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Weak revenue/store persists in Q2; Store adds impressive

JUBI’s Q2 PAT was 10-14% lower than Street/our estimates, led by a 1-3% miss on topline, a 40-70bps miss on EBITDA margin and higher depreciation on stronger store additions at 76 for Domino’s in Q2. The topline miss was owing to a weaker growth in revenue-per-store, and margin miss was on account of higher gross-margin decline of ~200bps, led by elevated prices of cheese. Factoring-in the accelerated expansion and the lower SSG, we largely retain FY24/25E revenue, albeit reduce our EPS estimates by 3-4% due to new-store investments and higher depreciation. The new CEO indicated the need for refining processes vs. complete overhaul. CEO’s focus appears to be on expediting ramp-up of new formats like Popeyes/Hong’s/Ekdum, acquiring/retaining consumers through promotions, loyalty programs & faster deliveries as well as digitizing the back-end. However, we await unfolding of early trends before turning constructive on JUBI; maintain HOLD with Dec-23 TP of Rs595 (based on 48x Dec-24E EPS vs. 49x Sep-24E EPS earlier). Multiple revision is due to 3M rollover.

Results summary: JUBI saw 3Y revenue CAGR of 9.2% in Q2, led by a healthy 9.5% average-store-count CAGR and largely-flat revenue-per-store CAGR. Despite double-digit price hikes YoY, the 3Y LFL (which adjusts for the impact of split stores) CAGR was also low, at 4.4% in Q2. Among channels, Dine-in/Takeaway witnessed strong growth, while Delivery registered growth on a high base. Store addition for Domino’s was impressive, at 76 stores in Q2, taking total additions to 134 in H1. Additions for Popeyes, Hong’s and Ekdum were muted during Q2, but JUBI expects to end FY23 with ~20 Popeyes stores in 3 cities vs. 8 stores in Bangalore currently. Digital traction continued in Q2, with 9mn app downloads, thus taking the cumulative downloads to 104.4mn. Despite double-digit price hikes, gross margins fell by 200bps to 76.2% vs. our expectations of a 70bps decline. Impacted GM led to EBITDA margin falling short of our expectations by ~70bps. The inflationary trend continues and JUBI expects to maintain current margin trends, unless RM costs normalize.

Earnings-call KTAs: 1) Input inflationary pressures continued and price of the key input cheese reached an all-time high in the past decade. 2) After two price hikes, in Dec-21 and Apr-22, JUBI indicated no further hikes in the near term, as focus is on improving productivity for mitigating the inflation impact. 3) JUBI has launched its regional pizza innovations, inspired by flavors of East-India and the ‘no onion & garlic’ range in Gujarat. JUBI indicated more such innovative launches in Nov-22. 4) With good traction in own app and increasing repeat rates, JUBI plans to step up store expansion for Popeyes and partner with aggregators in H2. 5) Total FY23 capex is expected to be ~Rs7bn, of which ~Rs2bn has been invested in the Bangalore commissary, with part of it targeted as digital investments and the balance for network expansion. 6) Loyalty rewards are accounted as discounts in the P&L, based on an assumed redemption ratio, and later adjusted in the balance sheet on redemption.

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