Published on 21/10/2021 9:36:43 AM | Source: Yes Securities Ltd

Update On Jubilant Foodworks Ltd By Yes Securities

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Soft SSSG in the quarter but record store openings points to strong outlook ahead

View ‐ The stock is trading at rich valuations of 63x FY24E but is developing into a solid 2‐3‐year growth story. We expect rich valuations to sustain given increasing aggression on footprint expansion and technology advancement, multiple levers to protect margins despite competition and a strong long‐term growth potential with entry into multiple new brands and geographies. It remains a good stock to keep buying on dips.

Quarter Highlights ‐ Revenue up 37% yoy and up 12% over 2QFY20 (SSG at 26% vs 20% decline in base quarter); strong momentum in delivery and takeaway with 37% and 72% growth over 2QFY20 with muted recovery in dine‐channel at 47% of normal; EBITDA up 33% with margins at 26%; PAT up 58%; record number of store addition at 63 during the quarter – 55 Dominos India, 3 Dominos Sri Lanka, 2 Dunkin, 2 Hong’s (total 13 stores in NCR) and 1 Ekdum; 7.2mn app downloads post UI improvements; strong international performance with 88% and 33% growth in Sri Lanka and Bangladesh.

Management commentary – Operating performance continued to improve with lifting of mobility restrictions, store operational hours at 95% of capacity offset by higher delivery and takeaway sales, strong margins despite high food inflation, accelerated store opening, see potential for more than 3000 stores in India vs 1435 currently, ambition of building a multi‐brand multi‐country food business powered by technology, increasing direct shareholding to 90% in Bangladesh entity and  Increasing indirect stake in DP Eurasia via reverse book‐building process to 49.9%, will open 150‐ 175 stores in FY22,   own app sales grew faster than aggregators, Popeye’s will be launched this year, food service category should see sustained growth with Jubilant well placed to capture the opportunity.

New markets – See small towns embracing delivery channel which is a key positive, entered 9 new cities during the quarter, exploring multiple new markets where company gets first mover advantage, currently JUBI is the only QSR Player in about 150 towns, expect benefit of pent‐up demand and increase in penetration.

Demand outlook – SSSG flattish on a 2yr basis for the quarter, see strong demand structurally for the delivery channel which coupled with gradual opening up of the dine‐ in channel should drive strong demand growth, expect gradual increase in both penetration and ordering frequency.

Margin outlook – GMs remain impacted by food inflation partially offset by recent price hike and efficiency improvement, expect dairy prices to mitigate inflation in oils and packaging; expect stable EBITDA margins with operating leverage benefits offset by higher investments in improving product/service quality, customer experience and digital capabilities.

Average order size and no. of bills trends – Encouraging recovery in number of orders which is close to pre‐COVID levels, ticket size has slightly moderated with dine‐ in reopening but remains higher than pre‐COVID levels given the current mix and imposition of delivery charges, working on premiumization and personalization to push up ticket size.


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