SSSG in FY18 was 14%, the highest in the last five years, boosted by value offerings and product upgrades. With a sharper focus on value offerings, Dunkins would break even by FY19 and contribute from FY20.
Driven by a sharper focus on value offerings, lower discounts, shrinking Dunkins’ drag on margins, its ‘small-town project’ and revived consumer sentiment, Jubilant’s positive Same Store Sales Growth (SSSG) trajectory would persist. Ahead, the higher base could raise concerns about a sustained margin expansion. Further, rich valuations offer little potential; thus, we retain a Hold.
More footfalls to drive overall SSSG
SSSG in FY18 was 14%, the highest in the last five years, boosted by value offerings and product upgrades. With a sharper focus on value offerings, Dunkins would break even by FY19 and contribute from FY20. Also, it is enhancing the consumer experience through re-imaging old stores, upgrading its online platform and offering value and innovative products. Revived consumer sentiment in urban India and greater consumer spending would result in more footfalls and steady growth in its delivery business to continue the momentum.
Margin toppings to continue over FY18-20
Despite persistent pressure on the gross margin since input costs rose due to the input-tax-credit withdrawal, focused and disciplined cost controls led to a 530bps margin expansion in FY18. The reduced Dunkins’ drag (from 240bps in FY17 to 118bps in FY18), the shuttering of non-profitable stores, investment in creating value products, focus on cost-rationalisation and greater productivity would continue to expand margins. Moreover, the recently-commissioned plant at Greater Noida would reduce freight and labour costs. Thus, we expect the Ebitda margin to expand 80bps, from 15% in FY18 to 15.8% by FY20.
The continuation of the EDV offer, upgrading from the small Pizza Mania to medium pizzas, innovation and superior products, rising digital contribution, cost rationalisation and lower Dunkin losses would be the drivers of growth and margin expansion. Thus, we expect 11% SSSG in FY19, and 12% in FY20, resulting in a 17% revenue CAGR over FY18-20. We retain our Hold recommendation, with a revised TP of Rs 2,550, based on 50x FY20e EPS. Risks: Delay in revival of consumer sentiment, competition from food delivery aggregators and changes in consumer taste and preference.
A stellar show in Q4FY18
Revenue shot up 27% (we estimated 18%) to Rs 7.8 bn, largely driven by robust, 26.5%, SSSG (the highest in the last six years). Ebitda increased 110% y-o-y to Rs 1,278 m. Despite the gross margin contracting more than 255bps, the Ebitda margin expanded 650bps y-o-y to 16.4% primarily shored up by lower employee expenses (down 500bps y-o-y), lower other overheads (185bps y-o-y) and lower rental expenses (220bps y-o-y). Thus, adj. PAT zoomed 260% to Rs 681 m.