Q1FY24 Review: Jubilant Foodworks: Demand outlook uncertain

26 Jul 2023 , 01:24 PM

JUBI reported yet another weak quarter with sales growing only by 6% YoY, as sales per store declined by 7%. Ebitda margin of 21.1%, down 345bps YoY, recovered slightly QoQ. However, further expansion looks uncertain as vegetable prices have gone-up. SSSG decline increased QoQ and trends in July do not point towards a conclusive pickup. Analysts of IIFL Capital Services keep their estimates unchanged and maintain REDUCE rating on the stock, on uncertainty in demand/margin recovery, TP of Rs460.

In-line results: 

Jubilant reported weak performance in Q1FY24, but was largely in line with expectations. Sales grew by 5.6% YoY, driven by avg. store growth of 13.8% offset partially by 7.2% decline in sales per avg. store. LFL and expected SSSG deteriorated further to -1.3%/-4% from – 0.6%/-3% in Q4FY23. Ebitda margin of 21.1% contracted by 345bps YoY, due to gross margin decline and negative operating leverage. The company added 30 new stores, including 23 Dominos and 4 Popeyes, and reiterated FY24 guidance of 200-220 new Dominos.

Uncertainty continues: 

Sales in Q1 grew 5% QoQ, led by seasonal factors like higher orders due to IPL and ticket-size increase contributed by new spicy pizza range at higher price point. However, demand trends in July have been uncertain with no conclusive pickup. Moreover, on margins, while cheese prices have moderated QoQ (YoY prices still elevated), inflation in vegetable prices has increased headwinds to margins. Further, with ~1,400 stores now as per the remodelled pizza theatre design, dine-in hasn’t seen any meaningful pick-up, and with only 10% of stores left to be revamped, analysts of IIFL Capital Services see limited levers for dine-in to pick up in the near term.

Maintain REDUCE: 

Analysts of IIFL Capital Services keep their estimates unchanged and expect margin pressures to continue in FY24. In the long run, the company is targeting 23- 24% Ebitda margin, but continued investment in expansion along with demand uncertainty will keep margins in check. Further, they also see risk on aggressive store addition target for the rest of FY24, as Q1 additions were low and can be a key downside risk to growth. The stock is trading at challenging valuations of 31x FY25 EV/adj. Ebitda; analysts of IIFL Capital Services maintain REDUCE on uncertainty in demand/margin recovery.