By Suhani Adilabadkar
Investors paying attention would have noticed the strength of the consumer company Jubilant Foodworks, which has been rising through 2018. Jubilant Foodworks investors have been a fortunate lot over the past years. The stock (which is in 23 stock screeners) rallied from a low of Rs. 430 to Rs. 1800 levels in 2018. The company, which has an exclusive license to operate and develop Domino’s Pizza Restaurants in India, Sri Lanka, Bangladesh and Nepal, now has a network of 1167 restaurants across 269 cities of its highly successful Domino pizza brand, and a chain of 32 restaurants for Dunkin’ Donuts across 10 cities.
Though the stock was under pressure after September results with analysts raising caution over future growth concerns, Jubilant Foodworks delivered strongly in Q3 and is one of the best consumer discretionary stock on Indian bourses.
Quick Takes
- Jubilant Foodworks is one of the best consumer discretionary stock on Indian bourses reporting its seventh consecutive positive PAT growth in December quarter FY19.
- Jubilant Foodworks ended the year FY17-18 witnessing more than 200% growth in Net Profit, operating profit rising 1.8 times and revenue jump of 18% YoY.
- The company is also the official partner of IRCTC and has reformed itself as ‘New 3 AM Friend’ catering to changing customer lifestyles.
- As online sales account for about 68% of total delivery sales, Jubilant Foodworks, has relaunched its improved app to accelerate on this digital lever.
Crispy and Crunchy Financial Health
Jubilant Foodworks reported its sixth consecutive positive PAT growth in September quarter FY19 along with robust Revenue, Operating profit and phenomenal SSG (Same-Sales-Growth) numbers. It followed through again in the December quarter. JF's net profit jumped 46.2 percent YoY to Rs 96.5 crore, with Dunkin Donuts breaking-even ahead of expected timelines (breakeven was expected end of FY19). The company also saw a 14.6 percent jump in same-store sales of Domino's Pizza and Dunkin' Donuts. The company is seeing strong growth in both orders and delivery, an essential ingredient of success in the Food Service Industry.
A Jubilant Transformation
Jubilant Foodworks revenues was roughly just one third of its arch rival Mcdonald’s in the early years of 2000. In the next 10-12 years, a different story played out with Jubilant galloping at a scorching pace whereas Mcdonald’s India entangled itself in legal issues.
In 2013, Dominos became the largest fast food brand dislodging Mcdonald’s mainly driven by its ‘Home Delivery’ USP and attractive deep discount promotional offers. But the pizza party hit a roadblock as bottom-line started stagnating, operating margins fell and SSG plummeted after 2013.
Operating Margins fell a historic 700 basis points in 2016 from 2012 levels prompting strong promoter action to get Jubilant Foodwork’s animal spirits back into action. Consequently, top management was overhauled in 2016 and since then a striking transformation is evident as Jubilant’s stock price has given 70% returns over the past two years.
As a re-energising exercise began, aggressive store expansion was toned, cost control measures enhanced, removing deep discount promotional offers and upgrading product quality. As these measures started materializing through improved margins, Jubilant launched its ‘Every Day Value’ offer in April 2017 through its ‘Buy two medium pizzas with starting price of Rs. 199 each’ with an aim to increase penetration and frequency of pizza consumption.
The after effect was visible in June quarter FY18 as demonetization hangover was cured with PAT rising 3 times and
operating margins improving 184 basis points sequentially. With GST rationalization to 5%, growth momentum was well maintained and Jubilant Foodworks ended the year FY17-18 witnessing more than 200% growth in Net Profit, operating profit rising 1.8 times and revenue jump of 18% YoY.
Analyst Scare
The analyst community contends that soft base of FY17-18 will harden from December quarter reversing growth momentum in the coming quarters. This has not been the case - the company has been riding on lower food inflation, strong cost levers and ‘Every Day Value’ offer which has been extended to regular sized pizza priced at ‘Rs. 99 each’ from April 2018.
With promotional offers extending almost 18 months since last year, these price levers might be too hard to maneuver in the coming quarters along with intensifying competition in Food Service Industry leading to lower margins and reduced SSG. But the
company management stands optimistic with its enhanced core product value and steadfast on its ‘value for money’ principle. Jubilant after two years of restructuring expects to maintain growth momentum through improved product mix of its core pizza business and strong delivery and order led growth driven by superior innovation and technology. Thus, these growth levers will lead tohigher pizza penetration and consumption frequency driving profitability growth in the coming
quarters.
Opting out of Swiggy and third-party delivery
Meanwhile, the company is ready to move to the next level by eliminating food aggregators from its delivery pipeline with an aim to enhance superior customer experience and reduce costs through inhouse delivery management. As currently online sales account for about 68% of total delivery sales, Jubilant Foodworks, the first company to initiate online orders since 2011 has relaunched its
improved app to accelerate on this digital lever.
The company is also the official IRCTC (Indian Railway Catering and Tourism Corporation) partner servicing 206 railway stations as on March 2018. Apart from this technological product differentiation, the company has further reformed itself as ‘New 3 AM Friend’ catering to changing customer lifestyles and improving on its operating leverage.
Jubilant Foodworks is back in its aggressive mode increasing its new restaurants twofold sequentially and taking the total new store aggregation to 75 by the end of FY19. The company seems to be famished for growth, still hungry after all these years. That is good news for investors.