MOSL: JUBILANT FOODWORKS (Upgrade to Neutral)-Stellar results-upgrade to Neutral, but upside limited
Jubilant Foodworks: Stellar results; upgrade to Neutral, but upside limited
(JUBI IN, Mkt Cap USD2.1b, CMP INR2092, TP INR2185, 4% Upside, Upgrade to Neutral)
- JUBI’s net sales grew 20.7% YoY to INR8b (est. of INR7.5b) in 3QFY18. EBITDA grew 113.7% YoY to INR1.4b (est. of INR895m), while adj. PAT increased 230.6% YoY to INR660m (est. of INR330m). SSS grew 17.8% (est. of +10%) for the quarter. JUBI opened three and closed one Domino’s store in 3QFY18.
- Gross margin shrunk 100bp YoY to 74.5%. However, EBITDA margin expanded sharply by 770bp YoY to 17.2%, led by lower other expenses (-310bp YoY to 31%), staff costs (-310bp YoY to 23.1%) and rent costs (-130bp YoY to 11.1%).
- Concall highlights: 1) There is still no gain of share from unorganized players, as GST rates have reduced from 18% to 5%. 2) Growth was led by base effect, GST impact and the company’s own initiatives. However, it is yet to see any strong upmove in consumer sentiment. 3) JUBI will add 30 stores in FY18.
- Valuation view: Higher-than-expected SSSG, low Domino’s store addition and lower Dunkin losses (closure of as much as 40% Dunkin Stores YoY) led to better-than-expected margins, and thus, a huge estimate beat and sharp upgrades in forecasts. Margin in 3QFY18 led by these factors at 17.2% was nearly as high as the peak EBITDA margin attained in its heydays of FY11 and FY12. It is important to note that management has not called out any recovery in consumer sentiment. Unlike Titan, there is no material conversion likely from the unorganized segment either, particularly at the price points that Domino’s sells its products. Once the effect of low base, path-breaking schemes, and low-hanging fruits (as a result of store closures at Dunkin Donuts) runs its course over the next 2-3 quarters, there is no indication that – unless the operating environment improves drastically – the EBITDA margin that were last seen in FY11 and FY12 (when SSS growth was consistently over 30%) would be sustained.
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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