Jubilant FoodWorks share price surged 5% on Friday morning, a day after the company reported its July-September quarter earnings. Jubilant FoodWorks, that operates the famous Domino’s Pizza and Dunkin’ Donuts restaurant chains, reported a standalone net profit of Rs 76.9 crore last quarter, up from Rs 75.9 crore recorded in the same period last year. Jubilant said its total income was Rs 836 crore during the quarter, against Rs 1,005 crore in the year ago period. The strong recovery posted by Jubilant FoodWorks has been lauded by analysts. Jubilant FoodWorks’ shares are currently trading at Rs 2,483 per share, an all-time high for the stock.
“Jubilant FoodWorks’ headline financials were modest in the context of a tough environment with impressive recovery and better-than-expected operational performance,” said Axis Capital in a note. The coronavirus pandemic and the resultant lockdown has taken a toll on business but Jubilant FoodWorks has so far stood its ground. The gross margin expansion was aided by benign raw material prices, efficiencies in commodity procurement, lower discounts and delivery charges. “FY22/23 EPS estimates up 5-6%; higher for FY21E at ~14% due to superior margin profile. Retain ADD with revised TP of Rs 2,550 based on 53x Sept-22E,” Axis Capital said.
During the quarter, Jubilant FoodWorks opened 10 new Domino’s stores and closed 100 unprofitable stores, taking the total count to 1,264 stores. Jubilant FoodWorks plans to open 100 new Domino’s stores this fiscal year, most of which would be contemporary, delivery centric stores. The management highlighted that almost all the stores were operational except stores at the corporate parks across the country. Domino’s Pizza and Dunkin’ Donuts were seeing better recovery coming from smaller towns.
Pandemic aids structural changes
Analysts at Kotak Securities expect the fast food major to come out of the pandemic stronger than before. Among the key reasons that aid their view include, weak dine-in demand may force out 10-15% of restaurants supply with focus more on delivery, trusted brands such as Domino’s would gain share from dark/cloud kitchens as confidence in food safety will influence consumer preferences. “Overall, we believe that JUBI has transformed into a leaner execution engine. The template/ platform is in place to step up addition of contemporary format Domino’s stores and scale up new brands/cuisines,” Kotak Securities added. With an ‘ADD’ rating Kotak Securities has a fair value of Rs 2,700 for Jubilant FoodWorks.
Jubilant FoodWorks has been the biggest success story in the Indian QSR industry in terms of growth with its delivery-based business model. It offers the highest margin and best return-ratios amongst peers, according to brokerage firm Motilal Oswal. “The introduction of delivery charges (without any negative feedback on ratings) and closure of 105 least profitable stores are factors driving structural margin improvement,” they added. The brokerage firm believes that valuations of 61.3x FY22E fully capture the upside from a one-year perspective. With a ‘Neutral’ rating, Motilal Oswal has a target price of Rs 2,415 per share on Jubilant FoodWorks.