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Strategic actions helped register 2.8% LFL growth

JUBI’s Q2FY25 print was in-line with our estimates; standalone revenue/EBITDA grew 9.1%/ 1.3%, yet PAT fell by 27.8%. Despite subdued consumption with strong execution of strategic priorities, JUBI delivered resilient LFL growth at 2.8%, better than industry. We note turnaround in Domino’s LFL growth was led by, (1) delivery channel sales/LFL grew by 15.9%/11.4% led by waiving off delivery fee, (2) brand campaign ‘IHOP’ driving strong new buyer footfall, (3) MAU at 12.8mn grew 18.5% with lower ticket size, and (4) app download grew 3% at 10.9mn. Further, 20-minute delivery and Rs99/- lunch menu helped to increase footfall in dine-in. Gross margin declined by 30bp to 76.1%. Higher employee cost (+6.0%) and SG&A (+14.1%) led to post-INDAS EBITDA margins at 19.4% (-150bp). JUBI remained confident on store expansion and improving trend in LFL led by strong menu innovation. Management remain upbeat as it saw strong momentum in last 40 days which would continue in H2 as per our view. With lower H1, we tweak earnings and retain BUY with a revised SOTP-based TP of Rs713 (implying EV/EBITDA of 27x Sep FY27E).

Operational excellence, delivery fee waiver and menu innovation led to 2.8% LFL growth

Q2 JUBI’s standalone revenue at Rs14.6bn grew +9.1% YoY led by (1) delivery channel sales/LFL grew by 15.9%/11.4% due to waiving off delivery fee, (2) brand campaign ‘IHOP’ driving strong footfall, (3) MAU at 12.8mn grew 18.5%, and (4) app download grew 3% at 10.9mn. Despite subdued consumption for QSRs with strong execution of strategic priorities, JUBI delivered resilient LFL growth at 2.8%. Further, 20-minute delivery and Rs99/- lunch menu helped to increase footfall in dine-in. Delivery LFL +11.4% and 2.8% growth in ADS increased to Rs80.2k while Dine-in sales cut by 5.6%. Dominos has maintained price stability over last nine quarters despite higher inflation through cost optimization and productivity initiatives. DPEU system sales at Rs7.7bn saw 6% lower LFL on a high base. COFFY system sales at Rs0.6bn with LFL decline of 3.9%. JUBI added 191 store to reach 2,079, Popeyes: 54, Dunkin: 32, Hong’s: 34, Srilanka: 50, Bangladesh: 35, Turkey: 829, Azerbaijan: 10, Georgia: 7 with total stores at 3,130. JUBI remained confident to deliver improving LFL growth, yet maintained FY25 store guidance.

Despite higher inflation project Vijay helped to moderate decline in margin

JUBI’s gross margin declined by 30bp to 76.1% due to higher RM prices whereas Pre –INDAS EBITDA margin came at 11.7%, lowered by 160bp. Overall company EBITDA grew marginally by 1.3% resulting in EBITDA margin at 19.4% (-150bp) YoY due to higher other expenses (+14.1%) and employee cost (+6.0%). Waiving off delivery fee impacted 150-170bp which is offset by higher packaging charges along with internal efficiencies. Management expects to deliver better margin H2FY25 led by operating leverage and better LFL growth. With 89.6% sales from franchise, DPEU EBITDA/PAT margin came in at 26.1%/10.5%. We expect DPEU’s margins to improve further led by, (1) royalty fee, (2) store opening fees, and (3) sales from commissary.

Valuation and risks

As argued in our QSR Thematic report, JUBI strategically consolidated its value accretive international business at opportune time. By leveraging DP Eurasia's growth potential and profitable COFFY brand to boost profitability and sustain long-term growth in our view. Moreover JUBI’s rejuvenated approach to drive growth in Dominos’ and chicken QSR segment (Popeyes), coupled with enhanced consumer experience in value segment could achieve positive LFL growth. Despite weak demand, incremental competition in pizza QSR, and rising inflation pose short-term challenges, we expect JUBI to defend its current margin. With lower 1HFY25, we cut earning for FY256E/FY26E by 25.8%/24.7% and retain BUY with a revised SOTP-based TP of Rs713 (implying EV/EBITDA of 27x Sep’FY27E). Key risks: prolonged weakness in demand, rising inflation in key RM/PM and severe competition in chicken portfolio.

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