Jubilant FoodWorks: 'Delivery is king', but overall sales crucial for stock

Firm expects softness in dairy prices to offer comfort

The extended lockdown has eaten into Jubilant FoodWorks’ March 2020 quarter (Q4) performance. However, a key takeaway was that restaurants with a strong self-owned delivery channel weathered the storm more efficiently. 

Not only are their own delivery set-ups expected to help reduce the impact, they will also help register faster business recovery amid changing consumer behaviour (away from dine-ins), even after the lockdown is lifted. 

Jubilant’s management says that while the dine-in business will stage a comeback at some point in time, growth in delivery-based business will be higher. “At least in the medium term, takeaway/carry-out channel will replace dine-in,” it said. 

The firm has started seeing its delivery business recover to pre-Covid levels in smaller towns, and the same is expected for bigger cities. Deliveries, including takeaways, account for two-thirds of Jubilant’s overall business. According to Abneesh Roy of Edelweiss Securities, “In the current situation, Jubilant is a clear winner with strong delivery infrastructure, which will help faster business recovery, given that a lot of small players will shut shop.” 

 

 

In Q4, however, Covid-led disruptions hurt Jubliant’s overall business, with same-store-sales (SSS) growth falling 3.4 per cent — the lowest in 12 quarters. 

While this was better than the Street’s expectations of a 10 per cent decline — due to the strong sales recorded in January and February (7-13 per cent SSS growth) — March was significantly impacted, with a 28.4 per cent fall in SSS. 

The decline in SSS weighed on overall performance. Top line grew at a slower pace of 3.8 per cent YoY to Rs 898 crore, with profit before tax (excluding exceptional expenses of Rs 32.3 crore) falling sharply by 53.3 per cent YoY to Rs 57.3 crore. The latter was lower than consensus estimates of Rs 67.9 crore.

High input costs — mainly of dairy products — and weak operating leverage, along with lower sales, impacted operating profit. 

Without considering the IND-AS 116 impact — applicable from FY20 — the comparable Ebitda margin contracted by 686 bps to 10.2 per cent, over the year-ago period. 

The management expects cost efficiency to improve and some softness in dairy prices to offer comfort. 

While improving traction in its delivery-based business is a positive, how the overall sales pan out will be crucial for the stock, currently trading at 53x its FY21 estimated earnings.