MOSL: JUBILANT FOODWORKS (Sell)-EBITDA way above expectation-cost savings drive margins
​Jubilant Foodworks: EBITDA way above expectation; cost savings drive margins
(JUBI IN, Mkt Cap USD1.6b, CMP INR1643, TP INR1270, 23% Downside, Sell)
- JUBI's net sales grew by 9.2% YoY to INR7.3b, EBITDA by 59% YoY to INR1b (est. of INR677m) and adj. PAT by 124.8% YoY to INR485m (est. of INR215m) in 2QFY18. SSS grew 5.5% (est. of +6%) for the quarter. JUBI opened one Domino's store and closed one store in the quarter.
- Gross margin contracted 70bp YoY to 74.1%. EBITDA margin expanded 440bp YoY to 14.1%, led by sharply lower other expenses (-310bp YoY), staff costs (-100bp YoY) and rent costs (-90bp YoY).
- Concall highlights: 1) Healthy growth witnessed after product refresh in August. 2) Management clarified that it is unlikely to take any price increase this year, as cost inflation is under control anyway. 3) Will open 30-40 stores this year v/s earlier guidance of 40-50 stores.
- Valuation view: Changes to the model have resulted in 32.3%/32.6% increase in EPS forecasts for FY19/FY20. We now estimate 54% EPS CAGR over FY17-20, mainly as we are factoring in double-digit SSSG from 2HFY18. The last time the company reported double-digit SSSG growth was 20 quarters ago. The decline in SSSG in 2HFY17 may still potentially lead to such growth in 2HFY18, but there is no visibility as yet beyond that. For a business that a) sells an expensive product even by developed market standards and b) where food tech competition has made significant inroads into its forte of delivery, significant job creation needs to happen in the economy and incomes need to rise sharply for double-digit growth, for which there is little evidence so far. JUBI has in fact lagged other QSR peers like Westlife on SSG growth for the last seven quarters and Yum India for the last four quarters. Despite assuming highly aggressive EPS forecasts, the stock trades at expensive valuations of 59.9x/45.4x FY19/FY20E EPS. Maintain Sell with a revised TP of INR1,270 (multiple unchanged at 40x Sept’19 EPS).
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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