The sudden departure of Pratik Pota from Jubilant Foodworks has taken the market by surprise. Pota, who was appointed as the quick-service restaurant chain’s CEO in 2017, has been credited with its turnaround over the last five years. Analysts see the sudden departure of Pota from Jubilant as a setback for the company, which has already come under criticism for its capital allocation strategy in recent times.
The company’s capital investments in DP Eurasia and Barbecue Nation earned it the market’s ire. According to HDFC Securities (Institutional Research), “Investments in DP Eurasia and Barbeque Nation were not strategically aligned capital allocation, in our opinion. Hence, we have been highlighting execution risks along with overhang of weak capital allocation as our key rationale for a negative view on the stock”.
While the growth of QSR brands in India is a secular story, market experts say the execution at Jubilant Foodworks will be key in the current environment when discretionary spending is losing steam due to rising inflation.
PhillipCapital says a perfect storm is brewing for the company, as near-term business challenges persist along with uncertainty at the helm. The company has already taken double-digit hikes in the past 18 months and will find it hard to pass on any further hikes in the coming months without affecting demand.
In this context, the change in leadership is being viewed negatively by analysts. According to Jefferies, the selection of the new CEO would be an important event as history suggests and the strategy and execution would be important for the next phase, which would have bearing on the stock.
In the last five years, Pota undertook several measures to improve same-store sales growth (SSG) by weeding out certain practices of the past that led to the erratic performance of the stores due to promotions on certain days. Domino’s offered buy one get one offer (BOGO) on Wednesdays, which tended to skew demand because of the offer. Pota replaced this with everyday affordability, which improved the SSG growth, which went up to 9% CAGR over FY17-22 against the 1% growth witnessed over FY14-17.
Pota also curtailed rapid store expansion, which impacted profitability metrics and led to cannibalisation. He also improved product and pricing, which improved demand and customer stickiness. Pota temporarily halted store expansion and focused on improving unit economics at the store level, say analysts.
According to HDFC Securities, apart from the fact that Pota’s execution expertise would be missed — quite essential from a long-term growth perspective — the timing of his exit is also quite odd; it comes at a time when Jubilant has been guiding for massive store expansion across brands/geographies over the next 3-5 years. The stock fell 12.19% on Monday on the BSE to close at Rs 2,515 on Monday.