 "Jubilant Foodworks: Betting on urban consumption")
Discretionary spending could be on the mend, going by Jubilant FoodWorks’ performance in the June quarter. Though sales and profit growth disappointed in the first quarter, the Street remains positive on the stock, as its 4.6 per cent same-store sales (SSS) growth is better than the decline reported by rivals.
The company is also focused on expansion, which will drive revenue growth. And, subdued raw material prices are supporting the gross margins. Lower inflation in raw materials is expected to help the company invest in growth and an eventual recovery in demand would boost earnings. Yum Brands’ same-store sales growth fell 11 per cent and that of Westlife Development (which runs McDonald’s stores in India) fell 4.9 per cent. Abneesh Roy of Edelweiss Securities says: “Consumers are eating out less due to lower disposal incomes but that has impacted competition more, as Jubilant is more innovative and has stronger brand equity. Despite poor discretionary spending, it gained market share in the pizza space from 67 per cent in 2013 to 72 per cent in 2014.”
On the upside, benign food prices helped it expand the gross margin by 110 basis points over the year to 75.7 per cent. Operating margins stayed flat due to store expansion and loss at Dunkin’ Donuts. Emkay Global says: “Margin levers are strong, with operating leverage kicking in on higher same-store sales growth versus inflation and a Dunkin break-even in FY17-18.”
Analysts believe growth drivers are well in place to ride the potential uptick in consumption, a risk if the assumption does not play out. Bank of America Merrill Lynch believes companies dominating urban markets would see a sharper revival than others.
The company is also focused on expansion, which will drive revenue growth. And, subdued raw material prices are supporting the gross margins. Lower inflation in raw materials is expected to help the company invest in growth and an eventual recovery in demand would boost earnings. Yum Brands’ same-store sales growth fell 11 per cent and that of Westlife Development (which runs McDonald’s stores in India) fell 4.9 per cent. Abneesh Roy of Edelweiss Securities says: “Consumers are eating out less due to lower disposal incomes but that has impacted competition more, as Jubilant is more innovative and has stronger brand equity. Despite poor discretionary spending, it gained market share in the pizza space from 67 per cent in 2013 to 72 per cent in 2014.”
On the upside, benign food prices helped it expand the gross margin by 110 basis points over the year to 75.7 per cent. Operating margins stayed flat due to store expansion and loss at Dunkin’ Donuts. Emkay Global says: “Margin levers are strong, with operating leverage kicking in on higher same-store sales growth versus inflation and a Dunkin break-even in FY17-18.”
Analysts believe growth drivers are well in place to ride the potential uptick in consumption, a risk if the assumption does not play out. Bank of America Merrill Lynch believes companies dominating urban markets would see a sharper revival than others.