Jubilant FoodWorks regains its flavour, net profit surges 46% to Rs 96 cr

At a time when many investors were worried about the impact of online aggregators on listed food chains, Jubilant FoodWorks — the maker of Domino’s pizza — surprised the Street with a better-than-expected December quarter (Q3) performance.

Sales (operating revenue) rose 16.8 per cent year-on-year (YoY) to Rs 929.1 crore, while net profit surged 46.2 per cent to Rs 96.5 crore, as against analysts’ expectations of Rs 915 crore and Rs 84 crore, respectively. 

Strong same-store sales (SSS) growth of 14.6 per cent, ahead of estimates at 10-11 per cent expectations, and the ability to contain costs (especially employee-related) helped deliver the robust performance.

The SSS growth indicates the change in sales over a particular period, of stores that were in existence in the past comparable period.

During the September quarter (Q2) earnings season, Jubilant had pointed to the near-term pressure from online aggregators in terms of intense competition and employee cost. However, employee costs as a percentage of top line remained flat at the Q2 level of 19 per cent. It reduced 88 basis points YoY.

Use of technology to improve delivery efficiency, focused hiring efforts, and better retention helped control talent costs in Q3. 

The management highlighted that Jubilant’s own online assets played a dominant role in driving growth. It also believes that major challenges in manpower costs are now behind, improving earnings potential.

These, along with benign raw material costs — mainly of dairy products — led to a 115 bps expansion YoY in Ebitda (earnings before interest, tax, depreciation and amortisation) margin to 18.4 per cent, despite higher ‘other expenses’ (mainly on brand strengthening).

Though there could be an impact due to rising prices of some commodities, Jubilant is confident of protecting its margin profile, led by cost efficiency measures and a better product mix.

The tie-up with PepsiCo for beverages for 5 years, which has favourable margins at the gross level, along with marketing support, will give a boost to profitability. Also, massive store additions (35 Domino’s stores added in Q3) and new launches will help top line growth. 

However, some pressure on SSS due to new stores is possible.

The break-even of Dunkin’ Donuts added to Jubilant’s Q3 performance, and the trend is likely to continue. Following the results on Wednesday, the stock closed 0.3 per cent up at Rs 1,199. 

With an improving outlook for the company, there could be gains ahead.