Jubilant Foodworks rating – Buy: Resilient showing in face of Covid-19

Q4 saw 50 additions for Domino’s, with gross adds for FY21 at 134 cf. the earlier guidance of 100. The company will look to add at least as many in FY22 as well.

Jubilant Foods reported an in-line quarter although y-o-y growth looks strong aided by a low base. Ebitda grew 47% y-o-y with earnings doubling y-o-y. Focus continued on Domino’s store additions with 50 in Q4 and 134 for FY21, ahead of the guidance. Input price inflation (mainly cheese) showed up slightly on GMs although management expects to hold on to margins in coming quarters through self-help measures. We slightly tweak estimates and retain Buy with TP of Rs 3,700.

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In-line revenues: Q4 revenues grew 14% y-o-y, off a low base, in line with our estimate. On a 2-yr cagr basis, growth improved to 9% vs. 7% in Q3. Reported SSS growth stood at 11.8% (15% adj. for store closure).

Channel trends: Delivery grew c.29% y-o-y, while takeaway grew 77%, which was an improvement from Q3 levels but off a low base. Own app witnessed stronger growth vs. aggregators. Dine-in recovery sequentially continued in Q4, with revenue decline at c.36% vs. c.58% in Q3.

GM decline q-o-q: GM declined 80bps q-o-q to 77.5% (up 3ppt y-o-y), slightly below estimate due to cheese price inflation. Mgmt however remains confident of maintaining margins in coming quarters.

In-line margins: Ebitda margin was slightly above, led by better cost management & op. leverage gains. Employee costs grew only 2% y-o-y, while other expenses grew 15% y-o-y. Resultant Ebitda margin expanded 5.4ppt y-o-y to 24.3%. Ebitda grew 47% y-o-y to Rs 2.5 bn, in line with estimates (2-yr Cagr at 30%).

EPS growth: Earnings growth was further aided by lower-than-expected depreciation (-6% y-o-y). Pre-ex EPS grew 132% y-o-y to c.Rs 1 bn, 12% above estimate.

Second wave: JUBI’s revenues have been far more resilient in the second wave. For example, against April-19, April-21 revenues were down c.6% (vs. >75% decline last year). Impact was slightly higher in May with c.13% decline over May-19 (-60% last year). Delivery growth was strong at 37% in April and 56% in May over 2019 levels.

Store additions: Q4 saw 50 additions for Domino’s, with gross adds for FY21 at 134 cf. the earlier guidance of 100. The company will look to add at least as many in FY22 as well.

Beyond pizza: Hong’s Kitchen and Ekdum! continued healthy growth in Q4 and revenues for Hong’s have returned to pre-Covid levels. Management is optimistic of the growth prospects for Popeyes. Chicken is a Rs 40-bn market growing in double digits in the last few years. JUBI will open the first Popeye store in FY22. No plans to increase stake in DP Eurasia.

New hires: JUBI has tweaked the leadership structure with the elevation of ex-COO Rajneet Kohli as Chief Business Officer for Domino’s, ex-VP Operations Amit Maheshwari as the Head of operations. Ashish Goenka has joined as CFO from Bharti Airtel. Gaurav Pande of HUL has joined to head Popeyes. VP Supply chain Avinash Kant will be driving initiatives for an integrated supply chain.

Maintain Buy: JUBI remains resilient on growth as well as margins notwithstanding Covid 2.0. We slightly tweak the FY22-23 estimates by 1-2% and roll over to Jun-23. Maintain Buy with a revised PT of Rs 3,700 based on 67x Jun-23 (Rs 3,050 earlier).