Discretionary consumption is likely to undergo a change in 2020 due to the outbreak of Covid-19. There are expectations that food, health, clothing and shelter will take over high-end consumption in terms of lifestyle and adornment.
As a result, Morgan Stanley initiated its coverage on Jubilant FoodWorks, the Indian franchisee for Domino’s Pizza, with ‘Overweight’ rating and set a target price of Rs 1,900. On the other hand, the global brokerage firm is ‘Underweight’ on the country’s leading watch and jewellery retailer Titan with a target price of Rs 770.
Morgan Stanley believes the pandemic will bring in a shift in the behaviour of not just the consumer but also the businesses. Lower-end discretionary consumption products could do better than higher-end.
“Titan will likely find it challenging to weather the downturn. We think Jubilant is better positioned, underscoring the benefits of a modified business strategy and higher delivery sales mix,” it said.
The global firm in its report said that quick-service restaurant (QSRs) will be among the first beneficiaries of the recovery in discretionary consumption after the sharp slowdown due to the nationwide lockdown.
On the other hand, it believes that macro headwinds will hurt high discretionary spend. The current lockdown implies close to zero revenues for Titan for two months in FY21.
“Titan will need to have higher activation programmes in 2020 to attract customers due to an income slowdown and high gold prices,” said Morgan Stanley.
The brokerage house projects 1 per cent and 2 per cent revenue and earnings CAGR for Titan over FY20-22, respectively.
Shares of Jubilant Foodworks closed 2.79 per cent higher at Rs 1557.15.