Jubilant FoodWorks Q3 Results Review - Sluggish Performance; Not Unwinding In Near Term: Motilal Oswal

Motilal Oswal Report

Jubilant Foodworks Ltd. reported sales growth of 3% YoY to Rs 13.5 billion in Q3 FY24, impacted by like for like 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 Q3. 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/avarage daily sales, the operating margin saw further deterioration. Despite gross margin expansion (120 basis points YoY to 76.7%), profit before tax margin further slid to 6% versus 7% QoQ and 9% YoY.

Profit before tax declined by 30% YoY. Weak operating margins were further impacted by higher deprecation (investment in backend). Profit before tax 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 profit before tax margin under pressure.

We believe the current valuation does not capture the full earnings pressure. Hence, we downgrade our rating from 'Buy' to 'Neutral'.

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