Buy Jubilant Foodworks Ltd For Target Rs.610 - Motilal Oswal Financial Services
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Weak LFL continues to hurt; recovery expected in 2H
* JUBI’s sales grew 5% YoY in 2QFY24, driven by footprint addition. But weak LFL (-1.3% YoY) and subsequent operating deleverage led to a 10%/39% decline in EBITDA/PAT (in line/15% miss). This was partly cushioned by improvements in GM.
* The management’s efforts toward product innovations, faster delivery and store revamping aided delivery business, but dining revenue remained sluggish. We estimate revenue/EBITDA growth of 11/13% over FY23-25. JUBI’s own delivery system, back-end advantages, robust balance sheet, and loyalty program give it a competitive edge. Retain BUY on the stock.
Revenue/EBITDA in line; strong store addition continues
* JUBI reported sales growth of 5% YoY to INR13.5b (in line), with a 1.3% YoY decline in LFL (similar to last quarter) and 11% store growth.
* Store network: Opened 60 new stores and closed 2 stores, taking the total count to 1,949 stores.
* Gross profit grew 5% YoY to INR10.3b (in line). Margin increased 20bp YoY/40bp QoQ, showing improving trends in RM prices.
* EBITDA declined 10% YoY to INR2.8b (in line), led by weak LTL growth. Margins contracted by 340bp YoY to 20.9%.
* Adj. PAT declined 49% YoY to INR721m (15% miss) due to higher depreciation and a decrease in other income. Margins stood at 5.4%.
Highlights from the management commentary
* JUBI expects 5-6% LFL growth for Dominos in the long term; around 10-12% growth from retail store adds will lead to ~15% revenue growth.
* It expects a 150–200bp increase in EBITDA margin from 21% in 2QFY24, resulting in long-term EBITDA margin expectations of 22.5-23%.
* Store opening guidance remains unchanged at 200+ for Dominos and 30+ for Popeyes. It plans to increase Dominos store count to 3,000 in the medium term.
* Adding stores for Popeyes is not a constraint, the constraint is a) brand awareness of Popeyes is less than Jubilant, b) aspire to add larger size store to establish brand and c) supply chain. Company will be leveraging the Dominos commissary for Popeyes.
Valuation and view
* We reduce revenue/EBITDA estimates by ~2% for FY24/FY25, building in a CAGR of 11/13% in revenue/EBITDA over FY23-25E. The growth is expected to be driven by 11% store adds and LFL recovery from 3QFY24. The improvement in GM may offset store expansion related operational costs.
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