Jubilant Foodworks - Slice Of Success; New Offerings Galore: HDFC Securities

HDFC Securities Institutional Equities

The pizza category has experienced a tumultuous history, facing significant challenges over the past few quarters compared to other mainstream quick service restaurant categories such as burgers and chicken. These challenges stem from several factors:

1. The category's price-sensitive nature means that deals and discounts have driven a decent amount of growth for mainstream players in the past.

2. Hyper-competition from regional and local players, who can offer better quality at similar prices due to the high gross margins (75%+) of mainstream pizza brands, intensifies the competitive landscape.

3. There has been increased downgrading to other QSR offerings or value pizza in the context of hyperinflation, given the higher average order value of Rs 450-500 for pizza.

4. The lack of tangible breakthrough innovation (e.g., cheese burst pizza) has hindered the uplift of same-store sales growth.

We believe the latter issues, specifically points three and four, will fade in the medium term as Jubilant Foodworks Ltd. has made substantial efforts to tackle these challenges by providing significant value to customers and introducing disruptive innovations.

Hence, we expect Jubilant Foodworks to report strong operational numbers in FY25 within our QSR coverage pack, as SSSG recovery and cost optimisation measures could aid margin recovery.

We maintain Jubilant Foodworks as a high conviction idea with a target price of Rs 685.

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