Margin pressures may cap gains for Jubilant FoodWorks despite strong growth

The stock of the country’s largest listed quick-service restaurant (QSR) chain, Jubilant FoodWorks, has fallen over 10 per cent in the past three months. While the company continues to outperform the sector with healthy double-digit growth, margins have been trending down, prompting some brokerages to cut earnings estimates for 2025-26 (FY26) through 2027-28. Valuations, which remain on the expensive side, have also weighed on the stock. Going forward, the company’s ability to sustain growth in a weak environment and its margin trajectory will be key determinants of any upside.

 

In a pre-quarter update for FY26 July-September quarter (Q2), Jubilant reported standalone revenue growth of 15.8 per cent to ₹1,698 crore, while consolidated revenues rose 19.7 per cent to ₹2,304 crore. Like-for-like growth for Domino’s India operations stood at 9.1 per cent, with Türkiye’s like-for-like growth at 5.6 per cent.

 

Growth in India was aided by the net addition of 81 Domino’s stores in Q2, taking the first-half FY26 total to 142 new outlets and raising the overall store count to 2,321. Over the past year, Jubilant has outperformed peers, thanks to double-digit like-for-like growth, while competitors have struggled to post low single-digit growth amid a tough consumption environment.

 

New products and innovations have increased footfall, while a reduction in free delivery fees from ₹149 to ₹99 has driven revenue and traffic in the delivery channel. The segment is expected to continue outperforming peers in the near term.

 

Analysts at Motilal Oswal, led by Naveen Trivedi, note that Jubilant’s focus on customer acquisition and increasing order frequency has underpinned strong growth in the delivery segment. Value offerings and product innovation are expected to drive order growth through FY26.

 

A potential boost for both the sector and the company could come from a Goods and Services Tax 2.0-driven relief, which may increase disposable incomes and benefit discretionary categories such as QSR, alongside a possible consumption recovery in the October-December quarter (Q3).

 

While growth has been robust so far, the base in FY26 second half is unfavourable, which could weigh on sales growth. The company had posted 19 per cent revenue growth in Q3 and fourth quarter of FY25, driven by 12 per cent like-for-like growth. Management commentary on this outlook will be closely watched. Motilal Oswal maintains a ‘neutral’ rating, citing expensive valuations.

 

Margins will also be under Street scrutiny. Gross margin contracted 199 basis points (bps) year-on-year (Y-o-Y) in Q1FY26, while operating profit margins fell 33 bps to 19 per cent. Both metrics have trended downwards over the past three quarters.

 

Analysts at Antique Stock Broking, led by Abhijeet Kundu, warn that gross margin-dilutive products, combined with efforts to maintain the price-value equation, could limit near-term profitability. They expect a standalone operating profit margin contraction of 86 bps to 18.5 per cent in Q2, driven by a 156 bps Y-o-Y gross margin decline.

 

However, this dilution is expected to be gradually offset by operational efficiencies and leverage. Jubilant is working to improve efficiency through initiatives such as transitioning to electric vehicles and reducing capital expenditure per store by 15 per cent from the current ₹1 crore per outlet.

 

While the brokerage expects the company to maintain top line momentum, it retains a ‘hold’ rating due to muted near-term profitability amid value-focused strategies and aggressive initiatives, including the recent reduction in the free delivery threshold.