Accumulate Jubilant Foodworks Ltd. - Tastes just right! - IDBI Capital

Jubilant Foodworks Ltd. (JUBI) delivered another strong quarter on top line/bottom line with 46%/60% growth YoY respectively to Rs2.8 bn/Rs309 mn (adjusting for expenditure on Dunkin' business) – marginally below estimates of Rs2.9 bn/Rs323 mn. Gross margin was in line at 74.6%, up 10bps/flat YoY/QoQ, while EBITDA margin at 18.6% (IDBIe 18.9%), was lower led by higher than expected rentals.

We cut our FY13 EPS estimate by ~4% to Rs25 as we cut our EBITDA margin estimate by 10bps to 18.8% to factor in slight margin miss in Q4. We introduce FY14 estimates with revenue/EBITDA/PAT at Rs19.5 bn/Rs3.7 bn/Rs2.3 bn and EBITDA margin at 18.8%. We factor in SSG of 20%/18% for FY13/14 with store addition of 90/85. We remain impressed by management's positive tone on healthy SSG trend (it has guided for 18-20% SSG in FY13) and its ability to maintain profitability despite rising competition (led by pricing power and operating leverage – mgt has guided to at least match FY12 EBITDA margin of 18.7%). We are yet to factor in earnings from DD stores (due to lack of clarity on financials), which in our view, could provide further trigger (however, the incremental trigger would be low in the overall scheme of things) with metrics similar to Dominos stores in terms of payback and returns (per management). Upgrade to ACCUMULATE from HOLD post ~12% correction in the stock price in the past one week. Our DCF based price target is Rs1,134 (13.1% WACC; 5% terminal growth).

Key highlights

* Sales growth robust on strong SSG, new store addition

Revenue during Q4FY12 was marginally below estimates, up 46%/2% YoY/QoQ to Rs2.8 bn (IDBIe Rs2.9 bn), led by (i) 26.2% same store sales growth (SSG); 29.6% SSG in FY12 on top of 37.2% SSG achieved in FY11, (ii) addition of 26 stores (87 stores in FY12) to 465 stores as on Mar'12 and (iii) launch of 3 new exotic pizzas - 5 Peppers Veg, Zesty Chicken and Chicken Fiesta; new varieties/toppings in Pizza Mania - Golden corn, chunky chicken, zesty chicken sausage, in addition of 3 Cheese Pizza and Nutty Choco Lava Cake launched recently. The company entered 5 new cities during Q4FY12 (15 cities in FY12) to reach 105 cities as on Mar'12. The company targets to add 90 stores every year for next few years (vs. 87 opened in FY12), which should continue to boost its revenue traction.

- EBITDA margin expand 150bps YoY on price hike, operating leverage

EBITDA grew 59%/flat to Rs525 mn, led by price hikes of ~5% taken in Nov'11 and strong operating leverage, despite continued food inflation. Consequently, EBITDA margin expanded 150bps/flat YoY/fell 30bps QoQ to 18.6%. Gross margin was in line with expectation at 74.6%, up 10bps/flat YoY/QoQ, while EBITDA margin dip QoQ was led by higher than expected rentals and employee costs. We continue to believe in JUBI's ability to manage its costs efficiently, despite high food price and wage inflation, led by pricing power (it has taken price hike of 12% in FY12) and better bargaining power with vendors on the back of robust volumes, in addition to strong operating leverage. It has guided for at least 18.7% EBITDA margin in FY13.

Adjusted PAT (adjusted for Rs16 mn of expenditure pertaining to Dunkin' Donuts) grew 60%/2% to Rs309 mn (IDBIe Rs323 mn, on account of marginally lower than estimated revenue and EBITDA margin), led by strong operating performance. Reported PAT stood at Rs293 mn.

- Upgrade to ACCUMULATE on positive outlook, ~12% price correction recently

We cut our FY13 EPS estimate by ~4% to Rs25 as we cut our EBITDA margin estimate by 10bps to 18.8% to factor in slight margin miss in Q4. We introduce FY14 estimates with revenue/EBITDA/PAT at Rs19.5 bn/Rs3.7 bn/Rs2.3 bn and EBITDA margin at 18.8%. We factor in SSG of 20%/18% for FY13/14 with store addition of 90/85. We remain impressed by management's positive tone on healthy SSG trend (it has guided for 18-20% SSG in FY13) and its ability to maintain profitability despite rising competition (led by pricing power and operating leverage – mgt has guided to at least match FY12 EBITDA margin of 18.7%). Upgrade to ACCUMULATE from HOLD post ~12% correction in the stock price in the past one week. Our DCF based price target is Rs1,134 (13.1% WACC; 5% terminal growth).

Source : Equity Bulls

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