Q2FY24 Review: Jubilant Foodworks: Another soft quarter

26 Oct 2023 , 11:54 AM

Jubilant (JUBI) reported a subdued quarter with sales growing 4.5% YoY and Ebitda declining by 10.2% YoY; though it was broadly in line with our expectations. Demand pressure and elevated input cost continue to outweigh the initiatives taken by the management, which are of longer term in nature. Analysts of IIFL Capital Services cut their adj. Ebitda by 5-9% for FY24-FY26, considering another weak performance and maintain REDUCE with a revised TP of Rs475. 

In-line results: 

JUBI reported results that were broadly in line with expectations. Sales grew by 4.5% YoY, driven by avg. store growth of 12% offset partially by 6.7% decline in sales per avg. store. LFL and expected SSSG OF -1.3%/-4% remained at the same levels seen in Q1FY24. Ebitda margin of 20.9% contracted by 341bps YoY, as negative operating leverage offset slight increase in gross margin. JUBI added 60 new stores, including 50 Dominos and five Popeye’s; reiterated the FY24 guidance of 200-225 new Dominos store.

Headwinds impacting growth and margins: 

Overall sales growth in Q2 was led by 7.9% YoY growth in delivery channel revenue. Dinein channel has still not recovered and sales were lower by 3.8% YoY. Decline in dine-in was due to decrease in ticket and orders, owing to temporary closure of stores undergoing re-imaging. Moreover, inflationary pressures continue to weigh on margins as input cost remains elevated. Management initiatives — 20-minute delivery option, re-imaging stores to enhance the dine-in experience — are not expected to aid immediate growth.

[Cut adj. Ebitda by 5-9%: 

Analysts of IIFL Seurities downgrade their FY24/25/26 adj. Ebitda estimates by 9%/6%/5% factoring the weak Q2; their reported EPS estimates witness a minor upgrade due to lower depreciation. Analysts of IIFL Capital Services build in 15%/21%/21% sales, Ebitda and PAT Cagr over FY24-26 post their cuts today. The stock is trading at challenging valuations of 33x Sept’25 EV/adj. Ebitda. They maintain REDUCE rating on the stock with TP of Rs475, as they believe demand and margin pressure are here to stay.