Growth expectations drive Jubilant FoodWorks into a higher orbit

Investments in supply chain, technology and network expansion are key positives

Expectations of a strong recovery, an aggressive store-expansion rollout for FY22 and plans to transition to a food tech company led to a 12 per cent rally in Jubilant FoodWorks, the India franchisee for Domino’s. The shift to branded players during the pandemic, strong execution and growth prospects of the quick service restaurant (QSR) format is expected to help sustain its growth and profitability going ahead.

The extent of recovery in the September quarter is a key near term trigger. While sales were impacted in the first two months of the June quarter, system sales recovered completely in June (as compared to Q1FY20) led by a sharp rise in deliveries. Management expects dine-in, which is the worst impacted format over the past year, to post strong recovery as the covid situation improves.

To gain from the customer preference for deliveries and takeaways as well as increased reliance on trusted brands, the company is expanding its network by 150-175 stores in FY22. The stores which will largely be in tier-2/3 will have a focus on the delivery format. The store addition target has seen a revision over the earlier target of 130-plus stores and will add to the existing base of 1,380 stores. The company has also increased the medium term potential target to 3,000 stores from 2,000 earlier.

The company’s investments in supply chain and technology to enhance customer experience is also expected to be a key enabler going ahead. Says Pratik Pota, the company’s chief executive officer and whole time director, “Our business model has emerged stronger from the pandemic and we are looking ahead with optimism, confident of delivering hyper growth and transforming into a food-tech powerhouse.”

While the street will track the revenue growth trends which were below estimates, profitability remained ahead of estimates.Operating profit margins (at 24.1 per cent, marginally lower q-o-q) were ahead of estimates due to lower employee costs and rental concessions. What would have helped was a price hike on the products and delivery charges in the quarter. The company expects margins to sustain in the coming quarters.

Most brokerages remain bullish about the prospects of the company given the growth potential and the company’s cost
leadership vis-a-vis other large chains. Say analysts at Motilal Oswal Research, “Given the structural opportunities in the QSR space and the Jubilant FoodWorks dominant positioning with proven and profitable model, we expect the company to be the key beneficiary of favorable trends (shift towards branded players).” The brokerage has upgraded the stock (currently trading at Rs 3,425) with a target price of Rs 3,630. Investors with a long term horizon can consider the stock.