Jubilant Foodworks - SSG Weak; Gross Margin And Store Expansion On Track :: Edelweiss

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Jubilant Foodworks - SSG Weak; Gross Margin And Store Expansion On Track; Result Update Q2FY15

Oct 30, 2014

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Jubilant Food.

FMCG » Food And Dairy Products-Multinational

1,250.05

-9.35

(-0.74%)

 

EV to EBITDA (x)	: 31.74
EV to Sales (x)	: 4.73
EPS ( ` )	: 18.08
MCap ( ` in Cr.)	: 8236.61

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Peer Comparison |

Jubilant Foodworks’ (JFL) Q2FY15 same stores sales (SSG), down 5.3% YoY (on base of 6.6% YoY), disappointed yet again. However, PAT came in line due to lower tax rate. Gross margin sprung a positive surprise by catapulting 152bps YoY (though flat QoQ). Though the Street is bullish on sharp recovery in SSG, we believe the company’s SSG will remain muted in the medium term due to rising competitive intensity from Yum! Brands (Yum!; Pizza Hut) and its rampant expansion. Dominos’ SSG, which has historically outperformed Yum!, has been trailing the latter’s SSG for the past 3 quarters. Though sectors like 4 wheelers, jewellery and consumer durables are sprouting green shoots, pick up in the Quick Service Restaurants (QSR) space is likely only at the fag end of the recovery cycle. JFL has been seeding growth drivers to tap this potential recovery via sharper expansion and innovations. The stock remains attractive from a long term perspective.

Staff, rent costs singe EBITDA margin; store addition on track

JFL’s EBITDA margin tanked 277bps YoY to 12.2% due to a sharp 25% YoY and 35.9% YoY surge in staff (higher headcount, increments) and rent expenses (store expansion), respectively. JFL opened 36 Domino’s Pizza stores during Q2FY15, taking the total stores count to 797. As on date, it operates 38 Dunkin Donutsstores. At its peak, Dominos’ SSG used to be more than 20% ahead of Yum! vs 1.3% behind in Q2FY15.

Key takeaways from Q2FY15 con-call

It is likely to take two more quarters for Domino’s Pizza to report positive SSG. It may take 4-8 quarters for Domino’s Pizza to report high single-digit SSG. The downturn has extended equally across regions. Promotions have been stable since the past 3-6 months. Currently, JFL is not deriving additional benefits on profitability front from online ordering. In FY15, ~40% stores will be opened in the top-10 cities (vis-a-vis 50% earlier) to avoid cannibalisation.

LINK

https://www.edelweiss.in/research/Jubilant-Foodworks--SSG-Weak;-Gross-Margin-And-Store-Expansion-On-Track;-Result-Update-Q2FY15/27403.html