Jubilant Foodworks - Focus on growth and profitability is encouraging - ICICI Securities

Flat revenues in 3Q (and 6% growth in January) was a tad underwhelming. However, the internals are more impressive - strong growth in delivery (+19%) and takeaway (+64%) channels. Dine-in sales down 58% YoY is primarily due to supply constraints (allowed to operate with only 50% utilisation) and was not due to a weak demand. We believe that growth could improve with potential easing of restrictions (multiplexes are now allowed to operate at 100% capacity). We especially like the renewed focus towards growth (acceleration in store expansion, emphasis on own digital infra) and margin expansion initiatives (network optimisation, cost rationalisation, delivery charge). New brands (Hong's Kitchen and Ekdum!) provide an entry into the two largest food categories in India - option value. We maintain our long-term bullish stance on the stock. ADD.

- Overall recovery led by delivery channel: In 3QFY21, revenue was flat while EBITDA / PAT grew by 10% / 21% YoY. SSG decline of 1.7% was due to a 58% YoY decline in dine-in sales as the channel is still restricted to 50% capacity. Monthly performance (on a system sales basis) recovered 96% in Oct, grew 6% in Nov, declined marginally by 0.5% in Dec due to increased restricted hours of operations in Dec but recovered to 6% growth in January. Delivery and takeaway grew well, growing at 19% (led by higher ticket size) and 64% YoY in Q3. At the same time, dine-in continues to struggle with recovery to 57% (Jan'21) of previous year sales. See charts 1-3 for monthly trends on recovery across platforms.

- On track to open 110+ stores in FY21: On the store network front, JUBI opened 50 stores in Q3 (highest ever quarterly addition) taking the total store network to 1,314 stores. Further, it opened 2 Hong's Kitchen (Chinese) and 3 Ekdum! (biryani) stores taking the network for new brands to 10 stores. JUBI also opened 1 Dominos store in Sri Lanka. JUBI is on track to open over 110 stores in FY21 so as to maintain the store network and improve margins. Management said that there is a potential of 3,000+ Domino's stores in India and 150+ stores in Bangladesh and Sri Lanka in the medium-term.

- Cost controls measures are impressive; driving step-up in margins: Gross margin expanded 340bps YoY to 78.3% driven by (1) benign dairy cost (likely to be higher from FY22; marginal increase as of now), (2) lower discounts (in the overall category), (3) reduced wastage (sustainable) and (4) delivery charges (to continue in the long-term). EBITDA margin expansion was slightly lower at 240bps YoY to 24.7% largely due to significant increase in ad-spends off-setting cost savings. We expect a meaningful part of the cost saving initiatives to be sustainable, thereby driving a step-up in margins.

- Other highlights: 1) Cash and cash equivalents was at Rs9.6bn at the end of the quarter, 2) JUBI forayed into Biryani segment with brand Ekdum! serving varieties of biryani, kebabs, curry and bread starting at just Rs99 (value proposition) in a live kitchen format, 3) Introduced India's first Plant Protein-based product - 'The Unthinkable Pizza', and 4) invested Rs920mn in Barbeque Nation for 10.76% stake.

- Valuations and risks: We cut our FY22-23 earnings estimates by 2%, modelling revenue / EBITDA / PAT CAGR of 10 / 17 / 30 (%) over FY20-23E. Maintain ADD with DCF-based target price unchanged at Rs3,000. Key downside risk is raw material costs turning inflationary.

Shares of Jubilant FoodWorks Ltd was last trading in BSE at Rs.2644.3 as compared to the previous close of Rs. 2698.6. The total number of shares traded during the day was 87924 in over 10115 trades.

The stock hit an intraday high of Rs. 2762 and intraday low of 2597.1. The net turnover during the day was Rs. 235223065.

Source : Equity Bulls

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