Jubilant FoodWorks shares jump 8% on Deutsche Bank upgrade

Shares in Jubilant FoodWorks, operators of Domino's Pizza brand in India, rebounded sharply after falling as much as 13 per cent in the previous two sessions.

Deutsche Bank upgraded its ratings on Jubilant FoodWorks to "buy" from "hold", saying the recent underperformance of shares did not properly factor in the company's ability to sustain "strong" earnings growth. The stock traded 8.23 per cent higher at Rs 1,126.45 on the Bombay Stock Exchange as of 11.25 a.m.

The stock saw huge selling pressure after the fast food chain operator said same store sales growth (SSSG) could be lower in the three months to March 2013. For the full fiscal 2012-13, SSSG growth could come in at nearly 17 per cent instead of 18-20 per cent guided earlier, the company said.

Investors' focus on slowing same store sales growth ignored Jubilant's "huge" opportunity to grow its business, Deutsche Bank said in a note dated on Wednesday.

Jubilant attributed the moderation in growth to higher base, cannibalization from new stores and macro sentiment, but added that SSG growth will not slip to single digits.

Nomura maintained its "buy" call on the stock and retained its target price at Rs 1,490.

"A higher number of store openings during the quarter (37 stores in Q3FY13) meant sales were largely in line with expectations. EBITDA margins fell 150 basis points year-on-year, which was again a disappointment, although it also included a 70 basis point negative impact from the Dunkin Donuts business, which is still in its initial stages," Nomura said.