Jubilant Foodworks Ltd - GEPL Capital

Q3FY12 –Store additions guidance revised upwards- a big positive

- Jubilant Foodworks Ltd. (JFL) reported net sales growth of 49.2% Y-o-Y to Rs.2.77 bn driven by a) 28 store additions, b) 5% average price hike in Nov11, and c) 30% same store sales (SSS) growth in the quarter.

- The EBITDA margin improved by 154bps Y-o-Y and 76bps Q-o-Q led a 5% price hike taken in Nov'11. This resulted in the EBITDA witnessing a 62.4% Y-o-Y growth to Rs.524 mn. Led by a 31.4% tax rate in Q3FY12 as compared to 24.4% in Q4FY11, the net profits grew by 55.5% Y-o-Y to Rs.295 mn.

Result Highlights

Revenues grew 49.2% Y-o-Y on strong store additions and price hikes

The company added 28 stores in the quarter and undertook a 5% price hike in Nov'11; both of which helped revenues grow by 49.2% Y-o-Y to Rs.2.77 bn. Moreover, the SSS growth was much better than expected at 30% in Q3FY12 on an already high base of 38.7% in Q3FY11. The management has revised its store addition guidance upwards to 85 stores.

Raw material pressures ease while other expenses rose

The raw material cost as a percentage of sales reduced by 10bps Y-o-Y and 100bps Q-o-Q to 25.4% in Q3FY12. The 5% price hike in the quarter helped negate the high milk prices seen during the last 9 months.

However, other expenses reduced grew by 80bps Y-o-Y and 170bps Q-o-Q to Rs.823 mn. The EBITDA margins improved by 154bps Y-o-Y to 18.9% led by lower proportionate rise in staff and rental costs. The rent expenses as a percentage of sales were lower due to 50% of newer stores in tier-II and III cities while staff expenses were low despite the increase in number of parttime employees and partial salary hikes seen in the quarter.

PAT grew 28.4% as net profit margins declined due to a higher tax rate

While the higher EBITDA margins resulted in a 62.4% Y-o-Y growth in EBITDA to Rs.524 mn, the profit growth was marginally lower ,witnessing a 55.5% Y-o-y growth and standing at Rs.295 mn. The profit gains were marginally lower due to the higher tax rates seen in the quarter which stood at 31.4% as compared to 24.4% in the same period last year.

Valuation & viewpoint

We increase our target price on the stock to Rs.802 per share in view of the management revising its store additions in FY12E to 85 from the earlier 80. The new store guidance should result in a higher than estimated EPS.

However, given the recent run up in the stock over the last one month, the valuations appear rich at a P/E multiple of 64.6x and 47.0x our revised FY12E and FY13E EPS respectively. Consequently we revise our rating to SELL from an initial Reduce with a target price of Rs.802 per share.

Source : Equity Bulls

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