Motilal Oswal's research report on Jubilant FoodWorks
Jubilant Foodworks (JUBI) reported sales growth of 3% YoY to INR13.5b in 3QFY24, impacted by LFL decline of 2.9%. Delivery business was up 6%, while dine-in contracted by 5%. Demand challenges in the industry continue to impact growth metrics. Domino’s added 40 new stores and entered 10 new cities in 3Q. The store expansion spree for Domino’s and other brands has continued. The company has a store network in 407 cities now. With persistent pressure on LFL/ADS, the operating margin saw further deterioration. Despite gross margin expansion (120bp YoY to 76.7%), PBT margin further slid to 6% vs. 7% QoQ and 9% YoY. PBT declined by 30% YoY. Weak operating margins were further impacted by higher deprecation (investment in backend). PBT margin in FY22 was 13.5%. As near-term demand is expected to be soft, we do not see the operating print improving anytime soon. The backend investments (commissaries in Bangalore, Mumbai) will further keep the PBT margin under pressure. We believe the current valuation does not capture the full earnings pressure. Hence, we downgrade our rating from BUY to NEUTRAL.
Outlook
We value Domino’s India business at 60x P/E on FY26E EPS and add INR50 per share for other initiatives and strategic investments. Our TP is INR480.
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