Jubilant Foodworks outperforms peers with higher delivery share

Stock gained over 86% from March low despite muted Q1 show

Though Jubilant Foodworks’ (Jubilant) June quarter (Q1) was muted because of the Covid-19-induced lockdown, its higher share of deliveries/takeaways helped it edge past listed peer Westlife Development (Westlife).

This explains why the stock was more in demand than that of Westlife — while Jubilant gained over 86 per cent from its March lows, Westlife’s uptick was a third of that. Jubilant is the Indian franchisee of Domino’s Pizza and Westlife runs Mcdonald’s India (South and West) operations.

Jubilant’s Q1 update indicates that its operations reached about 85 per cent of its year-ago levels in August, led by faster growth in the delivery segment. This segment’s growth was around 110-155 per cent of year-ago levels. Analysts believe Jubilant’s overall business recovery is better than that of Westlife, given deliveries account for around two-thirds of Jubilant’s overall business, compared to around 50 per cent for Westlife.

According to Shirish Pardeshi, analyst at Centrum Broking, “While the organised, branded restaurants are in relatively better shape, Jubilant’s higher share of delivery channels should help in faster business recovery and market share gains, compared to Westlife.” He is sceptical of recovery in the dine-in business anytime soon. This is more alarming for Westlife, which still generates half of its business from dine-in, while Jubilant’s share is a third of revenues.

Analysts at Spark Capital expect Jubilant to gain share from both organised and unorganised players, backed by entrenched brand equity. This is reflected in the current recovery and market share gain in the aggregators’ platform as well. Spark Capital has upgraded the stock to ‘buy’, from ‘add’.

The higher delivery share is also boosting Jubilant’s gross profitability as the company has started charging for delivery. This, along with benign raw material costs and lower discounting, led to the highest-ever gross profit margin of 78 per cent in Q1, 257-basis points higher yearon-year (YOY). Strong gross profit margin and stringent cost control (rent negotiation and employee cost) also protected the company’s operating profit margin.

Despite weak operating leverage, Jubilant reported ~24.1 crore of operating profit, compared to the Street’s expectation of ~17.5 crore of loss. While Jubilant’s revenue was down 59.5 per cent YOY to ~380.3 crore, led by 61.4 per cent decline in same-store sales, it posted ~95.9 crore loss before tax.

How margin gains from delivery charges and cost control benefits sustain will have to be monitored. JM Financial believes rental waivers will not remain as high once revenue recovers. Further, customers might not accept delivery charges once the situation returns to normal.

Experts believe the company has strengthened its business model in terms of understanding customer preferences and pricing. In fact, its foray into the FMCG segment with the launch of readyto-cook products (masala paste, gravy mixtures, and cooking sauces) under the Chefboss brand might receive good response, given its experience in the food segment and strong delivery network.

These positives indicate steady revenue and earnings growth potential for Jubilant.