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JUBI’s Q2 print was in-line; standalone revenue grew 4.5% led by 1.3% decline in LFL, yet EBIDA/PAT cut by 10.2%/39.5%. Given stretched consumer spends, and extended Shravan saw 1.2% decline in ADS. Delivery channel grew 7.9%, whilst dine-in declined by 3.8% in Q2. With 50% order contribution, enrolment for loyalty program (Cheesy rewards) grew 16.1% QoQ (19.5mn customers), yet with 10.6mn app download its MAU stood at 10.8mn grew 4.8% QoQ. JUBI stepped up Its efforts to revive LFL growth by, (1) re-imaging 33 stores and ACE 2.0 to upgrade customer experience, (2) sharpened on ground execution – 7 regions, (3) launched new range of Pizzas – mutton and prawns, and (4) guaranteed 20-minute delivery service in Bengaluru. Despite high dairy inflation, gross margin inched up to 76.4% (+20bp), yet higher employee cost (+12.3%), rent (+11.7%) and SG&A (+11.3%) ensued postINDAS EBITDA margins at 20.9% (-341bp). JUBI held store expansion target with single digit LFL led by strong menu innovation. We introduce FY26E earnings and maintain BUY, with a revised DCF-based TP Rs625 (implying EV/EBITDA of 20.0x avg. FY25E/FY26E). 

Peak food inflation extended Shravaan ensuing weak demand for Pizzas in Q2

Off high base (+16.9% growth), JUBI reported standalone revenue at Rs13.5bn, grew 4.5% YoY led by decline in LFL/ADS by 1.3%/1.2%. Domino’s India added 50 stores (total 1888) covering 397 cities, yet Popeyes now cover 6 cities with 22 restaurants in south. With 50/23 stores in Sri Lanka/ Bangladesh, its system sales grew 2.0%/85.6%. Delivery channel grew 7.9%, whilst dine-in declined by 3.8% in Q2. With 50% order contribution, enrolment for loyalty program grew 16.1% QoQ (19.5mn customers), yet with 10.6mn app download its MAU stood at 10.8mn grew 4.8% QoQ. JUBI stepped up Its efforts to revive LFL growth by, (1) re-imaging 33 stores and ACE 2.0 to upgrade customer experience, (2) sharpened on ground execution – 7 regions, (3) launched new range of Pizzas – mutton and prawns, and (4) guaranteed 20- minute delivery service in Bengaluru. Out of 21 Dunkin’s outlets 11 are now rebranded as Coffee-First and addition of 4 outlets under Hong’s Kitchen took store count to 18 spread across three cities. JUBI retained store addition target of 250/45 for Domino’s/Popeyes in FY24

Despite weak ADS, higher milk inflation, project Vijay helped to maintain gross margin

JUBI’s gross margin inched up to 76.4% (+20bp) though increased QoQ, led by, (1) weak ADS, (2) higher inflation in chicken/dairy, (3) adverse operating leverage, and (4) cost control projects. Despite higher employee cost (+12.3%), rent (+11.7%) and SG & A (+11.3%) the company EBITDA declined by 10.2%, settling post-INDAS EBITDA margin at 20.9% (-341bp). Management alluded its efforts on cost saving – Project-Vijay, coupled with lower milk and cheese inflation may recoup margins in 2HFY24. PAT cut to Rs721mn (-39.5%) driven by higher depreciation/interest expenses at 22.8%/10.0%. Management maintained capex guidance of ~Rs7.5bn in FY24, expecting new dual capacity commissary in Bengaluru to be operational serving 750+ store network and addition of one in Mumbai. We expect significant cost savings on this account.

Valuation and risks

As argued in our recent QSR Thematic report, JUBI in its rejuvenated approach to drive growth through portfolio expansion in Domino’s and chicken QSR segment (Popeyes), coupled with enhanced consumer experience in value segment and by reimaging store could achieve mid-single digit LFL growth. Though weak demand, incremental competition in pizza QSR, and rising inflation pose short-term challenges, we expect JUBI to defend its current margin. We cut FY24E/ FY25E earning by 6.5%/3.0% and introduce FY26E estimates and retain BUY with a revised DCF-based TP of Rs625 (implying EV/EBITDA of 20.0x avg. FY25E/FY26E). Key risks to our call prolonged weakness in demand, rising inflation in key RM/PM & severe competition in chicken portfolio from peers.

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