MOSL: JUBILANT FOODWORKS (Neutral)-Weak results-fair valuations limit upside potential
JUBILANT FOODWORKS: Weak results; fair valuations limit upside potential
(JUBI IN, Mkt Cap USD2.2b, CMP INR1156, TP INR1250, 8% Upside, Neutral)
- Sales increased 9.9% YoY to INR9.4b (our estimate: INR9.6b), with SSSG of 4% YoY (our estimate: 6%). Like-for-Like growth (i.e., sales growth of stores that were not split since 1st Apr'18) stood at 5.8%. EBITDA grew 54.2% YoY to INR2.2b (our estimate: INR1.6b). Adj. PAT was flat YoY at INR748m (our estimate: INR836m).
- Excluding the impact of Ind-AS 116, underlying EBITDA was up 3.6% YoY to INR1.5b, with the margin at 15.7%. Underlying PAT rose 9.2% YoY to INR815m.
- Gross margin expanded 90bp YoY to 75.5%, while EBITDA margin improved 670bp YoY to 23.3%. Underlying EBITDA margin shrank 100bp YoY to 15.7%.
- Concall highlights: (1) JUBI took a low-single-digit price hike toward end-1QFY20 to offset the impact of commodity (largely dairy) inflation. (2) Slowdown in dine-in continued in 1Q due to muted demand and a change ordering behavior (increasing shift to delivery).
- Valuation view: We cut our EPS forecast for FY20/21 by ~8% to factor in the impact from (a) Ind-AS accounting on lease rentals and (b) disappointing earnings. We had pointed out in our on World Cup demand for QSRs that the tournament did have a positive impact on demand, but failed to provide the necessary boost to compensate for the very high SSSG base of 25.9% in 1QFY19. While the threat from the high SSSG base remains for only one more quarter now, the impact of cannibalization that was not at play earlier (net store addition of only 50 in 18 months ended 1HFY19) is now affecting both SSSG/margins. Also, continued slowdown in dine-in and no incremental benefits of Dunkin loss reduction are not helping the operating margins either. Valuations are fair at 37.8x FY21E EPS for a business with estimated earnings CAGR of ~12% over the next two years. Our TP of INR1,250 (40x Jun'21E EPS) implies limited upside from current levels. Maintain Neutral.
Jubilant FoodWorks Limited is a food service company. The Company operates through Food and Beverages segment. The Company and its subsidiary have rights to develop and operate Domino's Pizza brand in India, Sri Lanka, Bangladesh and Nepal. It operates in India and Sri Lanka. It has a right for developing and operating Dunkin' Donuts restaurants for India. Domino's Pizza India operates approximately 1040 restaurants in India located in states and union territories, covering approximately 240 cities across the country. Dunkin' Donuts sells a range of donuts and over a dozen coffee beverages, as well as an array of bagels, breakfast sandwiches and other baked goods. The Company has approximately 70 Dunkin' Donuts restaurants in India. It offers Chocolate Donut, Break-up Party Eclair, Chocofix Donuts, Big Joy Burger, Naughty Lucy Burger, The Tough Guy Burger, Too Much Burgers range, Wicked Wraps, the iconic Dunkin' Original Drip Coffee, Dunkaccinos and Spiked Iced Tea, among others.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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