21 May 2020 Results Review 4QFY20 Jubilant FoodWorks HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters Good franchise, a pause before run Jubilant was on course to returning to double digit SSG (7/13% SSG in Jan/Feb) after mid-single digit clocked in the previous four quarters. It justified our thesis on Domino’s SSG recovery even when street was factoring aggregator pressure. Covid impacted OOH consumption sharply, thereby, Domino’s March SSG saw sharp dip of 28% yoy. QSR will be among the most impacted categories in FY21 (stated in our FMCG thematic report) as dine-in pressure will be immense. We continue to believe that Jubilant is one of the strongest QSR players (superior store economics, healthy FCFs, strong balance sheet) and will be able to gain market share. However, high impact on OOH consumption will have several challenges for growth (co is also returning to muted store expansion in FY21). We believe even in such challenging time, JUBI will be able to cut cost sharply to sustain margin (overhead cost is 55% of sales). However, we cut EPS estimate by 5% for FY21/FY22 (43/22% cut in our FMCG thematic in April) to factor-in consistent extension of lockdown, weaker consumption sentiments and slower store expansion in FY21/FY22. We value JUBI at 40x on Mar-22E EPS, deriving a TP of Rs 1,420. With unattractive risk-reward at current price, we downgrade JUBI to REDUCE. In-line SSG: Net revenues grew by 4% yoy (vs. exp of flat revenue) as ex- SSG growth remained strong. Reported SSG saw a yoy decline of 3.4% (est. decline 4.1%) while LFL SSG dipped by 2.3% yoy. However, ex-SSG growth was strong at 7% led by strong store expansion in 9MFY20. LFL SSG in Jan/Feb was at 7/13%. Covid halted store expansion to 10 stores in 4Q which >30 stores was planned to open in March. Those unopened stores will be carried over and opened in 1QFY21. Store opening will be weaker and we reduced the new store count to 60/100 for FY21/FY22 (earlier 120/110). Miss in margins: GM contracted 164bps to 74.4% (exp. dip of 46bps) led by steep dairy inflation, inflation to moderate in FY21. Co could not get enough time to cut down cost in March, thereby LFL EBITDA margin declined by 686bps yoy to 10% (est 16%). Co is focusing on converting several fixed cost into variable cost like employee cost is being shifted from full time/part time model to flexi-time model. We believe this model will help the company control costs without cutting headcounts and will also provide clear visibility to riders and other store staff. Call & other takeaways: (1) Co has reopened 930 stores (covering 87% of the delivery area), (2) Only carried over stores (30 stores) from 4QFY20 will be opened in 1QFY21, (3) Several cost control initiatives will be visible from 1Q, (4) Momentum in Hong’s was strong pre-Covid, (5) JUBI’s BS remains strong, Cash & Equivalent has risen to Rs 7bn vs. Rs 6.6bn in FY19. Financial Summary YE Mar (Rs mn) Q4 FY20 Q4 FY19 YoY (%) Q3 FY20 QoQ (%) FY19 FY20P FY21E FY22E Net Sales 8,979 8,652 3.8 10,596 (15.3) 35,631 39,273 34,130 43,832 EBITDA 1,695 1,476 14.8 2,536 (33.2) 5,998 8,756 7,496 10,541 APAT 520 793 (34.4) 1,123 (53.7) 3,180 3,537 2,736 4,686 Diluted EPS (Rs) 3.94 6.01 (34.4) 8.51 (53.7) 24.1 26.8 20.7 35.5 P/E (x) 63.1 56.7 73.4 42.8 EV / EBITDA (x) 32.4 33.9 40.2 25.5 RoCE (%) 45.8 28.4 11.5 21.7 Source: Company, HSIE Research REDUCE CMP (as on 20 May 2020) Rs 1,521 Target Price Rs 1,420 NIFTY 9,067 KEY CHANGES OLD NEW Rating ADD REDUCE Price Target Rs 1,502 Rs 1,420 EPS % FY21E FY22E -5% -5% KEY STOCK DATA Bloomberg code JUBI IN No. of Shares (mn) 132 MCap (Rs bn) / ($ mn) 201/2,654 6m avg traded value (Rs mn) 1,901 52 Week high / low Rs 1,974/1,078 STOCK PERFORMANCE (%) 3M 6M 12M Absolute (%) (19.2) (4.4) 16.2 Relative (%) 5.9 19.8 37.9 SHAREHOLDING PATTERN (%) Dec-19 Mar-20 Promoters 41.94 41.94 FIs & Local MFs 18.93 20.65 FPIs 32.65 30.94 Public & Others 6.48 6.47 Pledged Shares 1.21 1.52 Source : BSE Naveen Trivedi [email protected]+91-22-6171-7324 Varun Lohchab [email protected]+91-22-6171-7334 Aditya Sane [email protected]+91-22-6171-7336
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21 May 2020 Results Review 4QFY20 Jubilant FoodWorks Foodworks... · weaker consumption sentiments and slower store expansion in FY21/FY22. We value JUBI at 40x on Mar-22E EPS, deriving
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21 May 2020 Results Review 4QFY20
Jubilant FoodWorks
HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters
Good franchise, a pause before run Jubilant was on course to returning to double digit SSG (7/13% SSG in Jan/Feb) after mid-single digit clocked in the previous four quarters. It justified our thesis on Domino’s SSG recovery even when street was factoring aggregator pressure. Covid impacted OOH consumption sharply, thereby, Domino’s March SSG saw sharp dip of 28% yoy. QSR will be among the most impacted categories in FY21 (stated in our FMCG thematic report) as dine-in pressure will be immense. We continue to believe that Jubilant is one of the strongest QSR players (superior store economics, healthy FCFs, strong balance sheet) and will be able to gain market share. However, high impact on OOH consumption will have several challenges for growth (co is also returning to muted store expansion in FY21). We believe even in such challenging time, JUBI will be able to cut cost sharply to sustain margin (overhead cost is 55% of sales). However, we cut EPS estimate by 5% for FY21/FY22 (43/22% cut in our FMCG thematic in April) to factor-in consistent extension of lockdown, weaker consumption sentiments and slower store expansion in FY21/FY22. We value JUBI at 40x on Mar-22E EPS, deriving a TP of Rs 1,420. With unattractive risk-reward at current price, we downgrade JUBI to REDUCE. In-line SSG: Net revenues grew by 4% yoy (vs. exp of flat revenue) as ex-
SSG growth remained strong. Reported SSG saw a yoy decline of 3.4% (est. decline 4.1%) while LFL SSG dipped by 2.3% yoy. However, ex-SSG growth was strong at 7% led by strong store expansion in 9MFY20. LFL SSG in Jan/Feb was at 7/13%. Covid halted store expansion to 10 stores in 4Q which >30 stores was planned to open in March. Those unopened stores will be carried over and opened in 1QFY21. Store opening will be weaker and we reduced the new store count to 60/100 for FY21/FY22 (earlier 120/110).
Miss in margins: GM contracted 164bps to 74.4% (exp. dip of 46bps) led by steep dairy inflation, inflation to moderate in FY21. Co could not get enough time to cut down cost in March, thereby LFL EBITDA margin declined by 686bps yoy to 10% (est 16%). Co is focusing on converting several fixed cost into variable cost like employee cost is being shifted from full time/part time model to flexi-time model. We believe this model will help the company control costs without cutting headcounts and will also provide clear visibility to riders and other store staff.
Call & other takeaways: (1) Co has reopened 930 stores (covering 87% of the delivery area), (2) Only carried over stores (30 stores) from 4QFY20 will be opened in 1QFY21, (3) Several cost control initiatives will be visible from 1Q, (4) Momentum in Hong’s was strong pre-Covid, (5) JUBI’s BS remains strong, Cash & Equivalent has risen to Rs 7bn vs. Rs 6.6bn in FY19.
- Dine-in category has seen pressure - Delivery has seen growth across the board, driven largely by aggregators - Media spend by aggregators has seen an increase in order to drive customer acquisition
- Weak consumer sentiment and inflationary pressure is a drag on the margins in the industry - Expect organized food services industry to delivery sustained growth
- Demand environment remained challenging - Dine-in remained under pressure across the industry - Part of the impact on dine-in was due to a structural shift observed from dine-in towards delivery driven by aggregator push - Civil disturbances (protest)in various parts of the country also impacted industry - Food inflation was unprecedented, dairy inflation is still high but veg inflation has moderated
- Supply chains were disrupted for the entire food industry - SSG trajectory was consistently positive in Jan, Feb and first half of March - As of now 930 stores have been opened which cover 87% of delivery area pre-Covid. Expect to cover 100% are by mid June. - Recovery in stores that have opened in encouraging - Co expects dine-in to be impacted post Covid. However, it is focusing on DELCO stores with the expectation that lost dine-in will be partially recovered through takeaway.
Revenue
Dominos’ - OLO contribution to delivery sales is now 81% - Begun rolling out a new store design with digital kiosks. 9 out of 26 stores opened used this design - Undertook a small price increase towards the end of the quarter - Launched a new range of pizzas under 'World Pizza League' - Dominos in Bangladesh continued to see encouraging response, on track to open 5 stores by end of FY20 - Willing to look at alternative models but the delco store model is better than the cloud kitchen model for Dominos due to its brand equity - Fortressing of markets in order to improve customer service levels will be the strategy going forward - Co is focusing on incurring expenses to set up the infrastructure and use tech to drive process efficiencies
- OLO contribution to delivery increased to 85% - All stores opened used the new store design - Dominos opened 2nd store in Bangladesh - Reduction in delivery time is a sharp area of focus and the co has tried a 20 min delivery pilot in a few stores - Fortressing markets and splitting stores has helped improve customer experience - Growth in delivery compensated for the headwinds in dine-in - Beverages have been launched by creating fountain infrastructure and are seeing a positive response - Co views aggregators as partners but the entire delivery fleet will be Dominos - There was a moderation of growth in smaller towns - Co does not have any plans to opt for sub franchising
- OLO contribution to delivery sales stood at 87.4% - Growth in delivery was much higher than the co, driven mainly by metros and tier 1 cities - MGT gives a guidance of a total 140-150 new stores in FY20 (98 opened in 9M). Store opening trajectory will continue in FY21 - Refurbished stores (improved ambience and modern look) have witnessed better growth in Dine-in - Fountain rollout will start showing result from upcoming season - A new range of Masala Pizzas and a new marketing campaign was supporting - The co does not have any plans for a price hike in the near future - Civil disturbances had an impact of <100bps on SSG - Domino's app is the highest rated food app in India. The co has made digital investment that will help personalise promotions and payment & ordering experience. Also launched a chatbot - Bulk of OLO are still on Domino's app - Domino's gained market share at Pan-India level
- Reduction in store opening was not a planned restriction by the co. Disruption due to Covid-19 caused reduced store opening. - New store opening has been suspended in 1QFY21. The only stores opened will be the ones that have rolled over from 4QFY20. - Domino’s essentials is now live in almost 100 cities. - Restricted seating due to social distancing is expected to impact dine-in post-Covid. Co hopes zero contact delivery and takeaway will help recover some of the loss in dine-in. Post covid competitive intensity will decrease as restaurants will close. Takeaway and online ordering will witness a pickup.
Page | 3
Jubilant FoodWorks: Results Review 4QFY20
Others - Hong's got off to a good start, plan is to open 10 stores by the end of FY20 - Close one store in Dunkin
- Continue to witness encouraging response on Hong's Kitchen - There was no change in number of stores for Dunkin - Focus on building a profitable business in Dunkin by finding the right balance of food, beverage and donuts
- Co opened 2 new Dunkin' stores opened, both are smaller format stores (100 sqft) to see effectiveness of such format (pilot). - Hong's will see more store opening in the coming quarters, Hong's has seen high repeat customer rate
- Jubilant added 2 stores each in Dunkin’ and Hong’s Kitchen - Hong’s saw strong momentum pre-Covid. The pickup has been encouraging since stores reopened as well. Co plans to begin opening DELCO focused stores in Hong’s. Initially, co will remain focused on NCR and then expand further.
Margin Gross Margin - Price hike was taken towards
the end of the quarter to offset the inflation in RM, especially dairy - However, impact of price increase on GM will be seen from next quarter - Beverages will be a key driver of GMs in the upcoming quarters
- Inflation on dairy was significant but it was mitigated partly by price increase - Inflation has now flattened and it expected to moderate over the upcoming quarters
- Dairy and veg inflation were high during the qtr. Veg inflation has moderated while dairy inflation remained firm. Dairy prices were the highest in Oct-Nov in more than 7 years. Dairy inflation (cheese) on impacted GM by 220bps YoY.
- Inflation in Dairy last year was significant. However, Dairy inflation has now come down. The benefit was not reflected in 4QFY20 due to carried over inventory. It will be reflected from 1QFY21 onwards.
EBITDA Margin
- Co has shifted to reporting under IndAS 116 from 1QFY20 - Increase in personnel cost was due to minimum wage inflation, annual increment and new stores - Large part of increase in expenses was due to A&P
- EBITDA margin improved despite steep inflation in commodity prices led by the price increase, targeted promotions, delivery efficiencies and manpower productivity
- Targeted promotions helped the co maintain margins - Inflation on manpower (for delivery) per order has gone down. Lower attrition at industry and JFL level is supporting the manpower cost - Promotion and discounts carried out by the co were done without impacting SSG adversely - Other expenses increased mainly due to higher delivery mix, increase in investment in digital and new marketing campaign
- Jubilant is revisiting cost structures and identifying opportunities to improve efficiencies. - Co has activated the force majeure clause and has made progress on rent reduction. - Co does not expect employee expenses to be a structural issue going forward as the co can drive efficiency using data collected resulting in lower manpower requirements. Also, Jubilant has shifted delivery manpower from fixed timers to flexi timers. Hence, employee cost is not expected to be a headwind. - Significant saving opportunities have been identified on logistics and warehousing costs.
Net revenues grew by 4% yoy (vs. exp of flat revenue) as ex-SSG growth remained strong. Reported SSG saw a yoy decline of 3.4% (est. decline 4.1%) while LFL SSG dipped by 2.3% yoy GM contracted 164bps to 74.4% (exp. dip of 46bps) led by steep dairy inflation LFL EBITDA margin declined by 686bps yoy to 10% (est 16%).
Page | 5
Jubilant FoodWorks: Results Review 4QFY20
Net Revenue Same Store Sales Growth (Reported)
Source: Company, HSIE Research Source: Company, HSIE Research
EBITDA Performance EBITDA Margin
Source: Company, HSIE Research Source: Company, HSIE Research
Domino’s Quarterly Store Additions Cities Covered
Source: Company, HSIE Research Source: Company, HSIE Research
-8
0
8
16
24
32
2,000
4,000
6,000
8,000
10,000
4QFY
141Q
FY15
2QFY
153Q
FY15
4QFY
151Q
FY16
2QFY
163Q
FY16
4QFY
161Q
FY17
2QFY
173Q
FY17
4QFY
171Q
FY18
2QFY
183Q
FY18
4QFY
181Q
FY19
2QFY
193Q
FY19
4QFY
191Q
FY20
2QFY
203Q
FY20
4QFY
20
Net Sales Growth - RHS
Rs mn%
-3 -2-5
27 5 3 2 3
-3
4
-3-8
7 6
18
2726
2115
6 4 5 6
-3
(14.0)
(5.0)
4.0
13.0
22.0
31.0
4QFY
141Q
FY15
2QFY
153Q
FY15
4QFY
151Q
FY16
2QFY
163Q
FY16
4QFY
161Q
FY17
2QFY
173Q
FY17
4QFY
171Q
FY18
2QFY
183Q
FY18
4QFY
181Q
FY19
2QFY
193Q
FY19
4QFY
191Q
FY20
2QFY
203Q
FY20
4QFY
20
%
(30)(15)0 15 30 45 60 75 90 105 120 135
0
400
800
1,200
1,600
4QFY
141Q
FY15
2QFY
153Q
FY15
4QFY
151Q
FY16
2QFY
163Q
FY16
4QFY
161Q
FY17
2QFY
173Q
FY17
4QFY
171Q
FY18
2QFY
183Q
FY18
4QFY
181Q
FY19
2QFY
193Q
FY19
4QFY
191Q
FY20
2QFY
203Q
FY20
4QFY
20
EBITDA Growth - RHS
Rs mn%
12.8
12.4
12.2 13
.112
.911
.810
.3 11.5
11.5
9.5 9.7
9.7
9.9 11
.7 14.1
17.2
16.4
16.6
16.7 18
.417
.115
.7 16.4
16.6
10.2
-
5.0
10.0
15.0
20.0
4QFY
141Q
FY15
2QFY
153Q
FY15
4QFY
151Q
FY16
2QFY
163Q
FY16
4QFY
161Q
FY17
2QFY
173Q
FY17
4QFY
171Q
FY18
2QFY
183Q
FY18
4QFY
181Q
FY19
2QFY
193Q
FY19
4QFY
191Q
FY20
2QFY
203Q
FY20
4QFY
20
%
0
10
20
30
40
50
0
270
540
810
1,080
1,350
4QFY
141Q
FY15
2QFY
153Q
FY15
4QFY
151Q
FY16
2QFY
163Q
FY16
4QFY
161Q
FY17
2QFY
173Q
FY17
4QFY
171Q
FY18
2QFY
183Q
FY18
4QFY
181Q
FY19
2QFY
193Q
FY19
4QFY
191Q
FY20
2QFY
203Q
FY20
4QFY
20
Number Of Stores At The End Store Addition - RHS
Nos Nos
150
154 16
7 184 19
6 208 21
822
5 235 24
825
1 260
264
264
264
265
266
266
267
271
273
276
276
282
282
0
50
100
150
200
250
300
4QFY
141Q
FY15
2QFY
153Q
FY15
4QFY
151Q
FY16
2QFY
163Q
FY16
4QFY
161Q
FY17
2QFY
173Q
FY17
4QFY
171Q
FY18
2QFY
183Q
FY18
4QFY
181Q
FY19
2QFY
193Q
FY19
4QFY
191Q
FY20
2QFY
203Q
FY20
4QFY
20
Page | 6
Jubilant FoodWorks: Results Review 4QFY20
OLO and Mobile Ordering Performance Download of Mobile App
Source: Company, HSIE Research Source: Company, HSIE Research
Domino’s Yearly Store Additions Domino’s Yearly SSG (Reported)
Source: Company, HSIE Research Source: Company, HSIE Research
Domino’s City Coverage Dunkin’ Stores
Source: Company, HSIE Research Source: Company, HSIE Research
36% 41
%47
%47
%
51%
51% 57
%60
% 63% 65
%68
% 73% 75
%81
% 85%
87% 89
%
38%
38% 54
% 56% 68
%69
%69
% 71%
78% 83
%85
%85
%88
%89
% 93%
95%
96%
0%
20%
40%
60%
80%
100%
120%
4QFY
161Q
FY17
2QFY
173Q
FY17
4QFY
171Q
FY18
2QFY
183Q
FY18
4QFY
181Q
FY19
2QFY
193Q
FY19
4QFY
191Q
FY20
2QFY
203Q
FY20
4QFY
20
OLO to Delivery Sales % Mobile Ordering sales to OLO (%)
29%
36% 51
% 63% 75
%
89%
23%
38%
68% 78
% 88% 96
%
0%
15%
30%
45%
60%
75%
90%
105%
FY15
FY16
FY17
FY18
FY19
FY20
OLO to Delivery Sales % Mobile Ordering sales to OLO (%)37
8 465 57
6 726 87
6 1,02
6
1,11
7
1,13
4
1,22
7
1,33
5
1,39
5
1,49
5
0
450
900
1,350
1,800
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
E
FY22
E
37%
30%
16%
2% 0% 3% -2%
14% 16
%
3%
-18%
34%
-30.0%
-18.0%
-6.0%
6.0%
18.0%
30.0%
42.0%
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
E
FY22
E
105123
150
196
235264 266 273 282
0
50
100
150
200
250
300
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
No. of cities covered (India)
10
26
54
7163
3731 34
4250
0
10
20
30
40
50
60
70
80
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
E
FY22
E
Page | 7
Jubilant FoodWorks: Results Review 4QFY20
Gross Margin Trend EBITDA Margin Trend
Source: Company, HSIE Research Source: Company, HSIE Research
From 2nd March 2020, we have moved to new rating system
RECOMMENDATION HISTORY
900
1,100
1,300
1,500
1,700
1,900
2,100
May
-19
Jun-
19
Jul-1
9
Aug
-19
Sep-
19
Oct
-19
Nov
-19
Dec
-19
Jan-
20
Feb-
20
Mar
-20
Apr
-20
May
-20
Jubilant FoodWorks TP
Page | 13
Jubilant FoodWorks: Results Review 4QFY20
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