 "Jubilant's weak show defies rich valuation")
Jubilant FoodWorks reported a mixed set of numbers for September quarter (Q2). Same-store sales growth (SSSG) was a healthy 4.2 per cent, Jubilant's highest since September 2015 quarter. (The stores that are included in the SSSG metric must have been open for at least a year.) But operating profit margins and profit were disappointing.
Launch of innovative products such as Burger Pizza and healthy traction in "pizza mania" were the key factors aiding SSSG in the quarter. However, given a patchy past, sustainability of growth momentum in SSSG is a pre-requisite to improve investor sentiment on the stock.
Healthy revenue was more than offset by weak profit. High expenses, which as a percentage of sales were up 62 basis points to 90 per cent, were the sore point and pulled down Jubilant's operating profit margin by 62 basis points to 9.7 per cent. Even other income, which was higher, and tax rate, which was lower, could not offset cost pressure. As a result, net profit fell 1.4 per cent year-on-year to Rs 22 crore, lower than Bloomberg consensus estimate of Rs 27 crore even as revenue was slightly ahead of expectations.
Due to the estimate miss and the 19 per cent rebound from recent lows, the Jubilant stock fell 7.5 per cent on a day when Sensex was down a per cent.Launch of innovative products such as Burger Pizza and healthy traction in "pizza mania" were the key factors aiding SSSG in the quarter. However, given a patchy past, sustainability of growth momentum in SSSG is a pre-requisite to improve investor sentiment on the stock.
Healthy revenue was more than offset by weak profit. High expenses, which as a percentage of sales were up 62 basis points to 90 per cent, were the sore point and pulled down Jubilant's operating profit margin by 62 basis points to 9.7 per cent. Even other income, which was higher, and tax rate, which was lower, could not offset cost pressure. As a result, net profit fell 1.4 per cent year-on-year to Rs 22 crore, lower than Bloomberg consensus estimate of Rs 27 crore even as revenue was slightly ahead of expectations.
There are other pressure points for Jubilant, which have kept the stock in check so far.
Two top exits (financial chief and chief executive) in a short span are seen as negative. And the exits come at a time when slowing demand in the quick service restaurants (QSR) space, and rising competition from delivery apps as well as aggregators such as Swiggy have already cast their shadow on Jubilant's prospects.
Analysts say a five-six per cent SSSG is required to drive operating profit margin, which has come off from 18 per cent levels in June 2012 quarter. Though the company continues to add new stores, sustained improvement in demand is key, believe analysts.
Even after Wednesday's fall, the Jubilant stock trades at rich valuations of 47 times its one-year forward estimated net profit. After the net profit miss, analysts are likely to trim their full-year net profit for the company. This could keep the stock price under pressure. Any clarity as to the appointment of a chief executive and a financial chief could be a catalyst for the stock.