Accumulate Jubilant Foodworks - Same-store sales growth has softened - Prabhudas Lilladher

Dominos SSS growth has declined from 26% in Q4FY12 to 16% in Q3FY13. FY13 SSS growth is estimated at 17% v/s 30% in FY12. Dominos has increased prices by 15% in the past 15 months which has impacted demand in times of high inflation and cutback on discretionary spend. We believe that SSS growth will remain subdued in the near term.

Dominos has the metal to retain dominance in Pizza market: Dominos has more than 55% share in the organized Pizza market, with stronghold in home delivery segment. Our channel check suggests that Dominos has developed its product-keeping in view of the delivery conditions, which will keep it ahead of competition.

Increased Innovations in side orders: Innovations have increased with the launch of side orders like Butter Scotch Mousse cake, Nutty Chocolava cake, Taco Indiana, Stuffed Garlic Bread and Spicy Twist. We note that innovations enable consumer retention and increase ticket size. Side orders account for 18% of sales (11% in FY10).

Capex plans on track; likely to add 100 stores every year: JUBI is likely to spend Rs1.5bn on capex in FY13, including Dunkin Donuts rollout. We expect it to add 100 stores each year, which will keep it significantly ahead of competition.

Margin expansion to slow down: Lower SSS growth, rising number of new stores and initial losses in Dunkin Donuts will result in flattish margins over FY13-15 (300bps expansion over FY11-13). Dunkin Donuts is expected to take 2/3 years to achieve scale and start contributing.

Estimate 40% PAT CAGR post soft performance in FY13; 'Accumulate'; We expect JUBI to report 32% and 48% PAT growth in FY14 and FY15. Near-term performance is likely to remain under pressure due to pressure on SSS growth, rising overheads and losses in Dunkin Donuts. Although long-term outlook looks encouraging, stock seems fairly valued at 30xFY15 EPS. 'Accumulate'.

Source : Equity Bulls

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