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Record performance; Outlook positive

Jubilant FoodWorks (JFL) is a leading quick service restaurant (QSR) company. It owns franchise for Domino’s in India, Nepal, Sri Lanka and Bangladesh and also for Dunkin’ Donuts in India.

* Standalone revenue surged 36.6% YoY in Q2FY22, reaching an all-time quarterly high of Rs. 1,101cr, aided by improved demand and record stores expansion.

* As a result, EBITDA grew 33.2% YoY, although EBITDA margin contracted 70bps YoY to 26.0% due to higher costs from inflationary and currency pressures. Adj. PAT rose 59.6% YoY further helped by lower depreciation.

* Q3FY22 is expected to fare much better for the company on the back of continued growth in revenue and opening of new stores and brands. Hence, we upgrade our rating on the stock to BUY with a revised target price of Rs. 4,220 based on 84x FY23E adj. EPS.

Quarterly revenue hits all-time high

Standalone revenue grew 36.6% YoY to Rs. 1,101cr in Q2FY22 (+11.6% vs. the prepandemic level of Q2FY20), supported by highest ever stores expansion. The revenue growth was driven by recovery in the Dine-in channels and continued momentum in the Delivery and Takeaway channels. Resultantly, EBITDA also rose 33.2% YoY to Rs. 286cr, despite contraction in EBITDA margin (-70bps YoY to 26.0%, impacted by increased costs from inflationary and currency pressures). Adj. PAT rose 59.6% YoY to Rs. 123cr, further helped by lower depreciation (-12.4% YoY).

Accelerated stores expansion

Jubilant accelerated its stores expansion and opened record 55 new Domino's stores during the quarter and tapped nine new cities, taking that total store count to 1,435 in 307 cities. Company continues to target opening of 150-175 new Domino's stores in FY22. Separately, it added five new stores for its other brands, i.e. two each for Dunkin and Hong's Kitchen and one for Ekdum.

In Dunkin, major focus is on a coffee first strategy that will help drive frequency and build greater stickiness. Hong's Kitchen also delivered a strong performance with total store count reaching 13 (all in Delhi NCR region). Management also expect to launch Popeyes brand in India within this financial year.

Key highlights

* Jubilant proposed increasing its direct shareholding in Jubilant Golden Harvest Limited to 90%, which holds franchise of Domino's in Bangladesh.

* Company also launched reverse book building exercise, subject to the final result, to increase indirect shareholding to 49.9% in DP Eurasia, which holds franchise for Turkey, Russia, Azerbaijan and Georgia.

* We observed 70bps reduction in the promoters pledged securities on QoQ basis.

Valuation

Q3FY22 is expected to fare much better for the company on the back of continued growth in revenue and opening of the new stores and brands. We estimate PAT to grow at 68.5% CAGR over FY21-23E and EBITDA margin to improve to 25.2% by FY23E. Hence, we upgrade our rating on the stock to BUY with a revised target price of Rs. 4,220 based on 84x FY23E adj. EPS.

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