CLSA downgrades Jubilant FoodWorks stock due to risks

Jubilant FoodWorks' stock has risen 41% over the past year, but CLSA, a global brokerage, has downgraded its rating. This change is mainly due to concerns over the depreciation of the Turkish Lira. CLSA now rates the stock as 'hold' and has cut its target price to ₹450, suggesting a possible drop of 28% from its recent level. The Turkish Lira's decline poses a significant challenge for Jubilant FoodWorks, which owns DP Eurasia, the Domino’s Pizza franchise in Turkey and nearby countries. The Lira's weakness could negatively impact profitability. CLSA noted that even a 5% decrease in the Lira could lower Jubilant's profits by about 2-2.5% for the fiscal year. With an 8.5% drop this year, further impacts on profits are expected. Jubilant FoodWorks is also facing rising debt costs due to the acquisition of DP Eurasia. The company had ₹12.3 billion in debt as of September 2024, mostly linked to revenue from Turkey. The currency’s decline could make it harder for the company to manage its debt repayments, and CLSA raised concerns about potential cuts to dividends from DP Eurasia. Despite CLSA's downgrade, some domestic brokerages remain optimistic. Axis Securities maintains an 'add' rating and a target price of ₹690, citing strong industry growth. Kotak Institutional Equities also holds an 'add' rating with a target price of ₹680, pointing to positive developments in delivery sales. The stock price has been volatile. After large gains, it has been steady in March following two months of losses. It fell 11% in February and 2% in January. Currently, it trades at ₹627.05, significantly below its 52-week high of ₹796.75 from January but up 46% from its low of ₹429.65 in April 2024. Investors will be watching closely how Jubilant FoodWorks navigates its financial challenges and manages debt in the coming quarters.