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Jubilant Foods is one of the few discretionary names which have come back to a full recovery in 3Q and is now set for strong growth for 4Q onwards. In addition to an acceleration in store opening for Domino’s and recovery in the dine‐in channel with supply constraints going away, it has added new growth engines by entering in large segments like Chinese and biryani. While margins can come off somewhat with some RM inflation, we expect return ratios to improve further with better store economics for its delivery and takeaway‐focused new stores. Its timely investments in technology should help drive further market share gains benefitting from reduction in overall industry supply in the restaurant space. We see the company getting back to its 20% plus earnings growth trajectory and with ROEs again moving up above 35%, premium valuations of 55x FY23 should sustain. Jubilant remains one of our top picks in the consumer discretionary space.

Presentation highlights

* Quarter highlights – Flat revenue yoy at Rs 10.7bn (+31.2% qoq), SSG at ‐1.7% and LFL ‐0.2%, GMs improved by 330bps to 78.2%, EBITDA margins up 250bps to 26.2%, PAT up 22% to Rs 1.24bn; delivery +18.5%, takeaway +64%, dine‐in down 58%; opened 57 new stores including 50 Domino’s (highest ever), highest ever app downloads at 7.4mn; January has seen sales growth of 6% with 19%/73% growth in delivery/takeaway and 43% decline in dine‐in, cash flows improved further with cash rising significantly to Rs 9.5bn, OLO contribution to delivery increased to 98%.

* New initiatives – Entered the biryani segment with brand Ekdum which offers a vast menu of biryanis and kebabs with an open kitchen concept, launched the Unthinkable Pizza made from plant‐based protein, Drive‐N‐Pick service launched nationwide in November.

* International business – Opened 1 store in Sri Lanka taking total to 23 stores with sales down 17%; Bangladesh has 4 stores with sales down 5%; OLO contribution much lower at 47% and 67%; positive EBITDA in both countries.

* Dunkin’ Donuts and new brands – Opened 2 and closed 1 Dunkin’ store taking total to 27; opened 5 restaurants under new brands Ekdum and Hong’s Kitchen taking total to 10 stores.

Concall takeaways

* Store footprint potential –   Target to open more than 110 Domino’s stores in FY21 and further acceleration from FY22 given expectations of strong growth in the QSR space, see long‐term potential of more than 3000 stores in India and 150 stores each in Sri Lanka and Bangladesh.

* Barbeque Nation investment – Bought 10.8% stake for 92crs, see great unit economics and solid execution in the chain, confident of creating shareholder value; were impacted severely due to COVID but believe offer strong learning opportunity in the casual dining space.

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