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In-line performance; LFL healthy at 8.4%

* JUBI’s 2QFY23 results were mostly in line. 8.4% ‘Like-for-like’ (LFL) growth was healthy, given the unfavourable base.

* Demand environment continues to be positive. Both the start of regionalization of product mix and strong response to the loyalty program are encouraging. While material cost pressures remain, there appear to be no material concerns on lease rentals and employee costs. We reiterate our Buy rating on the stock, which continues to be among our top picks in the discretionary space.

Performance in line

* JUBI reported sales growth of 16.9% YoY to INR12.9b (in-line) in 2QFY23 with LFL growth at 8.4% YoY (est. 8%).

* Store network:

* Domino’s opened 76 new stores leading to 1,701 stores at the end of 2QFY23. They added 22 new cities during the quarter to expand its reach to 371 cities across India.

* Dunkin’ Donuts: It opened one and closed two stores, taking the total to 24 stores at the end of the quarter.

* Hong’s Kitchen and Ekdum! It did not open or close any stores. The number of stores at the end of 2QFY23 stood at 20 stores.

* Popeyes: JUBI opened two new Popeye’s stores during the quarter, taking the total to eight stores.

* Gross margin was down 200bp YoY to 76.2% (est.77%) in 2QFY23.

* EBITDA grew 9.2% YoY to INR3.1b (in-line) in the quarter.

* Stable staff cost (+10bp YoY) and lower ‘other expenses’ (down 40bp YoY) restricted EBITDA margin contraction to 170bp YoY to 24.3% (est. 24.9%).

* Adj. PAT was flat YoY at INR1.2b (in-line).

* 1HFY23 sales/EBITDA/Adj. PAT grew 27.6%/24%/29.3% to INR25.3b/6.2b/2.5b, respectively.

Highlights from the management commentary

* Regionalization of product mix, specifically for the Eastern region and Gujarat, during the quarter is a welcome move.

* JUBI added over 7m customers to its loyalty program within a short span of time (launched in May’22). This along with its highest ever own channel contribution to total delivery sales augurs well in strengthening its moats.

* Despite persistent RM inflation pressures, the company is determined not to take further price increases, expecting to make it up at the EBITDA level with savings on other costs and healthy operating leverage. This is in line with the value focus that the company has demonstrated over the past few years.

Valuation and view

* There is no material change to our EPS forecasts.

* Growth outlook and margin for the QSR sector remain attractive, unlike the rest of the Consumption space, where uncertainty prevails. JUBI remains our top pick in this space, given that 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 have highlighted JUBI’s widening moats in our annual report update and emerging opportunity in new businesses such as Popeye’s in another detailed note in August 2022.

* We reiterate our Buy rating with a TP of INR740 (40x Sep'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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