Q3 uptick key to reversal of Jubilant's fortunes

Weak like-for-like (LFL) growth in the July-September quarter of 2023-24 (Q2FY24), near-term demand worries and higher costs led to cuts in profit estimates for FY24 and FY25 of Jubilant FoodWorks.

Some brokerages have downgraded its ratings, and this was accompanied by ea­rn­ings revision by as much as 18 per cent.

Given the multiple concerns, the stock of the pizza market leader in the organised quick service restaurant segment slipped 4.3 per cent to Rs 505.9.

The company reported a 4.5 per cent growth in revenues over the year ago quarter and the growth was led by opening of new stores even as like-for-like growth remained weak falling 1.3 per cent.

This coupled with the lack of operating leverage led to a 10 per cent drop in operating profit and a 35 per cent dip in net profit.

While the gross margins were higher by 20 basis points year-on-year (Y-o-Y), the operating profit margins declined by 350 basis points.

The company is eyeing 15 per cent revenue growth in the long term led by 5-6 per cent improvement in LFL for Dominos in the long term and 10-12 per cent growth coming from the addition of new stores.

Commenting on the results, ICICI Securities believes the recovery in the dine-in business is uninspiring, while operating margins remained under stress due to negative operating leverage.

Analysts led by Manoj Menon of the brokerage, have, however, maintained a positive stance with a target price of Rs 620 given that all the levers for growth (20-minute delivery, store-re-imagination, loyalty programme, menu regi­o­nalisation) are in the advanced stages of completion.

Antique Research, which has cut its estimates by 9-18 per cent for FY24 and FY25, expects a gradual recovery in the performance, which has been impacted on account of the general slowdown in discretionary spending, higher competitive intensity, and increased consumer preference for the dine-in format.

The brokerage believes margins will rem­ain under pressure due to elevated commodity prices, negative operating leverage, and step-up in promotional activit­ies.

It has downgraded the stock to sell wi­th a target price of Rs 435 (previously Rs 477).

While Prabhudas Lilladher Research has cut its earnings estimates, it believes the worst is over given expectations of higher demand during festival season and the Cricket World Cup and incremental improvement from lower margins in base quarters.

Analysts led by Amnish Aggarwal of the brokerage say that the December quarter trends will hold key to gauge the extent of rebound in profits.

They have a ‘hold’ rating with a target price of Rs 505 a share.

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