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Add Jubilant Foodworks Ltd For Target Rs.3,500

Capitalizing on the opportunity (per our expectations) - accelerated store expansion

JUBI likely surprised consensus by stepping-up its store expansion target (for Domino’s) to 150-175 for FY22. Management’s confidence was reflected in the use of the words ‘hyper-growth’ (for JUBI’s brands) and ‘inflection point’ (for the industry) on the call.

The intent and potential to leverage data analytics possibly gives a glimpse that JUBI can reposition as a food-tech platform (and not just a collection of few brands in silos). JUBI did manage operations in the second-wave well with 1QFY22 revenue decline of just 6% over 1QFY20 levels (includes (pricing) benefit from delivery charges, to be sure). Performance of the delivery and takeaway channels have been impressive, mitigating the slowdown in dine-in.

We believe benefits from developing superior tech capabilities (over long-term) are now visible. We like the focus towards (1) growth (store expansion, 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 gives it an edge over peers. Popeye’s success (execution is key) is the next potential positive upside trigger. Our positive stance stays - ADD retained; TP 3500.

* Overall growth led by delivery channel: 1QFY22 was definitely a good quarter with revenue / EBITDA / PAT down (over 1QFY20 – a normal quarter) only 6% / 3% / 9%. This was led strong momentum in each of the months with June revenues almost recovering (99.5%) to pre-Covid levels (1QFY20 base). Just like the previous quarters, growth was led by delivery and takeaway as dine-in continued to be weak.

* Focus on store expansion to continue: JUBI intends to accelerate store expansion and has guided for 150-175 new stores for FY22 (despite some onground challenges). Furthermore, 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.

In Q1, JUBI added another 20 stores (Domino’s) (after opening 50 stores in Q4) taking the total store network to 1,380 stores. We note that JUBI has added 130 stores (gross-basis) in the last 12 months; about 100 stores were closed (of less optimum nature). Further, it opened three stores each of Hong’s Kitchen, Ekdum! and Dunkin stores; Dunkin now has 27 stores and Ekdum! and Hong’s Kitchen have 18 stores. JUBI also opened two Domino’s stores each in Sri Lanka and Bangladesh.

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