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Near-term demand conditions challenging; mid-to-long term prospects intact — reiterate LONG
JUBI’s 4Q revenues grew 11% yoy to Rs 8.65bn, 5% below EE, on muted SSSg of 6% (EE: 11%). EBITDA was up 16% yoy to ~Rs 1.47bn, 6% below EE. Pressure on dine-in revenues, a higher 4QFY18 base and store splits led to muted SSSg for 4Q. Below-expected SSSg could have hit EBIDTAM (+68bps yoy to 17.1%, in line with EE) due to operating deleverage, but was negated by the gross margin expansion (+176bps yoy/51bps qoq to 76.1%). We think pressure on dine-ins would continue in the near future, leading us to lower FY20E/FY21E SSSg from 11.5%/10% to 8.5%/9%. We are cautiously optimistic on near-term SSSg given a high base and pressure on dine-ins. Hence, we cut our target multiple from 50x to 47x, but retain LONG on the stock as mid-to-long term growth levers remain intact. Our Mar’20 TP of Rs 1,403 (Rs 1,546 earlier) is set at 47x (50x earlier) TTM EPS of Rs 29.8.
Gross margin expansion negates impact of muted SSSg:
Topline growth of 11% was led by muted SSSg of 6% (on a higher base of 26.5%), pressure on dine-ins (45-50% of total revenues) and store split (which had limited impact, in our view). However, better gross margins countered the impact on profitability. Gross margin expansion was led by a better product mix and business partnership with Pepsico. However, we expect higher dairy and wheat prices to act as headwinds to 4Q gross margins. We thus lower our sales/EBIDTA estimates by 3%/3% for FY20E and 2%/3% for FY21E.
Average system sales per store sharply down in 4Q:
As per our calculation, JUBI registered average system sales per store of Rs 6.86mn, down 9.3% qoq (vs. normal decline of 5-6%) and up by a mere 3.6% yoy. We expect it to improve in the quarters ahead led by the Cricket World Cup and efforts by JUBI to push customer purchases. DD no more a drag; Bangladesh & Hong’s Kitchen prospects encouraging: Continued improvement in DD resulted in break-even operational performance for two straight quarters. Further, the initial response for Hong’s Kitchen and Dominos store in Bangladesh is encouraging, thus offering a huge growth opportunity. We believe JUBI will be cautious on its expansion plans given learnings from DD.
Rating & view:
We remain positive on JUBI’s mid-to-long term growth prospects but believe challenging demand conditions over the near term could weigh on the company’s performance vis-à-vis our earlier estimates. Accordingly, we pare FY20E/ FY21E SSSg estimates from 11.5%/10% to 8.5%/9%. However, positive impact on gross margins for reasons discussed above would likely arrest the operating deleverage. Accordingly, our EBIDTAM estimates remained unchanged. With robust growth prospects in place, we continue to like JUBI in the QSR space and maintain LONG on the stock with a Mar’20 TP of Rs 1,403.
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