Motilal Oswal's research report on Jubilant FoodWorks
Sales and gross profit marginally missed our estimates. Weak operating leverage as a result of flat LFL (v/s our expectation of 6%) led to EBITDA margin of 22%, v/s our expectation of 24.5%, thereby leading to 14% miss on EBITDA. Sameer Khetarpal, the new CEO announced his plans to focus on value (introduction of Every Day Value Pizza at INR49), improving dine-in experience by re-imaging stores rapidly, introducing cost saving measures and building on the excellent response that they have received in their recently launched loyalty program (~10m customers contributing ~40% of business in Dec’22). LFL growth recovery and material cost reduction are expected to take some time, putting pressure on near-term earnings. JUBI’s own delivery system, back-end advantages, robust balance sheet, and now the loyalty program all provide the company a competitive edge, leading to a healthy topline and earnings growth in the medium term. We reiterate our Buy rating on the stock.
Outlook
Longer-term opportunity in QSR remains immense and JUBI with its moats is poised to take advantage of the same. Valuations, after a steep stock price correction of ~45% from its peak appear reasonable at ~25xFY25 EV/EBITDA for a business that can compound earnings at ~20% and has ROE levels superior to QSR peers and other retail companies. We reiterate our Buy rating with a TP of INR575 (premised on 32xFY25 Pre Ind-AS EBITDA).
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