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Pressure continues to mount

No signs of improvement

Jubilant FoodWorks (JUBI IN) reported a below par quarter with like-for-like (LFL) declining 2.9% YoY, due to 1) pressure on dine-in, and 2) little or no positive impact from the festival season and the Cricket World Cup; the demand environment remains challenging with increased competition in the pizza category and scale up of aggregators that offer a variety of food products via online delivery. Delivery revenue showed respite as revenue grew 7.4% YoY (65.2% revenue contribution), led by a mix of volume- and ticket value-led growth; however, sustaining it may be a challenge, as overall demand environment remains muted over near term, as per management.

Margin issues persist

Profitability woes too persist, as EBITDA margin was largely flat QoQ at 20.9%, due to promotional offers being pushed to offset demand and increased competition. JUBI also has introduced gourmet-based pizzas to revive growth in the premium segment; however, the company already has a large portfolio of mass market products. EBITDA margin may see respite in case of inflationary pressures easing off (has not declined) but become stable YoY, which can lead to a potential EBITDA margin improvement of 180bp during FY24-26E. Store expansion plans too have been below par as the company has added a mere 112 stores in 9MFY24, vs guidance of 200 new Dominos stores; no recovery in demand could be a likely reason for slowing store growth.

Valuation: retain Reduce with a lower TP of INR 500  

We expect same sales store contraction of 3% in FY24E, flat SSSG in FY25E and 3% in FY26E, as the pizza category may continue to underperform vs other food categories. The stock continues to underperform vs the broader markets as it has moved up by a mere 6% during the past three quarters, due to pressure on demand. We cut our revenue by 7.1% in FY25E & 7.5% in FY26E after factoring lower SSSG and EBITDA by 9.3% in FY25E and 9.0% in FY26E after factoring in lower margin. The stock trades at a fair valuation of 32.8x FY26E EV/EBITDA (pre-IndAS). We retain Reduce with a lower TP of INR 500 from INR 515 as we rollover to March 2025E. Our new TP is based on 31x (unchanged) one-year forward EV/EBITDA (pre-IndAS).