Jubilant FoodWorks: Analysts cut earnings forecasts by up to 14% post Q3

Jubilant's decision to stop disclosing SSSG is a negative development, and any further deterioration in disclosures by the company could impact its multiples in the future, analysts said

Analysts have turned cautious on Jubilant FoodWorks’ near-term trajectory after its weaker-than-expected December quarter (Q3FY22) results.

The operator of quick service restaurant (QSR) chains like Domino's Pizza and Dunkin' Donuts reported a 7.48 per cent year-on-year (YoY) increase in its consolidated net profit to Rs 133.19 crore for the third quarter ended December 2021. Its revenue from operations at Rs 1,210.77 crore, a jump of 13.23 per cent YoY.

Gross margin decreased by 70 bps YoY to 77.6 per cent, affected by higher input prices. However, operating efficiencies and variabilisation of fixed cost aided the company to post 24 bps improvement in operating profit margin (OPM) to 26.6 per cent.

However, the company's decision to not disclose same-store-sales growth (SSSG) took analysts by surprise. Starting Q3FY22, the company would only disclose Like-for-Like (LFL) growth as it believes that LFL (i.e., same store growth for non-split stores) is a "far accurate indicator of their underlying growth".

"The decision to stop the SSSG disclosure is puzzling, especially as the management has commented that there is no large difference between SSSG and LFL, and the gap between the two is unlikely to increase," analysts at Motilal Oswal Financial Services said in a report.

Jubilant's decision to stop disclosing SSSG is a negative development, and any further deterioration in disclosures by the company could impact its multiples in the future, they added.

Moreover, a weak Q3 show on account of Covid-related restrictions, along with expectations that January-March quarter (Q4FY22) could also see muted growth due to localized restrictions in January, has pushed analysts to cut their earnings expectations for the near-term.

"Jubilant Foodworks Limited posted a soft Q3, affected by lower sales in the past 12-15 days of December due to lower operational hours… Q4 will see the impact of lower sales as January was affected by lockdown restriction in most parts of the country. Further, addition of new stores in existing store vicinity will impact sales of nearby mature stores in the near-term," said analysts at Sharekhan.

The brokerage has reduced its earnings estimates for FY22 and FY23 by 3 per cent and 5 per cent, respectively, to factor-in lower same store sales. It, however, has broadly maintained them for FY24.

Kotak Institutional Equities, too, has moderated its average daily sales (ADS) forecast and cut FY22-24 revenues, EBITDA and earning estimates by about 3-11 per cent.

MOFSL, meanwhile, has cut FY22/FY23/FY24 EPS forecasts by 8 per cent/14 per cent/15 per cent due to the impact of further Covid restrictions in Q4FY22, and some likely pressure on SSSG/LFL over the next few quarters on account of the ongoing splitting of stores.

Among global brokerages, Credit Suisse has lowered its FY22-24 earnings expectations by 7-9 per cent and CLSA has cut its earnings expectations by 12-14 per cent for the same period as the 2-year growth trend has remained muted, intensifying competition and slow progress on new initiatives.

That said, analysts believe Jubilant Foods' long-term growth trajectory remains intact as the company is adding record stores.

"With 75 new Domino’s stores, Q3FY22 saw record new store openings. JFL forayed into 17 new cities during the quarter. Also, it remains ahead of its 150-175 store addition guidance and is on course to add 200 stores," said Edelweiss Securities.

The brokerage has kept its estimates intact and has maintained its target EV/EBITDA multiple (48x FY23E) with a target price of Rs 5,036 and 'BUY' call. "We believe, in addition to continued store expansion, Popeyes' scale-up can drive a further rerating for JFL," it said.

Those at Sharekhan added: JFL is banking on consistent growth in Domino’s revenue, scale-up in emerging brands through higher investments, increased presence in international markets, and making investments in high-potential businesses to generate better returns for its shareholders in the long run.

"The stock has corrected by 27 per cent from its recent high and any further correction can be considered as a good buying opportunity. We maintain our Buy recommendation on the stock with an unchanged price target of Rs 4,707," it said.

On Thursday, the stock tumbled 6.1 per cent to Rs 3,097 apiece in the intra-day, extending its 4.4 per cent fall seen on Wednesday. It, however, trimmed losses later and was down 1.6 per cent at Rs 3,248 at 10:50 AM. In comparison, the S&P BSE Sensex was down 0.4 per cent.

Source: Brokerage Reports