Top takeaways from Q1FY17 : SSSG at -3.2% entered negative territory after seven quarters of positive growth and was below our estimate of 3%. Gross margins expanded 110bps yoy and 30bps qoq on soft input prices. Employee expenses grew significantly on addition of new stores and wage inflation. EBITDA margin fell 230bps yoy and 200bps qoq on negative operating leverage. Network expansion for Dominos and Dunkin’ Donuts was slower at 23/6 restaurants.

Phillip Capital have cut their estimates for FY17/18 by 21%/26% on weak overall recovery and worsening per store economics. The overall and per store metrics of the company have deteriorated in past few quarters with no signs of sustainable recovery in sight. Also, we expect the EBITDA margins of the company to deteriorate further in FY17/18 as SSSG will be significantly below cost inflation. Based on DCF valuation and implied PE of 50x FY18, we value the stock at Rs 1065 and downgrade the stock to Neutral.