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Strong performance; well on track to meet its store expansion guidance

* JUBI’s 1QFY23 result was broadly in line with our estimates on all fronts. With 58 stores added in 1Q, the management is well on track to meet its 250 store opening guidance for FY23.

* Delivery sales continued to deliver healthy growth, despite a higher base, with dine-in reviving to nearly 100% of pre-COVID levels.

* The management stated that price increases taken in 3QFY22 and subsequently in 1QFY23 are enough to combat input cost inflation.

* With its remarkable track record, strong moats built around delivery, technology, value, and healthy cash flows to finance store expansion, JUBI remains our top pick in the QSR space. We maintain our Buy rating.

Inline earnings, operating metrics remain robust

* JUBI reported a sales growth of 41.1% YoY to INR12.4b (in line), with LFL growth at 28.7% YoY (est. 27%).

* Store network:

* Dominos: It opened 58 new Domino’s Pizza stores, resulting in to 1,625 stores at the end of 1QFY23. It expanded its reach to 12 new cities in 1QFY23, taking its total reach to 349 cities across India.

* Dunkin’ Donuts: It closed three stores of Dunkin’ Donuts, taking the total store count to 25 at the end of 1QFY23.

* Hong’s Kitchen and Ekdum! It added two restaurants of new cuisine stores (Hong’s Kitchen and Ekdum!) and closed six stores, taking its total store count for the two brands to 20.

* Popeyes: JUBI opened two new Popeyes stores in 1QFY23.

* Gross margin fell 50bp YoY to 76.7% (est. 77.2%).

* EBITDA grew 44% YoY to INR3b (in line).

* Lower staff cost (-230bp YoY) and higher other expenses (+130bp YoY), resulted in a 50bp YoY expansion in EBITDA margin to 25% (in line).

* Adjusted PAT grew 87.3% YoY to INR1.3b (est. INR1.1b).

Highlights from the management commentary

* Dine-in delivered strong sales, led by growth in the order book and improvement in the ticket size. The channel is currently near 100% of preCOVID levels.

* The management raised prices in the first week of Apr’22. It does not see a need for further price increases in the current environment.

* With JUBI’s new loyalty program, customers can earn points and redeem the same against a free pizza after making six eligible orders, either online or at a store. However, the program only works on JUBI’s own assets (i.e. the offer is not applicable on aggregator platforms). This is aimed at driving additional traffic to JUBI’s own app.

* The political and macro environment in Sri Lanka remains challenging. However, JUBI’s local Domino’s team has continued to maintain operations without any interruptions.

Valuation and view

* There is no material change to our EPS forecasts.

* Outlook on growth and margin for the QSR sector remains attractive, unlike the rest of the Consumption space, where uncertainty prevails on either or both fronts. JUBI remains our top pick in this space, given: a) it has the best Balance Sheet to fund expansion; b) its proven track record of managing both store expansion and healthy SSSG; and c) its technological edge over peers. The experience of the new CEO from Amazon India will further augment JUBI’s clear leadership on the technology front.

* We maintain our Buy rating with a TP of INR720 per share (40x Jun’24 pre-Ind AS 116 EV/EBITDA). Premium multiples are assigned for the best-of-breed operating and financial metrics in a high-growth category.

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