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Offline surge with Foodtech evolution

Jubilant FoodWorks (JFL) reported an overall beat with QoQ margin improvement being the key highlight. Other key points: i) SSSG/LTL growth came in at 26%/29% (SSSG estimate: 30%). ii) Added 55 Domino’s stores, on track for the 150–175 target. iii) App downloads increased QoQ/YoY by 7mn/28mn (up 63% YoY) to a total of 71mn.

Factoring in sustained higher store addition, we are increasing the target to 48x FY23E EV/EBITDA (40x Dec-22E earlier), which yields a revised TP of INR5,045 (up from INR3,664). We believe, in addition to continued store expansion, Popeyes’ scale-up can drive a further rerating for JFL. While margins need to be monitored in the immediate term, JFL has levers in place to mitigate any adverse impact thereof.

Outperformance all over; margins fend off inflationary headwinds

JFL reported 37% YoY growth in revenue (up 25% QoQ) with SSSG/LTL growth of 25%/29% (two-year CAGR: -9%). As compared to the pre-covid period of Q2FY20, Domino’s system sales grew by 11.6%. This was driven by continued strong momentum in Delivery and Takeaway channels as they grew by 36.8% and 72.2% vs. Q2FY20, respectively.

Gross margins improved 100bps QoQ to 78%, pointing to limited impact of inflationary pressures. Employee expenses, though up QoQ, are down as a % of revenue to 17.4% (pre covid average 19–20%, Q1FY22: 19%) due to optimisation and also partially due to reclassification of variable pay employees costs to other expenses. Overall, JFL reported an EBITDA margin of 26% (estimate: 24%), with EBITDA up 33% YoY to INR2.9bn. PAT came in at INR1.2bn, up 58% YoY.

Store additions on target for FY22 goal; strong traction in downloads

Q2FY22 saw a record number of new stores—60 in all: 55 stores of Domino’s, two stores each of Dunkin’ and Hong’s Kitchen, and one store of Ekdum. While Q1FY22 saw only 20 Domino’s store additions, the pace in Q2FY22 puts it on track to achieve its target of 150–175 stores in FY22 (i.e. 40–50 stores/quarter for H2FY22). App downloads saw a QoQ/YoY increase of 7mn/28mn (up 63% YoY) with total of 71mn

Outlook and valuation: Top pick in QSR space; maintain ‘BUY’

Given improved traction, we are increasing store addition expectation, which drives up our FY22/23E EBITDA by 3%/2%. Factoring in sustenance of higher store addition for Domino’s, we are raising the target to 48x FY23 EV/EBITDA (40x Dec-22 earlier), giving us a revised TP of INR5,045. Maintain ‘BUY’.

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