Jubilant FoodWorks CEO Ajay Kaul resigns, does that mean investors should also quit?

NEW DELHI: Shares of Jubilant FoodWorks nosedived on Tuesday a day after its chief executive Ajay Kaul resigned after 11 years at the helm of the India franchise of Domino's Pizza.

"Kaul has stepped down to evaluate and pursue opportunities outside the Jubilant Bhartia group," Jubilant FoodWorks (JFL) said in a filing to the Bombay Stock Exchange (BSE) on Monday.

The stock plunged over 25 per cent in last one month and about 40 per cent so far in 2016. Most analysts expect volatility to continue on the counter for some time and traders can use the opportunity to short the stock on any bounceback.

“If the stock does bounce back, it would probably rise till Rs 970 or so and that again would be a shorting opportunity. My trade of shorting Jubilant is only for positional traders, and not for intraday traders," Siddarth Bhamre, Market Expert, said in an interview with ETNow.

Ashish Kyal of Waves Strategy Advisors has recommended traders to initiate short positions on the stock with a target of Rs 855 and stop loss of Rs 1,000.

Jubilant needs to rethink strategy:

For June quarter, Jubilant FoodWorks (JFL) announced a 3.2 per cent year-on-year drop in same-store sales, which was its lowest SSG in seven quarters. The company's operating profit was down 14 per cent, while net profit fell 31 per cent to Rs 19 crore in the June quarter.

JFL runs 1,062 Domino's stores and 73 Dunkin Donuts outlets. Kaul had joined JFL in 2005 and helped it become the first organised restaurant chain to get listed on stock exchange in the country in early 2010.

"We have to see the second line of management which is coming up in this particular space after the exit of Kaul. As I see it, the QSR or quick service restaurants model probably will have to be reinvented as I put it in a very simple manner for this company," Deven Choksey, KR Choksey Investment Managers, said in an interview with ETNow.

“The taste of the consumer keeps on changing and that is where you have to keep on reinventing at every stage. Necessarily the category of food also has to change in that environment,” he said.

Domino’s Pizza became the country’s largest fast-food chain beating burger chain McDonald's under his leadership. Kaul also struck an exclusive franchisee deal with Dunkin Donuts in 2011, said an ET report.

Global brokerages remain positive:

Global brokerage firms such as Morgan Stanley, CLSA and Credit Suisse maintain their positive stance on Jubilant FoodWorks after the exit of CEO Ajay Kaul.

Morgan Stanley: Overweight | Target price Rs 1,450

Morgan Stanley has maintained an overweight rating on Jubilant FoodWorks with a 12-month target price of Rs 1,450. It expects the stock to react negatively to the news of the CEO stepping down.

Kaul was widely perceived as an architect of strong supply chain and operational excellence. A strong supply chain is basis of Domino's 30mins or free guaranteed home delivery

CLSA: Buy | Target price Rs 1,320

CLSA has maintained a buy recommendation on Jubilant FoodWorks with a 12-month target price of Rs 1,320. CEO's exit may weigh in the near term but smooth transition remains the key.

CLSA sees good chance that new CEO will come from the internal pool. The impact will be largely on the stock price and not on employee morale. The long-term investment thesis still remains intact.

Credit Suisse: Outperform| Target Rs 1230

Credit Suisse maintained an outperform rating on Jubilant FoodWorks with a 12-month target price of Rs 1,230. The top leadership changed within 6 months which will be seen negatively by the market.

The company's operating performance has been weak in the past few years. Corrective measures have already put in place by the company but a change in top management will increase discomfort. Dev Amritesh a potential candidate to take over as CEO said the Credit Suisse note.

(Views and recommendations given in this section are the analysts' own and do not represent those of ETMarkets.com. Please consult your financial adviser before taking any position in the stock/s mentioned.)