We believe the nascent recovery seen in the last few months has more legs — with our earlier concerns of high pizza prices and product quality getting addressed, we see a sharp turn in consumer footfalls and order growth. Profitability improvement should be stronger — Dunkin losses should come down further; coupled with cost initiatives and more sensible discounting, we think Ebitda margins can stay in the mid-to-high teens despite a pick-up in store roll-outs and investments in technology + customer experience. Upgrade to Buy.
Sharp increases in earnings estimates: We raise EPS estimates by 39-45% on a low base and make certain tweaks to our DCF assumptions (revenue/store, margins, capex). Our TP is rolled to Rs 2,500 vs. Rs 1,280 (Sept-19E vs Mar-19E) at WACC = 12% and g= 5%. After the earnings decline for 4 yrs, we now estimate 13/38/60% revenue, Ebitda and EPS CAGR over FY17-20E.
Revenue-per-store back to growth: Strategic interventions taken post the new CEO’s entry and the improved execution should continue to yield results. Our key positive from the last 2Qs is that revenue per store has started to grow again after FY13. The ‘all new Domino’s’ launch and the aggressive communication on the improved offerings, corrective actions taken to improve the price-value equation for consumers, Every Day Value offers replacing BOGO deep discounts, et al, should continue to aid volume growth. Higher volumes drive leverage; closure of unprofitable stores and a more rational store roll-out agenda also support margins. We think Domino’s franchise appears well-placed to benefit from improving consumer sentiment going forward.