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Slight miss on expectations, but store expansion, growth and margin outlook remains strong

Results and investor call takeaways

* View – While the stock is trading at rich valuations of 64x FY23 and 59x FY24 earnings and therefore might have limited near‐term upside, we expect the rich valuations to sustain given increasing aggression on footprint expansion, room to increase prices to drive up margins and a strong long term growth potential with entry into multiple new brands and geographies. Any correction on valuation concerns could be a good opportunity to add the stock.   

* Quarter highlights – Revenue up 14.3%, EBITDA up 47% with margins up by 540bps to 24.3%, PAT up 395% from a low base, entered 8 new cities and opened a record 53 new stores in 4Q (50 Dominos, 1 each Hong’s, Ekdum and Dunkin, opened 3 new stores in SL and 1 in Bangladesh, signed agreement to bring Popeyes to India and bought 33% stake in Dominos franchisee in Turkey, Russia, Azerbaijan and Georgia; LFL growth of 15.1% and SSG growth of 11.8%, delivery sales up 29% and takeaway sales up 77%; dividend of Rs 6.

* Management commentary – Healthy return to growth led by delivery, takeaway though dine‐in channel still below pre‐COVID levels, 134 new Dominos stores opened in FY21 vs initial plan of 100, intend to incorporate best practices from DP Eurasia, expect Popeyes to be a key growth driver for long term, were well prepared to handle second wave of pandemic, strong recovery in April and May, enter FY22 with a larger and more optimized network, own assets growing faster than aggregator in the delivery channel, multiple senior level appointments like Chief Business Officer, new CFO and Head of Popeyes.

* Performance in 1QFY22 so far – Recovery rate at 94.4% in April and 87.7% in May at system level vs FY20 levels led by delivery channel, expect June to be much better.

* Data breach incident in March – Moved quickly to contain the breach, no operational impact on business with no app deletions, global forensic agency hired to investigate and put in a mitigation plan, working on implementing world class security solution.

* DP Eurasia investment ‐ Got 3 board seats in DP Eurasia, no plans to increase the stake further for now, expect to take India learnings there and implement best practices from there in India.

* Popeye opportunity in India – In the western QSR market, chicken is a Rs 40bn market in India growing at 17‐18% CAGR, second largest after pizza; Popeye is a brand focused on chicken with disruptive innovative products like chicken sandwich.

* Store expansion strategy – See an opportunity for 3000 Dominos stores in India, room exists in both existing and new markets, target aggressive growth over next few years, will open at least 134 stores in FY22 as well; Bangladesh expansion rate will also pick up, huge runway for Ekdum.

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