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How to know if Indian economy is reviving? Keep an eye on this stock

Eating out is one of the first expenditures that consumers reduce when the economy slows, but restaurants are also the first to benefit when sentiment turns around

Jubilant FoodWorks
Jubilant Foodworks Ltd., the nation’s biggest fast food stock and a bellwether for discretionary consumption, has seen its shares shed almost a quarter of their value from a record high about a year ago

For equity investors seeking early signs of any revival among India’s consumers, here is a stock to watch: the distributor of Domino’s Pizza and Dunkin’ Donuts in the country.

Jubilant Foodworks Ltd., the nation’s biggest fast food stock and a bellwether for discretionary consumption, has seen its shares shed almost a quarter of their value from a record high about a year ago as Indians cut back on spending. But some analysts are seeing light at the end of the tunnel.

Eating out is one of the first expenditures that consumers reduce when the economy slows, but restaurants are also the first to benefit when sentiment turns around. The Indian government has taken steps to bolster its fragile economy in the past month, and some economists expect the central bank to make deeper interest-rate cuts.

“The consumption trend seems to have bottomed out, and the government has started announcing some stimulus measures,” said Manoj Gori, an analyst at Equirus Securities Pvt. who advises investors to buy Jubilant’s stock. “Once consumers get their confidence back, eating out will be the first point of spending,” said Gori, who estimates the shares can return about 15 per cent within 12 months.

Adding to the potential tailwinds, economists including those at Goldman Sachs Group Inc. are predicting more interest-rate cuts by India’s central bank to revive the pace of expansion after 110 basis points of easing already this year. Analysts who track Jubilant at Edelweiss Financial Services Ltd. predict Jubilant’s profits will increase by 15 per cent in fiscal year 2020 as consumer spending revives and the company expands its business.

The company began venturing into Chinese food with its first own brand, Hong’s Kitchen, six months ago, which may arrest a trend of slowing same-store sales since 2018, analysts say. The new chain targets a food market that’s three times larger in terms of sales than that of pizzas, Citigroup Inc. analysts wrote in a note last month. Citi rates the stock as buy, with a 12-month price target of Rs 1,400.

Jubilant’s stock rose as much as 3 per cent on Wednesday to its highest since July 24. Calls to the company went unanswered and it didn’t reply to emails seeking comment.

“We believe margins are going to improve and Hong’s Kitchen is going to be a very strong silver lining,” said Ashish Chaturmohta, the Mumbai-based head of technical and derivatives strategy at Sanctum Wealth Management Pte. “People can expect good profitability to come to the company.”