Buy Jubilant FoodWorks Ltd for the Target Rs 600 by Emkay Global Financial Services Ltd
We maintain BUY on JUBI, while revising our TP upward by ~10% to Rs600 (21x Jun-28E EBITDA) from Rs550. While 1Q saw muted PAT growth, our TP increase is largely driven by JUBI’s optimism for continued LFL pick-up through FY27 and encouraging traction for Popeyes. JUBI’s ~2.5% LFL for Domino's India in 1Q was a combination of 7-8% LFL for delivery channel and ~10% dip in dine-in LFL, in our view. The optimism for LFL pick-up is likely stemming from conscious efforts to turn around dine-in LFL with leadership investments, improved service levels, best of the deals (on Wednesdays), and focus on single-eating occasions. Despite inflation-led margin headwind of ~200bps in 1Q, JUBI’s EBITDA margin dipped only ~20bps, helped by ~150bps price hike and other supply-chain efficiencies. JUBI also expressed confidence in delivering its guided ~200bps margin gain by FY28, supported by a reduction in losses in Popeyes/Hong’s, the Dunkin exit, Domino’s LFL pick-up, and normalization of RM/utility costs (Geopolitical reasons). Interestingly, JUBI is targeting Rs10bn scale for Popeyes over the next 3-4 years, as the format is ramping up well with ~Rs95k ADS (+45% LFL in 1Q) at a healthy 67.4% gross margin. JUBI expects to continue incurring annual capex of Rs7.5-9.0bn, albeit will be skewed toward high-return and revenue-generating assets.
Margin performance better than expected; Popeyes seeing healthy traction
Consolidated revenue rose ~14% yoy, led by ~28% growth in DP Eurasia, while India business grew ~9%. JUBI’s India growth was a combination of ~97% growth in Popeyes and 7.4% growth in Domino’s India (6.5% order growth). Popeyes has started off strong, delivering >40% LFL growth for the third consecutive quarter. JUBI is targeting Rs10bn topline in the next 3–4 years for Popeyes (vs Rs703mn in 1Q), helped by 35–40 annual additions over the next few years (current store count: 88). Among channels, delivery continued to outperform with ~12% growth, while dine-in channel saw a ~5% dip. Despite RM/utility inflation and significant minimum wage hikes, standalone EBITDA margin (pre-IndAS) dipped only ~20bps to 12.1% and was ~70bps higher vs our estimates. The company was able to restrict the impact of headwinds through selective pricing actions, productivity improvements, supply chain efficiencies, waste reduction, and greater localization
Focused on reviving dine-in channel; ~400 stores identified for upgradation
In Domino’s, the company remains focused on rebuilding the dine-in channel. It is working on three pillars to improve the growth trajectory:
1) focusing on basics of service (speed of service/product quality/store experience)
2) looking at the dine-in channel as a new customer acquisition channel and activating channel-specific offers (My Meal @ Rs119/Best Deal Wednesdays) thereby increasing store traffic
3) differentiated menu focused on solo occasions. JUBI has established a dedicated leadership team for the dine-in channel and has also identified ~400 dine-in-heavy stores for upgradation.
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