Jubilant Foodworks continued its strong momentum into FY19 delivering another quarter of beat led by positive surprise in SSSG (up 26% year-on-year). Management’s strategic interventions over the past year in terms of quality/menu refresh, EDV offer, reduction in DD losses, cost optimisation efforts (especially in manpower/rent negotiations) and investments in tech have contributed to robust topline/earnings growth.
While we expect growth rates to taper from H2 as base catches up and benefits of low-hanging fruits wane, we expect growth rates to remain healthy (14% revenue, 18% Ebitda CAGR over FY19-21E) aided by acceleration in store expansion (backed by rigorous data analysis) and sustained benefits of management interventions (albeit at a slower pace).
Maintain ‘buy’ with revised target price of `1,600 as we roll-over to Jun-20E (based on 50x target P/E). Our estimates see marginal upgrades led by higher-than-expected SSSG.
Jubilant continued its strong momentum from FY18 into Q1, reporting 26% year-on-year sales growth (ahead of our estimate of +21%), 80% Ebitda growth (against our estimate of 70%) and 3x jump in PAT (against our estimate of 2.6x). SSSG continued to remain strong at 26%, driven by increased traction from the extension of everyday value offer to regular sized pizzas (led to new customer acquisition and increased frequency from existing customers) and marketing activation during the IPL.
Store expansion pace remained slow — added 13 Dominos stores and closed 3 to end the quarter at 1,144 stores and attained 37 DD stores. GM drag of EDV to regular pizzas was partly offset by a benign input cost environment — GM was flat quarter-on-quarter (down 180 basis points year-on-year).
However, EBITDA margin expanded 490 bps driven by operating leverage, improvement in employee productivity (staff costs down 360 bps YoY), rent renegotiations, operational efficiencies (other opex down 130 bps YoY despite higher marketing expense during the IPL). Drag from DD declined to 50 bps. Management highlighted that the food service industry has witnessed some positive demand trends since the GST rate cut from 18% to 5% since mid-Nov’17. 26% SSSG has been primarily driven by (i) extension of the everyday value offer to regular pizzas, (ii) an aggressive marketing campaign during the IPL and sponsorship of the Royal Challengers Bangalore team and (iii) launch of an all new Domino’s app (with new features like easy location selection, easy order tracking and hassle free payments – app download grew 45% YoY to 10.9 mn). These initiatives have resulted in faster new customer acquisition as well as increased frequency of ordering from existing customers.