After a 20% slide, LPG relief could put Jubilant FoodWorks back on the growth menu

Commercial LPG prices, which emerged as the biggest cost headwind for Jubilant FoodWorks over the past few months, could soon turn into the biggest trigger for a recovery in profitability, according to a report by Elara Capital. The brokerage believes easing geopolitical tensions and a possible normalisation in commercial LPG prices could help the Domino’s Pizza operator regain its structural margin expansion trajectory in the second half of FY27, while also making the stock’s current valuations more attractive.

The optimism comes after Jubilant FoodWorks’ stock corrected nearly 20% from its recent highs following concerns over a sharp spike in commercial LPG prices. Prices of commercial cylinders climbed from around ₹2,000 to ₹3,000 per 19 kg cylinder, significantly increasing operating costs for the quick service restaurant chain, where 70% to 80% of restaurants depend on LPG.

Cost pressures may ease in H2

“The biggest near-term overhang for Jubilant FoodWorks has been commercial LPG inflation, which had an estimated 130 to 140 basis point negative impact on EBITDA margins,” said Karan Taurani, executive vice president at Elara Capital told Fortune India. “However, with geopolitical tensions easing and expectations of commercial LPG prices normalising, along with moderating food inflation, the cost environment looks materially better for the second half of FY27.”

While Jubilant implemented a 1.3% price hike in the first quarter of FY27 to offset the immediate cost pressure, investors remained concerned that elevated LPG and food costs could continue weighing on margins through the year.

Elara expects EBITDA margins to remain under pressure in the first half of FY27, at 19.5% to 19.8%, around 100 basis points below the company’s FY27 exit margin. However, it expects margins to recover to 20.5% to 21% in the second half as cost pressures ease. Looking further ahead, FY28 EBITDA margins could exceed 21.5%, signalling a return to the company’s long term margin expansion trend.

The improving cost outlook is also expected to strengthen earnings. Elara has raised its expectations for EBITDA growth, estimating a 20% CAGR over FY26 to FY28, compared with its earlier expectation of around 14%.

Demand trends are also showing signs of improvement. The brokerage expects like for like sales growth of 3.5% to 4% in Q1FY27 after a largely flat Q4FY26. As the company moves into more favourable base periods from the third quarter onward, Taurani expects same store sales growth to strengthen further, supporting a revenue CAGR of around 12% between FY26 and FY28.

The recent correction has also made valuations more reasonable, according to Elara. Jubilant FoodWorks’ standalone business is currently trading at around 57 times FY28 earnings and 34 times FY29 earnings. On a one year forward basis to September 2027, the multiple moderates further to around 45 times earnings.

“If EBITDA growth sustains at 18% to 20% and margins recover as expected, we believe the standalone business can re rate towards 60 times P/E, implying nearly 25% upside from current levels,” Taurani said. Elara has maintained its ‘Accumulate’ rating on the stock with a target price of ₹500, assuming an exchange rate of ₹90 for DP Eurasia.

The brokerage added that easing competitive intensity in the pizza segment could provide another catalyst for valuation expansion over the medium term.

However, it cautioned that persistently high food inflation or commercial LPG prices remaining elevated for longer than expected remain the biggest risks to its investment thesis.