IGI Logo

Growth vectors in place; eating out frequency rising

Our recent interaction with JUBI’s management indicated growth vectors are in place which are led by, (1) rising eating out frequency, (2) reimaging of stores saw high single digit LFL growth, (3) focus on access and reach driving dine-in, and (4) operational excellence. JUBI’s management identified three key priorities, Domino’s, Popeyes and cultural shift to determine future growth, while menu changes in Hong’s Kitchen appears to be promising. More importantly, focus on Coffee-first initiative improved profitability for Dunkin’s. With upcoming commissaries in Bengaluru and in Maharashtra expect to influence margin trajectory in our view. Though it’s early, rising eating out frequency could lift dine-in as well as ordering in our view. That said, such trends coupled with focus on driving consumer experience (cheesy rewards, 20-min delivery) could show up in LFL growth. We tweaked our earnings and retain Buy with a revised DCF-based TP Rs612 (implying 21.2x FY25E EPS).

Vectors of growth led by rising eating out frequency to drive food services industry growth

Our recent interaction with JUBI’s management indicated growth vectors are in place which are led by, (1) rising eat out frequency, (2) reimaging of stores saw high single digit LFL growth, (3) focus on access and reach driving dine-in, and (4) operational excellence. JUBI’s unique moat, value offering at affordable price points, delivery, and end-to-end supply chain helped in building best-in-class operating model. We reckon, rising per capita income to influence discretionary spends which bodes well for QSR industry. JUBI’s management identified three key priorities, Domino’s, Popeyes and cultural shift to determine future growth, while strategic changes including menu innovation in Hong’s Kitchen appears to be promising. More importantly, focus on Coffee-first initiative improved profitability for Dunkin’s. Through focus on value layer, JUBI stepped up Its efforts to revive customer experience, adding range of new Pizzas, in addition to guaranteed 20-minute delivery service (7 cities). Enrolment for loyalty program now reached to 15mn. With upcoming commissary in Bengaluru with dual capacity its Popyes unit economics getting stitched, which is now spread over 5 cities in south

Operational excellence to innovate and drive consumer experience

With senior/middle management in place JUBI is now focused on lifting operational excellence through culture shift towards driving consumer experience. That said, since dine-in has to be functional and efficient, efforts on driving consumer experience (though important for upper middle-class), starting from store ambience to cleanliness and increased seating capacity yielding in high single digit LFL growth (150 reimaged stores), though ACE design is functional across 1400 outlets. JUBI’s NPS score has now improved both in delivery and dine-in channel.

Valuation and risks

As argued in our recent QSR Thematic report, JUBI in its rejuvenated approach to drive growth through portfolio expansion into high growth chicken QSR segment (Popeyes), coupled with enhanced consumer experience in the value segment and by reimaging Domino’s stores could achieve mid-single digit LFL growth in our view. We highlight, JUBI is the only company to deliver positive FCF in QSR space last 10-years. However weak demand, incremental competition in pizza QSR and rising inflation in dairy pose short-term challenges, yet expect JUBI to defend its current margin. We tweaked our earnings by 4.2% in FY25E and maintain BUY with revised DCFbased TP of Rs612 (implying EV/EBITDA of 21.2x FY25E). Key risks to our call prolonged weakness in demand, rising inflation in key RM/PM & severe competition in chicken portfolio from peers.

For More Centrum Broking Disclaimer https://www.centrumbroking.com/disclaimer/

SEBI Registration No.:- INZ000205331