session on Wednesday. The stock has crashed more than 22 per cent from its 52-week high at Rs 796.75, hit in January 2025.

Jubilant FoodWorks reported 33 per cent YoY decline in standalone net profit at Rs 41 crore for the quarter ended December 31, 2024 as the company's margins were dented by higher wage costs as well as raw materials such as vegetable and meat. The Domino's Pizza franchisee's standalone revenue from operations rose 19 per cent YoY to Rs 1,611 crore in Q3FY25.

However, domestic brokerage firms remained positive on Jubilant Foodworks post Q3 results. Axis Securities had an 'add' rating on the stock with a target price of Rs 690, considering robust growth prospects driven by strong industry tailwinds and improving operational metrics. "We believe Jubilant FoodWorks offers a promising upside from current levels," it said.

Domino’s delivery channel growth print and engagement metrics were impressive. This progress is attributable to the delivery fee waiver, new launches, stable pricing for two years and decentralization, said Kotak Institutional Equities. "We expect operating leverage to gradually play out and Jubilant to exercise margin levers once macro improves," it said with an 'add' rating with a target price of Rs 680.