Jubilant FoodWorks' Sept quarter fails to satisfy high investor appetite

After rallying ahead of results, stock sees a steep 8.7% fall on Wednesday

Jubilant FoodWorks delivered good results in the second quarter of financial year 2021-22 (Q2FY22) but failed to meet high investor expectations. As a result, the extremely highly-valued stock saw sustained selling and fell a steep 8.7 per cent on Wednesday.

The disappointment was mostly on same-store sales growth (SSSG) in Domino’s, which was much lower than consensus estimates. Investors were expecting 30-35 per cent SSSG year-on-year (YoY), whereas it was 26.3 per cent. Another letdown was lower like-for-like growth for stores opened before the previous fiscal, which was 29 per cent. The third area of disappointment was a small dip in operating margin (Ebitda to sales) YoY to 25.8 per cent, versus 26.5 per cent in Q2FY21. The Ebitda margins, though, were up quarter-on-quarter versus 23.8 per cent in Q1.

In many other ways, the results seemed to meet, or beat, expectations. Consoli­dated revenues were up 36.7 per cent YoY and 24.9 per cent QoQ at Rs 1,116.2 crore. Ebitda was up 33 per cent YoY and 35.7 per cent QoQ. Profit after tax (PAT) rose 58.1 per cent YoY and 73.5 per cent QoQ to Rs 119.8 crore. The PAT margin expanded to 10.7 per cent over 9.3 per cent YoY and 7.7 per cent QoQ.

The company seems on target to open 150-plus new stores this fiscal. It opened 20 new stores in Q1, and opened a record 60 new stores in Q2. The customer base has expanded with app downloads of around 7.2 million in Q2, which added over 10 per cent to the total base of 71.3 million.

The citywide coverage increased to 307 cities, versus 298 cities in the previous quarter.

Inflation hit margins. This was seen in food and fuel costs. On a YoY basis, raw material expenses rose 43 per cent, while overall expenditure was up 38 per cent. Both those growth rates, which were affected by high inflation, exceeded revenue growth rates. The company professed to be satisfied with growth rates in new brands – Hong’s Kitchen and Ekdum! as well as in Dunkin Donuts.

The company is investing in international franchises. It has initiated a reverse book-building process to increase its stake in DP Eurasia (DPEU), which is listed on the London Stock Exchange. DPEU is the master Domino’s franchisee in Azerbaijan, Turkey, Russia and Georgia. Jubilant held an indirect 32.8 per cent stake and it will push its stake in DPEU to 49.9 per cent by end-October.

It is also raising its stake in the Bangladesh operator, Jubilant Golden Harvest, to 90 per cent by exercising a call option to buy an additional 39 per cent stake (it already held 51 per cent). It is also pushing to increase its grasp of digital data-science technology, which should impart more efficiency.

Technically speaking, the stock started trading above Rs 4,000 in early September. It shot up to a record high of Rs 4,590 on Monday. The sell-off has now pulled it down to Rs 3,965. The delivery to trade ratio is around 20 per cent in the cash segment, which is not bad. In the derivatives segment, there’s a lot of open interest in the 3,700 put and the 3,500 put. If the sell-off continues, there will be support at those two levels.