Jubilant FoodWorks 4QFY21 Results Review Report - Missing excitement; recovery priced in - HDFC Securities

Mr. Naveen Trivedi, Institutional Research Analyst, HDFC Securities and Mr. Varun Lohchab, Institutional Research Analyst, HDFC Securities

Jubilant's 4QFY21 was slightly weaker than expected with the company seeing a miss on revenue and margin. Revenue/EBITDA was up 14/47% YoY vs. expectation of 17/56%. SSG was at +12% (2-year CAGR at 4%) vs. HSIE +16%. LFL (excluding temporary closures) was at +15%. The company returned to expanding its network by opening 45 net new stores (46 Domino's) and one each of Hong's and Ekdum! while it closed down 3 stores of Dunkin'. Margin story remains intact, driven by delivery charges, benign raw material prices, and effective cost control. Gross/EBITDA margin expanded by 300/540bps YoY to 77.5%/24.3% (HSIE 25.2%). Revenue/EBITDA registered 16/13% YoY dip in FY21 despite sequential improvement (system sales recovered to 100% for 3Q and 115% in 4Q). Jubilant (despite outperforming the QSR peers) did not recover in 2HFY21 to the same level as other consumer companies (even liquor/cigarette companies did better in FY21). Lockdown has again impacted the demand (Apr/May declining by ~10% on 2-year-old base); however, we expect recovery to regain pace from 2QFY22. We cut EPS estimate for FY22/FY23 by 4/1%. We value Jubilant at 55x P/E on Jun-23E (earlier Mar-23) EPS and derive a target price of INR 2,650. We believe a large part of the recovery is priced in (trading at 70x/59x P/E on FY23/24). Maintain REDUCE.

Sequential recovery continues: Net revenue was up by 14% YoY (+4% in 4QFY20 and flat in 3QFY21). SSG stood at +12% YoY (-3% in 4QFY20 and -2% in 3QFY21). OLO contribution to delivery stood at 98% while App downloads increased by >70% YoY to 57mn. Revenue/SSG in FY21 was weak at -16/-18% YoY despite the support from delivery charges.

Return to store expansion, execution is area of concern: Jubilant's net new store opening in 4Q/FY21 for Domino's was 46/25 stores, Dunkin' -3/-10 stores, Hong's 1/7 stores and Ekdum! 1/1 stores. This store expansion spree will continue across JFL's brands. Popeyes is the new brand to particularly target non-veg consumers. With rapid store expansion in India, Bangladesh, and Sri Lanka (along with managing DP Euro Asia), Jubilant needs to manage around 2x the number of stores over the next three years vs. now. It would test its execution skills, particularly for sustaining margin.

Delivery fee led margin expansion: GM expanded by 304bps YoY to 77.5% (-164bps in 4QFY20 and +340bps in 3QFY21). Employee/other expenses grew by 4/14% YoY. EBITDA margin expanded by 540bps YoY to 24.3% (+180bps in 4QFY20 and +242bps in 3QFY21). EBITDA grew by 47% YoY (HSIE 56%).

Call takeaways: (1) Apr/May business declined by 10%, while recovery in Jun is healthy; (2) Store expansion will remain strong over the next 2-3 years; (3) Hong's reached the pre-COVID level in 4Q; (4) company is ready to invest big money in technology to avoid any data leakages; (5) chicken is INR 40bn opportunity in India, leading to huge scope for Popeyes.

Shares of Jubilant FoodWorks Ltd was last trading in BSE at Rs.3229.75 as compared to the previous close of Rs. 3175.4. The total number of shares traded during the day was 111926 in over 8948 trades.

The stock hit an intraday high of Rs. 3331.85 and intraday low of 3212.1. The net turnover during the day was Rs. 366741888.

Source : Equity Bulls

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