New offerings boost for Jubilant FoodWorks

Analysts expect policies by the new management will sustain same-store sales growth, while prudence in store expansion will help control costs

The stock of Jubiliant FoodWorks gained over 4 per cent trade on Friday and hit a fresh 52-week after a series of upgrades and outperform ratings by foreign and domestic brokerages. Analysts are bullish on the stock on expectations that the policies by the new management will lead to a sustained same store sales growth in the coming quarters while being prudent with store expansion will help control costs. After a few quarters of lackluster performance, the company which offers its products through the Domino's Pizza and Dunkin' Donuts franchise had posted strong results in the June quarter pushing revenues up by 11.5 per cent year-on-year on the back of same store sales (SSS) growth of 6.5 per cent.

Compiled by BS Research Bureau

The trend observed in the June quarter is expected to continue into the September quarter led by SSS growth of 5 per cent. Goldman Sachs expect the company to post September quarter sales growth of 9 per cent. In addition to the improved demand in the festive season, higher growth is on account of refreshed menus and addition of ten new stores. The analysts at the brokerage are positive on the company given the steps take to drive SSS growth through innovation in the menu, improving affordability by adding toppings to pizzas without increasing prices, and rationalising store openings. Analysts led by Avi Mehta of IIFL too say that Jubilant's focus on improving its value for money positioning and cost control initiatives place it well to benefit from demand pickup.

The other area which is expected to help the company is cost control measures. In Q1FY18, for example, the company added eight Domino's outlets (new openings less those shut down) compared to the previous average of 35 stores per quarter. For the full year (FY18) the company is expected to add 40-50 stores as compared to 91 in FY17 and 150 in FY16. It is also closing down loss making Dunkin' Donuts stores with Q1FY18 count of closed stores standing at eight. It expects to cut losses in Dunkin' Donuts by 50 per cent in FY18 and breakeven by FY19.

On the back of higher sales and lower costs, margins in the June quarter improved by 220 basis points year on year to 11.7 per cent. Analysts expect margins to expand by 285 basis points year on year in the September quarter due to lower promotions, better leverage and cost saving initiatives.

Given that the stock has gained about 11 per cent since the start of October, there is a limited upside from these levels. Investors can look at the scrip on dips.