After strong Q3 show, Jubilant FoodWorks is back in expansion mode

While revenue growth is expected to stay strong, margins could come under pressure in the near term

Jubilant FoodWorks (Jubilant), which runs the Domino’s chain of stores, signalled a recovery with revenues back to pre-Covid levels in the December quarter. Led by an uptick in convenience sales, the company’s revenues came in better than estimates. The sharp 64 per cent uptick in takeaway and the 18.5 per cent growth in delivery helped while dine-in sales continued to be sluggish with a recovery at 41 per cent. The company highlighted that there is a restriction on capacity as it is capped at 50 per cent. The management however believes that removal of restrictions and normalcy would lead to higher dine-in sales going ahead. 

Jubilant continues to outperform its closest listed peer, Westlife Development which operates the McDonald’s chain. While Jubilant’s revenue growth was flattish as compared to the year ago levels, Westlife had reported a 25 per cent decline over the year ago quarter.

Though the recovery helped the company report an improvement in operating profit margins which were up 243 basis points year-on-year to 26.4 per cent, this was lower than estimates. Margins were 30 basis points lower than the September quarter given the increase in food inflation and dairy prices. Input cost inflation is expected to remain in the near term. 

In addition to this, employee costs rose 6 per cent YoY and surged over 31 per cent sequentially, given the order volumes, higher headcount in the technology segment and special incentives for staff. The company highlighted that at 7.4 million it had its highest application downloads in a quarter and has now launched a hindi version. 

As compared to the muted store additions in the last three quarters, the company added 50 more outlets in the quarter taking the total to 1,314 units at the end of the quarter. Jubilant indicated that it would continue to increase the pace of additions going ahead as it moves away from recovery to growth transition. 

While the stock corrected by 2 per cent post results, it is up 23 per cent over the last three months. Given the recovery and growth plans, investors with a long term horizon can add the stock to their portfolios on dips.