Jubilant Foodworks Ltd (JUBI.NS): 1QF14: SSG Disappoints :Morgan Stanley Research
Quick Comment: JUBI reported SSG of 6.3% for 1QF14, lower than MSe (7-8%), with an EBITDA margin that declined by 140 bps (including impact of Dunkin Donuts). JUBI reported earnings 4% below MSe, largely on account of higher depreciation - investment in commissaries to support store expansion. Following a ~20% cut in consensus earnings YTD, the 1Q results will likely catalyze another round of earnings cut on the stock - we remain EW.
Earnings miss MSe by 4%: JUBI reported revenue, EBITDA and adjusted PAT growth of 26%, 16% and 5% vs. our expectations of 28%, 16% and 10%, respectively. We believe management has revised its SSG guidance to 8-10% for F14 vs. earlier estimate of 'at least' 10% and an EBITDA margin of 16.5% for F14e.
Key Highlights:
1) Revenue growth of 26% with SSG of 6.3% for 1QF14.
2) Opened 26 new stores for the quarter. There are now 602 Domino's stores in 128 cities in India. Management guidance for F14 remains unchanged at 125 stores vs. MSe of 135.
3) The gross margin up by 70bps (vs. MSe -40bps) was the key positive of the result. This margin expansion must be viewed in context of delayed pricing action during the quarter and likely increased promotional activity, we believe. Input costs, led by cheese prices, have likely contributed to this margin expansion. We expect a large part of this gross margin flexibility to be reinvested in catalyzing volume growth hereon.
4) Staff costs increased by 60bps in 1QF14. As of 1QF14, JUBI has 21,070 employees, 7% higher QoQ and 24% YoY.
5) Rent costs increased by 90bps during the quarter to 8.8%. Rent costs continue to rise, due to several factors, including the impact of lease renewals at higher rates and higher rental expenses for Dunkin stores.
Earnings miss MSe by 4%: JUBI reported revenue, EBITDA and adjusted PAT growth of 26%, 16% and 5% vs. our expectations of 28%, 16% and 10%, respectively. We believe management has revised its SSG guidance to 8-10% for F14 vs. earlier estimate of 'at least' 10% and an EBITDA margin of 16.5% for F14e.
Key Highlights:
1) Revenue growth of 26% with SSG of 6.3% for 1QF14.
2) Opened 26 new stores for the quarter. There are now 602 Domino's stores in 128 cities in India. Management guidance for F14 remains unchanged at 125 stores vs. MSe of 135.
3) The gross margin up by 70bps (vs. MSe -40bps) was the key positive of the result. This margin expansion must be viewed in context of delayed pricing action during the quarter and likely increased promotional activity, we believe. Input costs, led by cheese prices, have likely contributed to this margin expansion. We expect a large part of this gross margin flexibility to be reinvested in catalyzing volume growth hereon.
4) Staff costs increased by 60bps in 1QF14. As of 1QF14, JUBI has 21,070 employees, 7% higher QoQ and 24% YoY.
5) Rent costs increased by 90bps during the quarter to 8.8%. Rent costs continue to rise, due to several factors, including the impact of lease renewals at higher rates and higher rental expenses for Dunkin stores.
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