Jubilant Foodworks Shares Rise To Record Post Q4 Results

Shares of Jubilant Foodworks Ltd., which operates Domino’s Pizza and Dunkin’ Donuts outlets in India, surged to a record after its net profit rose fourfold in the quarter ended March.

The stock rose as much as 4.94% to Rs 3,332 during early trade on June 16—the highest since its listing in February 2010—after its fourth-quarter profit increased 223% over last year to Rs 105.3 crore.

Revenue from operations rose 14.2% year-on-year to Rs 1,038 crore, the company said, adding it has recommended a dividend of Rs 6 per share for the year ended March, subject to approvals.

Chief Executive Officer Pratik Pota said in a statement he was pleased with the company’s performance in Q4 and FY21. “We returned to growth during the quarter, opened a large number of new stores, improved our operating margin and expanded our portfolio of brands,” he was quoted as saying. “The quarter rounded off a challenging year where we were tested like never before.”

Chairman Shyam S Bhartia and co-chairman Hari S Bhartia said the company has “transitioned from recovery to growth phase” and “concluded the fiscal on a positive note despite unique challenges posed by the global pandemic”. They said the company acquired master franchise rights for Popeyes in India and announced its investment in DP Eurasia—Domino’s Pizza’s franchisee holder in Turkey, Russia, Azerbaijan and Georgia.

And analysts retained their bullish expectations as the results were in line with expectations. Of the 31 analysts tracking the stock, 21 have a ‘Buy’ rating, five suggest ‘Hold’ and five recommend a ‘Sell’, according to Bloomberg data. The average of 12-month consensus price targets implies a downside of 2.2%.

Here's what brokerages made of Jubilant Foodworks' Q4 results:

Nirmal Bang

• Maintains ‘Accumulate’ rating; increases target price to Rs 3,120 from Rs 3,110, implying a potential downside of 2%.
• After 100% recovery in Q3, Jubilant returned to growth in Q4, led by delivery and takeaway channels, which grew 28.7% and 76.9% year-on-year, respectively. However, the dine-in channel continued to be below pre-Covid levels.
• In Q4, the company opened 50 new Domino’s stores, with addition of 8 new cities and closed four. It also opened one Dunkin Donuts store, closed four, and added two delivery and takeaway-oriented restaurants for its homegrown brands Hong’s Kitchen and Ekdum!
• Despite reduction in operating hours and significant impact on the dine-in channel, system sales recovery compared to FY20 for April and May stood at 94.4% and 87.7%, respectively, led by growth in delivery.
• The company is expected to continue its store expansion and has said it would target opening similar number of stores in FY22 compared to FY21 or more.

Jefferies

• Maintains 'Buy', raises target price to Rs 3,700 apiece from the earlier Rs 3,050.
• Jubilant Foodworks reported an in-line quarter although year-on-year growth looks strong aided by a low base.
• Focus continued on Domino's store additions with 50 in Q4 and 134 for FY21, ahead of the guidance.
• Input price inflation—mainly cheese—showed up slightly on gross margins although company expects to hold on to margins in coming quarters through self-help measures.
• Jubilant’s own app witnessed higher growth versus aggregators. Dine-in segment recovery continued sequentially in Q4.
• Revenues have been far more resilient in the second wave. Company remains resilient on growth as well as margins notwithstanding Covid 2.0.
• Hong's Kitchen and Ekdum! continued to grow in Q4 and revenues for Hong’s have returned to pre-Covid levels. Company is optimistic of growth prospects for Popeyes.

ICICI Securities

• Maintains ‘Add’ rating; raises target price to Rs 3,500 from Rs 3,300.
• Company delivered a broadly in-line revenue print—while growth in January was a tad underwhelming, improvement in February and March was encouraging.
• Performance of the delivery and takeaway channels have been impressive, mitigating the slowdown in dine-in.
• Benefits from developing superior technology capabilities, ramping up digital marketing initiatives, are now visible.
• Disruption from the second wave in April and May is far lower. Like the focus towards growth such as store expansion, emphasis on digital infrastructure, developing synergies with new brands and expansion of organisational bandwidth.
• Investments on a strong fleet gives it an edge over peers.

Motilal Oswal

• Maintains ‘Neutral’ rating; raises target price to Rs 2,970, implying a potential downside of 6%.
• We cut our FY22 EPS forecast by 12.5% on account of Jubilant’s lower-than-expected Q4 results, and the effect of the lockdown so far in Q1 FY22 due to the second Covid-19 wave.
• The impact would have been more if not for the resilience shown in April-May.
• Continued strong growth in delivery channel has meant the severe impact on dine-in was mitigated to some extent at the broader level. This will result in a lower impact compared to discretionary peers for Q1 FY22 and lead to healthy growth.
• Cheese and edible oil costs are rising, but company doesn’t expect significant impact on profitability due to cost savings.
• Jubilant Foodworks has been the biggest success story in the Indian QSR industry in terms of growth, with its delivery-based business model. Once the pandemic ends, its longer-term prospects appear even brighter with faster shift toward organised players, delivery and takeaway gaining further traction, and increased usage of technology by customers.
• The introduction of delivery charges without any negative feedback on ratings and closure of 105 least profitable stores in FY21 is driving a structural margin improvement.
• We like the structural story in QSRs and Jubilant Foodworks is the best of breed on most parameters.

Kotak Institutional Equities

• Maintains ‘Buy’ rating; raises target price to Rs 3,400 from Rs 3,200.
• Jubilant is well placed to accelerate Domino’s store network expansion and investments in new brands offer options. The company has potential to transition into a multi-brand QSR with unparalleled network benefits.
• Jubilant is well positioned for accelerated store network expansion on the back of reduced competitive intensity, consolidation leading to lower discounts in the aggregator ecosystem, significant ramp up in Domino’s own app downloads and increased consumer familiarity with pizza delivery especially in non-metro markets over the past year, and the portfolio expansion with addition of Popeyes, Hong’s Kitchen and Ekdum!
• Domino’s India has not increased prices in the past three years, except introduction of delivery fees, and its product prices are much lower than peers. Jubilant is well-placed to exercise pricing lever to protect profitability and navigate raw material inflation.

CLSA

• Maintains ‘Outperform’ rating; lifts target price from Rs 3,000 to Rs 3,300.
• Jubilant Foodworks reported better-than-expected Q4 results with revenue, Ebitda and earnings growth at 14%, 47% and 96% year-on-year, respectively.
• With a larger portfolio to look at, the company revisited its management structure and shuffled responsibilities.
• Post Covid-19, we expect the organised sector to likely grow at a faster pace, dine in to see a full recovery and delivery routes to continue and retain a higher mix.
• With the continued effects of Covid-19, it refrained from guiding for store additions in FY22, but assured it will maintain its year-on-year run-rate. In terms of opportunities, while it can expand its core market, it can add more stores in small cities, enter new cities and set stores on transit routes.
• For new brands, it will have a calibrated approach, and as soon as it has some experience and a model in place, it will accelerate expansion.
• Given a wider cuisine focus, its super-app is an option, but given its limited presence, it will have a separate app.
• Bold approach to capture food services opportunity makes Jubilant a structural play, we see its new initiatives over the past 12 months as an apt call to leverage the organised segment opportunity.
• Jubilant is a structural play, which fits well with the benefits from the Gen-Z population, and it is one of our top picks for 2030.

JPMorgan

• Maintains ‘Overweight’ rating; raises target price to Rs 3,425 from Rs 3,030.
• Positive growth narrative of accelerated store adds, digital play and scale up of new formats supports Jubilant’s premium multiples.
• We like Jubilant’s strong on-ground execution capabilities supported by significant investments in digital—like own app downloads and revenue contribution trending up—fortressing strategy with accelerated store expansion and efficient cost structure.
• We find Popeyes to be a promising addition to the portfolio mix, which is expected to be launched in FY22, where Jubilant could have aggressive medium-term growth plans.
• On the overseas front, Sri Lanka (updated app) and Bangladesh will witness profitable scale up and there are no plans to invest more in DP Eurasia as of now, though strategic inputs and best practices will be shared.
• Jubilant has expanded its organisational bandwidth (new roles of chief business officer for Domino’s; business head for Popeyes) to meet aggressive growth objectives.
• Following a sharp rally over last year, the stock may consolidate in the short term.
• Despite reduction in operating hours and restrictions on dine-in, system sales recovered led by delivery and takeaway channels.
• Jubilant has doubled performance marketing spends over the last year, and is offering more attractive offers on its app, besides a more seamless ordering experience.
• It noted no operational impact of the recent data breach and is following mitigation plans to avoid such incidents in the future.
• Supply chain, sourcing, manufacturing, vendor partnership and digital are key capabilities for Domino's which Jubilant plans to replicate for new brands. No plans for a super app for now.

HSBC Global

• Maintains ‘Buy’; lifts target price to Rs 3,550 from Rs 3,300
• Q4 sales growth of 14% led by delivery, takeaway despite muted dine-in was impressive, in our view.
• Domino’s  large scale, consumer trust, appealing value proposition and delivery capabilities make Jubilant formidable
• Jubilant still structurally attractive with aggressive rollout plan and new formats
• While a second Covid-19 wave again disrupted operations with dine-ins virtually closed in May, delivery sales largely remained robust, cushioning the overall impact.