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Stage set for a (virtuous) snowball effect

JUBI delivered a broadly in-line revenue print – while growth in Jan (+6%) was a tad underwhelming, improvement in Feb and March was encouraging (given March 2H again had some disruption). Performance of the delivery and takeaway channels have been impressive, mitigating the slowdown in dine-in. Benefits from (1) developing superior tech capabilities (over long-term) and (2) ramping up digital marketing initiatives, are now visible. Disruption from the second wave (despite dine-in being shut) in April and May is far lower. We like the focus towards (1) growth (store expansion, emphasis on digital infra), (2) developing synergies with new brands (Hong’s Kitchen, Ekdum! and Popeyes) and (3) expansion of organisational bandwidth. Investments on a strong fleet gives it an edge over peers. However, adjusting for introduction of delivery charge (~5%), SSG growth in 4Q appears a tad underwhelming. ADD retained.

Overall growth led by delivery channel:

In 4QFY21, revenue / EBITDA / PAT grew by 14% / 47% / 107% YoY. SSG growth of 11.8% was driven by 29% YoY growth in delivery sales and 77% YoY growth in takeaway. Dine-in continued to be weak (despite sequential recovery) due to lower mobility. Operating restrictions from the second half of March weighed on momentum even as the performance is much resilient time – systems sales recovery (using FY20 as normative base) in April-21 and May 21 stood at 94% and 88%, respectively. As dine-in was largely shut for the entire month of May-21, stronger uptick in delivery channel helped mitigate the impact.

Focus on store expansion to continue:

On the store network front, JUBI another 50 stores (gross) in Q4 (after opening 50 stores in Q3) taking the total store network to 1,360 stores. For FY21, JUBI added 134 stores on a gross basis (net 25) and expanded in 20 new cities (total of 293 cities). Further, it opened a store each of Hong’s Kitchen and Ekdum! stores taking the network for new brands to 12 stores (addition of 8 stores for FY21). JUBI also opened 3 Dominos store in Sri Lanka and 1 new store in Bangladesh. JUBI is keen to accelerate the momentum in FY22 but is cautious of the on-ground execution challenges. A ramp-up is also expected for the new brands along with the launch of Popeye brand. Management is confident of a strong runway for store expansion in both large and small cities

Delivery charges (now in base) and costs optimisation measures continue to drive margin expansion:

Gross margin expanded 300bps YoY to 77.5% driven by (1) delivery charges (started during Covid disruption but should continue) and (2) efficiency improvements in terms of lower wastage. There was some pressure due to inflationary dairy and cooking oil prices. EBITDA margin expansion strong at 540bps YoY to 24.3% largely due to efficiency gains and costs controls.

Other highlights:

1) Cash and cash equivalents was at Rs6bn at the end of the quarter,

2) CFO and FCF grew 3% and 20%, respectively,

3) Acquired 32.8% stake in DP Eurasia (an exclusive master franchisee of Domino’s in Turkey, Russia, Azerbaijan and Georgia), and

4) entered into a Master Franchise Agreement with Popeyes to open stores in India, Bangladesh, Nepal and Bhutan.

Valuations and risks:

We increase our FY23 earnings estimates by 5%, modelling revenue / EBITDA / PAT CAGR of 28 / 38 / 74 (%) over FY21-23E. Maintain ADD with DCF-based revised target price of Rs3,500 (Rs3,300 earlier). Key downside risk is raw material costs turning inflationary.

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