PL Stock Report - Jubilant FoodWorks (JUBI IN) - Q1FY24 Result Update - 3Q key to operational turnaround; cut to Hold

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

Rating: HOLD | CMP: Rs476 | TP: Rs490

Q1FY24 Result Update - 3Q key to operational turnaround; cut to Hold

Quick Pointers:

♦ Demand remains subdued, expect margin pressure to sustain in 1H24

♦ LT margin guidance at 23-24% versus 25.5% achieved in FY22

We cut our FY24/FY25 EPS estimates by 21.5/14.9% and rating from Accumulate to Hold led by 1) sustained demand pressures in Pizza Industry amidst rising comeptition 2) poor sales growth with flat YoY dine in sales with 213 higher number of stores 3) poor growth expected increase in inflation due to high prices of cheese and vegetables 3) increase in losses in Popeyes with store expansion. JUBI is looking at driving groth led by 1) 200-225 Dominos and 30-35 Popeyes store additions 2) filling in product gaps with launch of Red Hot pizzas (starting at Rs179) 3) driving consumer traffic with redesigned stores and 4) cheesy rewards loyalty programme.

We expect demand and margin pressure to sustain in 2Q with gradual recovery from 3Q led by festival season and cricket world cup in October. Long term QSR opportunity in India remains attractive although near term upside in JUBI seem capped post recent run up in stock price. We estimate 16.3% PAT CAGR over FY23-25 and cut rating to Hold with DCF based target price of Rs490 (Rs515 earlier).

Revenues in-line, LFL growth at -1.6%: Revenues grew 5.6% YoY to Rs13.1bn, LFL sales grew -1.3%. Gross margins contracted by 69bps YoY to 76%, EBITDA declined by 9.2% YoY to Rs2.8bn; Margins contracted by 345bps YoY, (up 97bps QoQ) to 21.1%. Adj. PAT declined by 41.1% YoY to Rs0.8bn. ADS for mature stores grew by 2.7% QoQ to Rs81,049. Dominos added just 22 stores with total being 1,838 in 1Q24. Hong’s Kitchen/Popeye’s store count at 15/17 (+2/+4). OLO to Delivery sales ratio improved to 98.1% (up 20bps QoQ). Total app downloads increased by 10mn to 132.3mn in 1Q24 (95.4mn/122.3mn in 1Q23/4Q23. Cumulative enrollment for Domino’s Cheesy Rewards stands at 16.8mn users in 1Q24 (13.6mn/10.6mn/7.2mn in 4Q23/3Q23/2Q23).

Concall Takeaways: 1) Demand trends have not changed materially in 1QFY24, stores in malls have underperformed 2) Demand conditions remain uncertain given raw material price inflation in near term 3) Cheese prices remain elevated while this quarter saw a sharp jump in vegetable prices amid uncertain weather. 4) No price hikes taken in 1Q24, focus on driving margins by cost efficiencies internally & improving its product mix. 5) Sales were led by Volume growth in price range of Rs49-Rs149, new customer growth & healthy order growth across categories. 6) Introduced new category of spicy pizza’s in the range >Rs179, which is expected to fill in product gap and drive volume growth in coming quarters 7) New food factory in Bangalore will start operations from August and cater to 750 restaurants across brands and bring in operational efficiencies. e 8) Loyalty programme has seen increase in high/mid frequency users 9) Margin are expected to stabilize at 23-24% in longer term. 10) Guidance of Opening 200-225/30-35 stores in Dominos/Popeyes in FY24 remains intact.

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