IGI Logo

Stable performance; focus on network expansion

* Jubilant Foodworks (JUBI) reported standalone sales growth of 9% YoY to INR14.7b (in line), led by 20% order growth. LFL grew 2.8% (in line). The delivery business performed well, growing 16% YoY; the business raised its share to 70%. Dine-in revenue, however, dipped 6% YoY. Waving of delivery charges has been shifting the dine-in demand to delivery.

* Domino’s India has added 50 new stores and entered 20 new cities in 2Q. The store expansion spree for Domino’s and other brands will continue to broaden the customer reach and gain market share.

* Standalone gross margin was down marginally (-30bp YoY to 76.1%), and EBITDA margin contracted 150bp YoY to 19.4%. The contraction is due to higher investments in technology, supply chain enhancements, and negative operating leverage. Additionally, the company intensified its value proposition by offering free delivery. JUBI emphasized that customer retention and acquisition are critical priorities in the current demand environment.

* Weak operating margins were further hurt by higher depreciation (investments on backend capabilities) and interest costs. Standalone PBT declined 28% YoY, and margin came in at 4.8% in 2QFY25. Standalone PAT declined 28% YoY during the quarter.

* The QSR industry is still reeling under pressure due to growth metrics-led weakness on unit economics. Outperformance of delivery demand has supported healthy traffic growth for Jubilant. The growth recovery still looks more gradual, and operating margin would see slower recovery. We reiterate our Neutral rating on the stock with a TP of INR625.

Overall performance in line; LFL up 2.8%

* Positive LFL growth: sales growth of 9% YoY to INR14.7b (est. INR14.7b) led by order growth of 20.2%. Dominos LFL grew by 2.8% (in line) led by delivery LFL growth of 11.4%.

* Store expansion continues: In India, JUBI opened 51 net stores, taking the total count to 2,199. Domino’s opened 50 new Domino’s Pizza stores, taking the count to 2,079. Popeyes opened four new stores, taking the count to 54. Hong’s Kitchen opened one store, taking the count to 34. Dunkin’ Donuts closed four stores, taking the count to 32.

* Weak EBITDA margin: Gross profit grew 9% YoY to INR11.1b (in line). GM dipped 30bp YoY, while it was flat QoQ at 76.1% (est. 75.5%). EBITDA margin contracted 150bp YoY, while it expanded 10bp QoQ to 19.4% (est. 19.4%). PBT margin was 4.8% vs. 7.2% 2QFY24 and 4.7% 1QFY25.

* Decline in PBT/PAT: EBITDA inched up 1% YoY to INR2.8b (est. INR2.8b). PBT (before exceptional) continued to decline and was down 28% YoY to INR698m (est. INR710m). Adj. PAT dipped 28% YoY to INR521m (est. 531m).

* In 1HFY25, net sales/EBITDA rose 10%/1%, while APAT declined 30% YoY. In 2HFY25, we model sales/EBITDA growth of 12%/5% and flat APAT YoY.

International business

* Domino’s Sri Lanka revenue rose 34% YoY to INR170m, led by strategic store relocations, new product launches, and focused local initiatives. No store has been opened during the quarter.

* Domino’s Bangladesh revenue declined 5% YoY to INR126m on account of temporary store closures amidst a challenging operating environment. However, all stores are now operational. Five stores were opened in Bangladesh, taking the total count to 35 stores.

DPEU

* Domino’s system sales stood at INR6,924m. Domino’s Turkey LFL growth was down 6%.

* COFFY’s system sales came in at INR651m. COFFY’s LFL growth dipped 4%.

* Revenue for DPEU came in at INR4,605m, with operating EBITDA of 26.1% and PAT margin of 10.5%.

* In DP Eurasia, the company opened 17 stores in 2QFY25, taking the total count to 846.

Highlights from the management commentary

* JUBI has achieved strong volume growth momentum driven by its own initiatives, even in a softer demand environment. Growth momentum is expected to accelerate in 3QFY25 compared to 2Q.

* A lunch menu priced at INR99 boosted in-store traffic during off-peak hours (11 AM to 3 PM), supporting sales growth.

* No price hikes have been taken in the past nine quarters, with inflation absorbed through internal cost optimization and productivity enhancements.

* Margins have been impacted by the company’s free delivery initiatives; however, approximately two-thirds of these costs have been offset through internal cost-efficiency measures.

* Operating margin recovery will be slower than growth recovery as the company is in a reinvestment mode.

Valuation and view

* There are no material changes to our EPS estimates for FY25 and FY26.

* The QSR industry is still reeling under pressure on unit economics. JUBI was the beneficiary of healthy traffic growth for the delivery business. Delivery is expected to outperform in the near term, which will continue to lead to better growth metrics than JUBI’s peers in the near term. Operating margin is likely to experience slower recovery owing to JUBI’s continuous reinvestment in its core capabilities.

* We value the India business at 35x EV/EBITDA (pre-IND AS) and the international business at 15x EV/EBITDA (pre-IND AS) on Sep’26E to arrive at our TP of INR625. We reiterate our Neutral rating on the stock.

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html

SEBI Registration number is INH000000412