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SSG disappointment drives earnings cut

* JUBI’s revenue and PAT missed our/Street expectations by 6-16%. Revenues grew by 13%, with a 2-year CAGR of ~6%, largely driven by an increase in the store count. Revenue per store remained largely flat vs. pre-Covid levels. LFL growth was 7.5%. SSG was lower due to store splits.

* Management attributed the weaker revenue performance to lower operational hours, trade restrictions and the impact of store splits (46% of new adds). Net store addition was robust at 60 in Q3 and the expansion pace is likely to remain high with ~200 stores for FY22E.

* Pricing actions in Dec’21-end, low promotional intensity across industry and variablization of employee costs helped more than offset the impact of RM inflation and lower revenue per store in Q3 and maintain EBITDA margins (up ~20bps to 26.6%).

* The Q3 miss and moderation in delivery/takeaway drive an 8-11% cut in FY22-24E EPS. Retain Hold with a TP of Rs3,600, with an unchanged multiple of 60x Mar’24 (vs. Dec’23 earlier), as incremental medium-term growth from Popeyes offsets an increase in WACC.

SSG disappoints; store additions robust: Revenues grew by 13% in Q3, with a 2-year CAGR of ~6%, largely driven by growth in avg. store count. Avg. revenue per store was flat both YoY and relative to pre-Covid. Weaker revenue per store was attributed to ~5% lower operational hours in Q3 and cannibalization impact of new stores overlapping with trade areas of existing stores (split store impact). JUBI indicated a strategic focus on improving customer experience through faster deliveries (~60% delivery orders were delivered in <20mins in Q3). LFL growth, adjusting for the impact of split stores, was 7.5% in Q3. Store additions remained robust in the last few quarters - 60/135 net additions in Q3/9MFY22, with ~200 planned for FY22. JUBI expects an accelerated expansion pace for Hong’s in FY23 as store-level metrics are improving. JUBI expects Popeyes to be a medium-term growth driver and indicated encouraging demand trends in the first flagship store opened in Jan’22.

Price hikes/lower promotions help protect margins: EBITDA margins improved by 20bps despite RM inflation and lower rev/store. Margins were helped by pricing hikes taken in Dec’21-end, reduced promotional intensity and variablization of costs. While inflationary trends remain, JUBI expects stable margins, aided by full benefits of price hikes in Q4.

Weak Q3 drives 8-11% earnings cut: While JUBI has a strong outlook thanks to its leading digital/delivery capabilities, faster store additions and new formats but Q3 miss and a moderation in delivery/takeaway growth drive an 8-11% earnings cut and keep us neutral on the stock. An increase in medium-term growth assumptions due to the inclusion of the Popeyes format offsets the negative impact of higher WACC (up 25bps). Hence, we maintain our Hold rating with a revised TP of Rs3,600 (vs. Rs3,900 earlier), based on an unchanged 60x FY24E EPS vs. 60x Dec’23E EPS earlier.

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