Jubilant Foodworks Ltd. share price target

Jubilant FoodWorks’ (JUBI) change in stance from delighting customers by offering 20 minutes delivery silently (vs promised delivery time of 30 minutes) to now advertising through banners on Domino’s app (highlighting 20-min delivery USP) is an incremental positive.

JFL portrayed an in-line performance in terms of Revenues/LFL growth (16.6%/8.4% YoY respectively), but had a slight miss on the margins with EBITDA /PAT Margins at 24.8%/10.1% in Q2 FY23 down from 26.6%/10.7% respectively in Q2 FY22.

Simply put – JUBI’s headline growth is not a problem. What’s concerning (to the street) is the quality of this growth with two issues – (1) Stagnant revenue per store with accelerated store expansion (mainly Domino’s) & big price hikes.

Jubilant FoodWorks Limited (JFL), a Food-tech giant, has one of the most effective and far-reaching delivery models in the country, having the master franchise rights for Domino’s Pizza, Dunkin' Donuts and Popeyes.

We upgrade JUBI to BUY. Drivers of our optimism are (1) loyalty program potentially driving higher order frequency (~15% of Domino’s customers account for ~56% of revenues – a classic marketing case of heavy-user dependency - which is good, in our view), (2) continued network expansion ahead of competition, (3) likely positive surprise in Popeye’s execution and ramp-up (consensus may start ascribing option value by FY24e), (4) lower incremental
impact from fortressing (splitting of stores) strategy and (5) 24% underperformance vs Nifty over last 12 months.