Business Standard

Jubilant FoodWorks: Outperformance in question

Pick-up in same store sales growth and improvement in profitability are imperative to justify high valuation and outperformance of the stock

Related News

has slightly exceeded analysts’ estimates on sales growth but disappointed on the profitability front in the September 2012 quarter. This trend may continue for some more quarters as the company is still in the expansion phase, which includes growing the Dunkin’ Donuts business now. Given stretched valuation of 55 times FY13 estimated earnings, the (SSSG) needs to improve.

Growth slows, profits impacted
The company’s sales growth of 42 per cent year-on-year is a tad higher than the expected rate of around 41 per cent but is the lowest since the past eight quarters.

Store expansion (50 opened in the first half of 2012-13, including 26 in the September quarter) and price hike (though it partly affected volumes) helped. However, SSSG of 19.8 per cent, the lowest in the last 13 quarters, has come in lower than the expectations of 22-25 per cent. This is partly due to customers ordering lower-priced products.

Says Ajay Kaul, chief executive officer of the company, “Consumers are showings signs of not growing the frequency. They are not reducing the number of orders but the ticket-size is coming down.”

PROFIT GROWTH SLOWS
In Rs crore FY12 Q2’FY13
Net sales 1,017.5 342.0
% chg y-o-y 50.0 42.3
Operating profit 190.1 58.8
% chg y-o-y 58.7 34.6
Net profit 109.7 32.3
% chg y-o-y 52.3 30.0
Source: Company

The company’s performance on the profitability front was also disappointing, thanks to lower operating leverage on account of slowing SSSG, jump in expansion-related costs and opening of Dunkin’ Donuts (five stores now).

While analysts were expecting the operating profit margin to remain flat or slip marginally (by about 25-30 basis points), the same dropped by about 100 basis points to a seven quarter low of 17.2 per cent. Raw material costs were under control but employee costs (annual salary hikes) and expansion-related overheads like rent, among others (as percentage to sales), were up 150 basis points combined.

Weak operational performance was followed by jump in depreciation (store expansion) and taxation. Thus, even net profit margin declined 91 basis points and slipped below 10 per cent (9.4 per cent to be precise).

Store expansion-led growth
The company has increased its store addition target for Dominos from 100 earlier to 110 in FY13 (10 maintained for Dunkin’), a trend also seen in the past quarters.

While this reflects the strong opportunity (in Tier-2 and 3 cities) and will add to its topline, sustaining profitability is also important. Store expansion-related costs and new launches (read: higher promotions) will keep overall expenditure high.

Says Gautam Duggad, analyst, Motilal Oswal Securities, in a post-result comment, “New store opening will maintain momentum in sales growth, however, same store sales is important for margin improvement. For now, we maintain neutral on the stock largely due to premium valuation.” Dunkin’ Donuts (target of 80-100 stores in next five years) is at a very nascent stage to support profit performance.

The company is also expected to undertake price hike of 3.0-3.5 per cent in Domino’s Pizza, which may further affect volumes. In short, all is not hunky-dory for the company compared to the past.

Unless it is able to sustain higher SSSG and improve profitability, the high stock valuations may become difficult to sustain and so will the stock's outperformance.

Read more on:   
|
|
|
|
|

Jubilant FoodWorks: Outperformance in question

Pick-up in same store sales growth and improvement in profitability are imperative to justify high valuation and outperformance of the stock

Jubilant FoodWorks has slightly exceeded analysts’ estimates on sales growth but disappointed on the profitability front in the September 2012 quarter. This trend may continue for some more quarters as the company is still in the expansion phase, which includes growing the Dunkin’ Donuts business now. Given stretched valuation of 55 times FY13 estimated earnings, the same store sales growth (SSSG) needs to improve.

Jubilant FoodWorks has slightly exceeded analysts’ estimates on sales growth but disappointed on the profitability front in the September 2012 quarter. This trend may continue for some more quarters as the company is still in the expansion phase, which includes growing the Dunkin’ Donuts business now. Given stretched valuation of 55 times FY13 estimated earnings, the same store sales growth (SSSG) needs to improve.

Growth slows, profits impacted
The company’s sales growth of 42 per cent year-on-year is a tad higher than the expected rate of around 41 per cent but is the lowest since the past eight quarters.

Store expansion (50 opened in the first half of 2012-13, including 26 in the September quarter) and price hike (though it partly affected volumes) helped. However, SSSG of 19.8 per cent, the lowest in the last 13 quarters, has come in lower than the expectations of 22-25 per cent. This is partly due to customers ordering lower-priced products.

Says Ajay Kaul, chief executive officer of the company, “Consumers are showings signs of not growing the frequency. They are not reducing the number of orders but the ticket-size is coming down.”

PROFIT GROWTH SLOWS
In Rs crore FY12 Q2’FY13
Net sales 1,017.5 342.0
% chg y-o-y 50.0 42.3
Operating profit 190.1 58.8
% chg y-o-y 58.7 34.6
Net profit 109.7 32.3
% chg y-o-y 52.3 30.0
Source: Company

The company’s performance on the profitability front was also disappointing, thanks to lower operating leverage on account of slowing SSSG, jump in expansion-related costs and opening of Dunkin’ Donuts (five stores now).

While analysts were expecting the operating profit margin to remain flat or slip marginally (by about 25-30 basis points), the same dropped by about 100 basis points to a seven quarter low of 17.2 per cent. Raw material costs were under control but employee costs (annual salary hikes) and expansion-related overheads like rent, among others (as percentage to sales), were up 150 basis points combined.

Weak operational performance was followed by jump in depreciation (store expansion) and taxation. Thus, even net profit margin declined 91 basis points and slipped below 10 per cent (9.4 per cent to be precise).

Store expansion-led growth
The company has increased its store addition target for Dominos from 100 earlier to 110 in FY13 (10 maintained for Dunkin’), a trend also seen in the past quarters.

While this reflects the strong opportunity (in Tier-2 and 3 cities) and will add to its topline, sustaining profitability is also important. Store expansion-related costs and new launches (read: higher promotions) will keep overall expenditure high.

Says Gautam Duggad, analyst, Motilal Oswal Securities, in a post-result comment, “New store opening will maintain momentum in sales growth, however, same store sales is important for margin improvement. For now, we maintain neutral on the stock largely due to premium valuation.” Dunkin’ Donuts (target of 80-100 stores in next five years) is at a very nascent stage to support profit performance.

The company is also expected to undertake price hike of 3.0-3.5 per cent in Domino’s Pizza, which may further affect volumes. In short, all is not hunky-dory for the company compared to the past.

Unless it is able to sustain higher SSSG and improve profitability, the high stock valuations may become difficult to sustain and so will the stock\'s outperformance.

image

Read More

Sebi exempts CARE Ratings from IPO grading process

The Securities and Exchange Board of India (Sebi) has exempted rating agency Credit Analysis and Research (CARE Ratings) from the mandatory grading ...

Recommended for you

Advertisements

Quick Links

Market News

Nearly 400 listed cos yet to appoint women directors

More companies expected to appoint women directors before April 1 deadline

Top 10 companies shed over Rs 1 lakh cr in m-cap

TCS top loser whose market capitalisation saw an erosion of Rs 18,304 cr

Foreign fund inflows hit $13 bn

Analysts expect the inflows to accelerate further in view of Parliament clearing bills related to insurance, coal allocation and mining

Commexes' turnover drops 41% till March 15 of FY15

Their business stood at Rs 98.57 lakh cr in same period of corresponding year

Markets fall third straight week on fears of capital outflows

Emerging geo-political tensions in the Middle-East and prospects of hike in US interest rates dampened sentiment

 

Back to Top