Stock in Action: Jubilant FoodWorks 12 November 2024

Highlights

1. Jubilant FoodWorks Q2 results highlight a strong revenue growth but a notable decline in profit.

2. Domino’s India growth continues to drive the company’s success, boosted by a surge in delivery orders.

3. Jubilant FoodWorks share price surged by 8% following the announcement of its Q2 earnings report.

4. Jubilant FoodWorks revenue growth of 43% YoY demonstrates robust market demand despite economic challenges.

5. Jubilant FoodWorks profit decline of 31.5% YoY was mainly due to increased operational costs.

6. Quick Service Restaurant (QSR) industry competition remains fierce, but Jubilant's innovative strategies stand out.

7. Jubilant FoodWorks stock performance has been positive, reflecting investor confidence in its turnaround strategy.

8. Domino’s store expansion India reached new heights with the addition of 50 stores in Q2 FY25.

9. Jubilant FoodWorks brokerage ratings have varied, with a mix of ‘Add’ & ‘Hold’ recommendations from top analysts.

10. Jubilant FoodWorks international business benefited from its recent acquisition in the European market.

Why Jubilant FoodWorks Shares Are in News? 

Jubilant FoodWorks, a prominent player in the Indian Quick Service Restaurant (QSR) industry, is in the spotlight following the release of its Q2 FY25 financial results. The company's profit margins have seen a notable decline, while revenues have shown impressive growth. Despite the dip in profits, investor sentiment appears optimistic, as reflected in an 8.1% surge in the company’s share price postresults announcement. Several factors, including an expansion of its store network, positive growth in its core brand Domino’s, & strategic moves in international markets, have contributed to the renewed interest in Jubilant FoodWorks. The Q2 results have prompted brokerages to reevaluate their outlooks, factoring in the company's evolving market strategy & operational highlights.

Q2 Performance of Jubilant FoodWorks 

Jubilant FoodWorks reported its financial performance for the quarter ending September 30, 2024, presenting a mixed bag of results:

• Net Profit: The company posted a consolidated net profit of ₹66.53 crore, down by 31.5% yearonyear (YoY) compared to ₹97.2 crore in the corresponding period of the previous fiscal year.

• Revenue Growth: Despite a decline in net profit, the company’s consolidated revenue from operations rose significantly by 43% YoY, reaching ₹1,954.72 crore. This substantial increase in revenue highlights the company’s ability to capture higher market share & drive topline growth amidst a challenging demand environment.

• Total Income: The total income for the reporting quarter stood at ₹1,984.93 crore, up from ₹1,375.69 crore in the year ago period, reflecting a robust increase in overall business activities.

• Expenses: Total expenses also surged, amounting to ₹1,895.67 crore in Q2 FY25, compared to ₹1,290.17 crore in the same quarter of the previous fiscal. This rise in expenses is attributed to higher operational costs, including increased investments in brand building & store expansion.

The financial performance was impacted by higher operational costs & inflationary pressures, which weighed on the profit margins. However, the revenue growth showcases strong underlying demand & effective execution of strategic initiatives.

Operational Highlights of Jubilant FoodWorks

Jubilant FoodWorks has made significant strides in its operational strategy, focusing on expanding its store network & leveraging its brand portfolio:

• Store Expansion: The company added 73 new stores in the quarter, bringing its total store count to 3,120. The expansion includes key brands such as Domino's, Dunkin', & Popeyes, aimed at penetrating deeper into the Indian market & tapping into new customer segments.

• Acquisition Impact: The acquisition of a controlling stake in DP Eurasia N.V., a major franchisee of Domino's Pizza in Turkey, Azerbaijan, Georgia, & Russia, has started contributing to the consolidated financials, boosting revenue streams from international markets.

• Domino’s India Performance: Domino's India witnessed an 8.1% growth in revenue, driven by a 20.2% increase in order volumes. The company opened 50 new Domino’s stores & entered 20 new cities, ending the quarter with 2,079 stores across 447 cities in India.

• Innovative Initiatives: Jubilant FoodWorks has focused on innovative strategies to boost consumption, including revamped menus, free deliveries, & enhanced digital offerings. The company’s emphasis on reducing delivery times with denser store networks has also been a key driver of growth.

The company’s strategic investments in expanding its regional footprint & enhancing its digital capabilities have played a pivotal role in sustaining growth momentum, despite a softer demand environment.

Segment Performance Review of Jubilant FoodWorks 

Jubilant FoodWorks’ segmentwise performance reflects a balanced approach towards growth across different business verticals:

• India Operations: The core business in India reported strong performance, with revenue from operations at ₹1,466.9 crore. The growth was driven by a surge in order volumes for Domino’s delivery services, which saw a 15.9% increase. However, dinein revenue declined by 5.6%, impacted by lower ticket sizes.

• International Business: Revenue from international operations stood at ₹460.5 crore, bolstered by the integration of DP Eurasia N.V. However, Domino’s Bangladesh faced a 5.3% decline in revenue due to temporary store closures amidst challenging conditions. The company noted that all stores have now resumed operations.

• Emerging Brands: The company continues to scale its emerging brands, including Popeyes, Dunkin', & Hong’s Kitchen. Popeyes added four new stores in the quarter, with plans to expand into top 3040 cities over the next 1218 months. Dunkin' & Hong’s Kitchen also showed steady growth, contributing to the overall increase in store count & revenue diversification.

The segmentwise performance underscores Jubilant FoodWorks’ diversified portfolio & its strategic efforts to enhance market share across different consumer segments.

Brokerage Overview of Jubilant FoodWorks Shares

The Q2 results have prompted varied reactions from leading brokerage firms, reflecting differing outlooks based on the company’s growth prospects & margin recovery:

• HDFC Securities: Maintained an 'Add' rating with a target price of ₹650, citing potential value creation through scaling newer formats such as Popeyes & Dunkin’. The brokerage remains optimistic about the company's longterm growth strategy.

• Motilal Oswal (MOFSL): Issued a 'Neutral' rating with a target price of ₹625, noting that while growth recovery appears gradual, operating margins are expected to recover slowly due to ongoing reinvestments.

• Nuvama Institutional Equities: Expressed a bullish view, highlighting Jubilant's strategic initiatives in delivery services & innovative marketing efforts. The brokerage raised its target price to ₹631, up from ₹568, based on the company’s turnaround potential.

• Emkay Global: Increased its target price to ₹680 per share, driven by improved margins in international business & strong performance in the Indian market. The firm highlighted Jubilant’s resilience in maintaining gross margins despite operational cost inflation.

Overall, brokerages are cautiously optimistic about Jubilant FoodWorks, with a consensus view that the company's strategic focus on delivery services & store expansion will drive future growth, albeit with slower margin recovery.

Conclusion

Jubilant FoodWorks has delivered a mixed set of results for Q2 FY25, with strong revenue growth overshadowed by declining profit margins. The company’s aggressive expansion strategy, coupled with strategic investments in digital capabilities & innovative marketing initiatives, has helped it capture market share in a competitive environment. While shortterm challenges persist, particularly around operating margins, the company’s longterm growth prospects remain intact, supported by a diversified portfolio & robust order volume growth. As brokerages adjust their outlooks, the general sentiment points towards a positive trajectory for Jubilant FoodWorks, making it a stock to watch in the QSR segment.

The report covers the financial performance, operational highlights, & market sentiment around Jubilant FoodWorks, providing a comprehensive analysis for potential investors & market watchers.