Jubilant FoodWorks: Jubilant’s bet on dine-ins puts it in crosshairs with Zomato goals

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NEW DELHI: June quarter earnings of quick-service restaurant Jubilant FoodWorks earned it ‘buy’ ratings from analysts.

Jubilant said it saw 6.8 million app downloads during the June quarter and that there was a significant increase in the contribution of its own app in delivery sales. Active users also increased for the quarter, it said.

At the same time, the quick-service restaurant (QSR) increased store expansion guidance to 150–175 for FY22 from 135 earlier, despite adding just 29 stores in the first quarter, which suggests it is betting big on dine-in demand to come back soon.

“Dalal Street now expects dine-in would come back once the country opens up and provide further impetus to Jubilant’s revenue going ahead. But the question is, once consumers start to freely step out again, would order frequencies and order sizes come down?” JM Financial asked.

Investors would be looking for this answer from Jubilant FoodWorks, and more so for Zomato, which is all set to trade on the Indian bourses over the next few days.

Brokerages such as Edelweiss said

and Zomato, though not strictly comparable, have two common grounds: control over the delivery experience and usage of customer data to drive growth. They largely stayed positive on Jubilant FoodWorks’ intent to become a food tech company and its upping store addition guidance.

On Thursday, the stock climbed 8.88 per cent to hit a high of Rs 3,335 on BSE.

The Domino’s operator reported a net profit of Rs 62.6 crore for the June quarter compared with a net loss of Rs 72.6 crore in the year-ago quarter. Revenue from operations surged 131 per cent for the quarter to Rs 879 crore, as localised lockdowns did not affect businesses the way the national lockdown did in the year-ago quarter. Ebitda margin for the quarter came in at 24.1 per cent, higher than analyst expectations of 21 per cent.

Following the guidance, Motilal Oswal Securities has upgraded the stock’s rating to ‘buy’ with a price target of Rs 3,630, valuing it at 60 times September FY23 EPS. Edelweiss finds the stock Rs 3,664 worthy, as it believes Jubilant’s delivery-focused business model is driving its industry-leading recovery, and insulates it from further Covid disruptions.

Analysts said online food aggregators such as Zomato follow a varied commission structure based on the restaurant’s presence. “While non-chain restaurants pay a much higher commission, outlets that are part of a chain, shell out lower. The commission rates vary anywhere in 18–40 per cent of the order value,” they said.

Jubilant FoodWorks, which only uses the app for origination, and not delivery, only pays commission. That said, business generated from food tech players is naturally of lower margin.

“While Jubilant’s app penetration and delivery are one of the core tenets of its business model, it is fundamentally different from Zomato. For Jubilant, the app is an enabler to its existing store network, whereas Zomato’s business model is centred on its app/website, which is an important channel for various restaurants,” Edelweiss said.

The brokerage said players like Zomato and Swiggy will positively expand the overall ordering market, and believes their promotional and marketing spends may not dent the margins of Jubilant Foodworks.

ICICI Securities has an ‘add’ rating on the stock with a target of Rs 3,500. Foreign brokerage JPMorgan sees the stock at Rs 3,635 while Citi has a target of Rs 3,315 on the stock.

“Jubilant has taken a modest hike in product prices and delivery charges at Q1-end to wade off the impact of raw material/fuel inflation. Going ahead, it expects to sustain Ebitda margins with plans to invest into digital capabilities,” said Emkay Global, which said strong cost control in the June quarter and management commentary on aggressive store additions and thrust on digital and tech initiatives were key positives.

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