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Jubilant Foodworks - Capitalizing on the opportunity (per our expectations) - accelerated store expansion - ICICI Securities

Posted On: 2021-07-22 12:41:52 (Time Zone: IST)

JUBI likely surprised consensus by stepping-up its store expansion target (for Domino's) to 150-175 for FY22. Management's confidence was reflected in the use of the words 'hyper-growth' (for JUBI's brands) and 'inflection point' (for the industry) on the call. The intent and potential to leverage data analytics possibly gives a glimpse that JUBI can reposition as a food-tech platform (and not just a collection of few brands in silos). JUBI did manage operations in the second-wave well with 1QFY22 revenue decline of just 6% over 1QFY20 levels (includes (pricing) benefit from delivery charges, to be sure). Performance of the delivery and takeaway channels have been impressive, mitigating the slowdown in dine-in.

We believe benefits from developing superior tech capabilities (over long-term) are now visible. We like the focus towards (1) growth (store expansion, higher emphasis on digital infra), (2) developing synergies with new brands (Hong's Kitchen, Ekdum! and Popeyes) and (3) expanded organisational bandwidth. Investments on a strong fleet gives it an edge over peers. Popeye's success (execution is key) is the next potential positive upside trigger. Our positive stance stays - ADD retained; TP 3500.

- Overall growth led by delivery channel: 1QFY22 was definitely a good quarter with revenue / EBITDA / PAT down (over 1QFY20 - a normal quarter) only 6% / 3% / 9%. This was led strong momentum in each of the months with June revenues almost recovering (99.5%) to pre-Covid levels (1QFY20 base). Just like the previous quarters, growth was led by delivery and takeaway as dine-in continued to be weak.

- Focus on store expansion to continue: JUBI intends to accelerate store expansion and has guided for 150-175 new stores for FY22 (despite some on-ground challenges). Furthermore, a ramp-up is also expected for the new brands along with the launch of Popeye brand. Management is confident of a strong runway for store expansion in both large and small cities. In Q1, JUBI added another 20 stores (Domino's) (after opening 50 stores in Q4) taking the total store network to 1,380 stores. We note that JUBI has added 130 stores (gross-basis) in the last 12 months; about 100 stores were closed (of less optimum nature). Further, it opened three stores each of Hong's Kitchen, Ekdum! and Dunkin stores; Dunkin now has 27 stores and Ekdum! and Hong's Kitchen have 18 stores. JUBI also opened two Domino's stores each in Sri Lanka and Bangladesh.

- Measures taken to offset inflation impact: Gross margin print continued to be strong at 77.2% YoY despite 25bps QoQ contraction. JUBI has taken a small increase in delivery charges (started during Covid disruption but should continue) to mitigate the impact of fuel price hikes. JUBI has also taken some price increases (different across segments - some products have a hike of just 1% while its 5-6% for some) to mitigate inflation impact. That said, JUBI can further use the pricing lever, if required.

- Valuations and risks: We increase our FY22-23 earnings estimates by 1-3%, modelling revenue / EBITDA / PAT CAGR of 30 / 40 / 77 (%) over FY21-23E. Maintain ADD with DCF-based unchanged target price of Rs3,500. Key downside risk is raw material costs turning inflationary.

Shares of Jubilant FoodWorks Ltd was last trading in BSE at Rs. 3074.15 as compared to the previous close of Rs. 3083.4. The total number of shares traded during the day was 16211 in over 3160 trades.

The stock hit an intraday high of Rs. 3096.9 and intraday low of 3025. The net turnover during the day was Rs. 49536773.

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