Jubilant FoodWorks’ (JFL) Q2FY17 revenue came in line, while PAT came below estimate due to lower gross margin. Though SSG came at 4.2% (in line with our 4% estimate), it had the benefit of shift of Ramadan dates. The company continues to innovate its menu (Navratra Pizza launched in Q2FY17), but competitive intensity by online players (Swiggy, Zomato) and PE-funded food players remains an overhang. Further, it also results in increase in promotional and marketing spends, evident in Q2FY17. JFL continues to shut Dunkin Donuts (DD) stores (5 shut in Q2FY17; 1 shut in Q1FY17). Further, it has also pruned FY17 Dominos store opening guidance of 130-140 to 130 (opened 55 in H1FY17). Maintain hold with TP of `1,096.
SSG jumped 4.2% YoY (on base of 3.2% y-o-y; 3.2% dip in Q1FY17 on 4.6% y-o-y base) despite tepid consumer sentiments, primarily due to shift in Ramadan dates. Key positive was the dip in staff cost to 22.6% (156bps y-o-y improvement) due to reduction in headcount and unwavering focus on improving & enhancing productivity of every resource. Key negative was the 134bps y-o-y gross margin dip due to higher promotional activities.
JFL anticipates consumer sentiments to improve going forward. It will announce the new CEO by December 2016. Burger Pizza has exceeded the company’s expectation. It expects to maintain gross margin of 75%.