Jubilant Foodworks’ Q4 shows ‘delivery is king’

Firm expects softness in dairy prices to offer comfort

The extended lockdown has eaten into Jubilant Foodworks’ March 2020 quarter (Q4) performance. However, a key takeaway was that restaurants with a strong self-owned delivery channel weathered the storm more efficiently.

Not only are their own deliver y set-ups expected to help reduce the impact, they will also help register faster business recovery amid changing consumer behaviour (away from dine-ins), even after the lockdown is lifted.

Jubilant’s management says that while the dine-in business will stage a comeback at some point in time, growth in delivery-based business will be higher. “At least in the medium term, takeaway/carry-out channel will replace dine-in,” it said.

The firm has started seeing its delivery business recover to pre-covid levels in smaller towns, and the same is expected for bigger cities. Deliveries, including takeaways, account for two-thirds of Jubilant’s overall business. According to Abneesh Roy of Edelweiss Securities, “In the current situation, Jubilant is a clear winner with strong delivery infrastructure, which will help faster business recovery, given that a lot of small players will shut shop.”

In Q4, however, Covid-led disruptions hurt Jubliant’s overall business, with samestore-sales (SSS) growth falling 3.4 per cent — the lowest in 12 quarters.

While this was better than the Street’s expectations of a 10 per cent decline — due to the strong sales recorded in January and February (7-13 per cent SSS growth) — March was significantly impacted, with a 28.4 per cent fall in SSS.

The decline in SSS weighed on overall performance. Top line grew at a slower pace of 3.8 per cent YOY to ~898 crore, with profit before tax (excluding exceptional expenses of ~32.3 crore) falling sharply by 53.3 per cent YOY to ~57.3 crore. The latter was lower than consensus estimates of ~67.9 crore.

High input costs — mainly of dairy products — and weak operating leverage, along with lower sales, impacted operating profit.

Without considering the IND-AS 116 impact — applicable from FY20 — the comparable Ebitda margin contracted by 686 bps to 10.2 per cent, over the year-ago period.

The management expects cost efficiency to improve and some softness in dairy prices to offer comfort.

While improving traction in its deliver y-based business is a positive, how the overall sales pan out will be crucial for the stock, currently trading at 53x its FY21 estimated earnings.