PL Stock Report: Jubilant FoodWorks (JUBI IN) - Q2FY24 Result Update – Worst seems over, 3Q holds key - HOLD

Jubilant FoodWorks (JUBI IN) - Amnish Aggarwal - Head of Research, Prabhudas Lilladher Pvt Ltd.

Rating: HOLD | CMP: Rs529 | TP: Rs505

Q2FY24 Result Update – Worst seems over, 3Q holds key

Quick Pointers:

• Demand remains muted with some green shoots in 3Q. LT topline CAGR to be at 15%-16% led by 5%-6% SSG.
• JUBI is investing for growth in re-imaging stores, supply chain and regional management structures and new brands (Popeyes) to drive growth

We cut our FY24/FY25 EPS estimates by 7.0%/7.5% due to 1) sustained demand pressures in Pizza Industry amidst rising comeptition 2) poor sales growth with delcine in dine in sales despite 187 more stores YoY 3) inflation remaining at elevated levels due to high prices of cheese and vegetables. JUBI is looking at driving groth led by 1) 200-225 Dominos and 30-35 Popeyes store additions and 2) Incremental footfalls from Re-imaged stores.

We believe worst is over given expect incraese in demand during festival seasosn and world cup and low margin in base quarters incrementally. JUBI is investing in creating long term growth drivers led by 1) Reimagined stores 2) gradual expansion in Popeyes and Hongs kitchen 3) supply chain with new commissiories. However reimagined stores are a change in strategy given that 2/3rd sales come from delivery. We estimate 13.7% PAT decline in FY24, but 39% CAGR over FY24-26 on a low base. we believe 3Q trends will hold key to extent of rebound in earnings and profits. Retain Hold with DCF based target price of Rs505 (Rs490 earlier).

Revenues in-line, LFL growth at -1.3%: Revenues grew 4.5% YoY to Rs13.4bn (PLe: Rs13.5bn). SSG at -1.3%. Gross margins expanded 15bps YoY to 76.4% (Ple: 76.0%). EBITDA declined 10.2% YoY to Rs2.8bn (PLe:Rs2.8bn); Margins contracted by 341bps YoY to 20.9% (PLe:20.9%). Adj. PAT declined 39.5% YoY to Rs0.72bn (PLe:Rs0.78bn). ADS for mature stores grew by 1.4% QoQ to Rs81,658. Added 50 new stores & 3 new cities during the quarter. Dunking Donuts store count flat at 21. Hong’s Kitchen/Popeye’s store count at 18/22 (+3/+5). OLO to Delivery sales at 98.2% in 2Q24 vs 97.7% in 2Q23. Total app downloads at 142.9mn in 2Q24 vs 104.4mn/132.3mn in 2Q23/1Q24; Domino’s Cheesy Rewards enrolment at 19.5mn users in 2Q24 (16.8mn/13.6mn/10.6mn in 1Q24/4Q23/3Q23).

Concall Takeaways:

1) Demand trends have not changed materially in 2QFY24, however green shots are being observed in October month led by Navratri and India’s matches in WC. 2) RM prices remain elevated although GM to remain stable led by initiatives such as local sourcing. 4) No price hike taken, though open to take any calculated price increase wherever and whenever required. 5) EBITDA margin is likely to improve further led by in-store cost optimization techniques & incremental sales coming in from new store openings. 6) Sales to grow at 16%-17% CAGR in long term led by 5%-6% LFL growth & remaining 12% to come from store expansion 7) New commissary ground breaking started in Mumbai 8) Q2 remains best ever quarter in terms of volume led by value pizza’s and menu innovation 9) Margin are expected to stabilize at 21-23% in longer term. 10) Guidance of Opening 200-225/30-35 stores in Dominos/Popeyes with 100+ re-image stores for FY24.