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Strategy may be potentially interpreted as pointing towards caution

Jubi (for now) has stopped disclosing same-store growth (SSG) data. We would've been at peace with this, provided this is an acceptable global industry practice in retail, restaurant businesses. We are unsure. Importantly, this makes us wonder about the reasons, (1) likely relative performance (note that there are six restaurant stocks listed now in India versus two just two years back), (2) the focus on 20-minute delivery (correctly so) is a necessity to maintain gaps over competition (read food delivery apps).

Now, moving on to 3QFY22 results. Two points – (1) growth did disappoint, (2) Approach on disclosures (we discussed!). And yes, the 60 (net) addition (for Domino’s) was the highlight.

On the second point, this analyst believes that leaders like JUBI have to set goldstandards for its peers, not just on operating performance but also on disclosures. While the fortressing strategy (which we like given the long runway it creates) may lead to noise in the SSG metric, supplementing (and not reducing) disclosures will be helpful.

JUBI did see a weak quarter with 3QFY22 revenue up 12.9% YoY. Performance of delivery and takeaway channels has been impressive, mitigating the still sluggish dine-in. While 2H of December did see higher operating restrictions (per company), JUBI should (ideally) have been better-off given the strength of its delivery.

We like the focus towards (1) growth (store expansion, fortressing, higher emphasis on digital infra), (2) developing synergies with new brands (Hong’s Kitchen, Ekdum! and Popeyes) and (3) expanded organisational bandwidth. Investments on a strong fleet give it an edge over peers. Popeye’s success (execution is key) is the next potential positive upside trigger. ADD; TP 3,600

It was a weak quarter, no two ways about it: 3QFY22 was a weak quarter with revenue growth of 12.9% YoY to Rs11.9bn (4% below I-Sec estimate). LFL growth (adjusted for impact of store split) came in at 7.5% YoY. Dine-in was still impacted (at 72% of pre-Covid level) with delivery operating at a strong 28% of above preCovid level. Management highlighted that (1) the growth momentum was strong in the months of October and November, (2) operating restrictions had a (negative) impact in the second fortnight of December. We note that benefit of price hikes (from mid-December) will be seen in 4Q2FY22+.

Store expansion on track: JUBI did accelerate store expansion to 60 new stores (net; 75 on gross basis) in 3Q with 135 (net) stores added in 9MFY22 (total reach of 1,495 stores). We note that it had guided for 150-175 store addition at the start of the year and is well placed to (even) exceed the upper-end of its guidance. It entered into 17 new cities during the quarter with a total reach of 322 cities. Expansion in other brands of Dunkin, Hong’s Kitchen and Ekdum! was rather underwhelming (two stores added in all three formats combined). It added one outlet each in Sri Lanka and Bangladesh. Management is confident of a strong runway for store expansion in both large and small cities. It has also opened two Popeye’s stores in Bangalore with one more to be opened soon.

Measures taken to offset inflation impact: Gross margin print was slightly soft at 77.6%, down 65-70 bps on both YoY and QoQ basis. As noted above, 4Q will see the benefit of price increase and the management believes they are well covered at least for the current inflationary pressure. We note that the management continues to exert caution in using pricing as a growth lever given the value positioning. We note that total opex (staff costs and other opex) was up 11% YoY.

Valuations and risks: We cut our FY23 earnings estimates by ~11%, modelling revenue / EBITDA / PAT CAGR of 23 / 29 / 51 (%) over FY21-24E. Maintain ADD with DCF-based revised target price of Rs3,600 (was Rs4,000 earlier). Key downside risk is raw material costs turning inflationary.

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