With growth momentum yet to see a pick-up, margins for Jubilant FoodWorks continued to be under significant pressure during the September quarter. Yet its share price jumped over 16% on Tuesday just because it decided to increase product price?
Jubilant FoodWorks Ltd (JFL), which runs the Dominos and Dunkin’ Donuts brands in India, has reported poor results during its third successive quarter. However, despite the sharp deterioration, on Tuesday its share price jumped over 16% to Rs1,388.70, just below its 52-week high on the BSE. According to media reports, the jump was due to confirmation of product price hike by the company management.
JFL management plans to reduce promotions such as “buy one get one” on Wednesdays that has been in place for the past few months. While promotional spends have been stepped up in this quarter, starting mid-November in to the festive season, the company will bring them down.
Nomura, while reiterating its 'reduce' rating on JFL, said, with growth momentum yet to see a pick-up, margins continuing to be under significant pressure and valuations at 40.4x FY15F for the company. For the quarter to end-September, JFL reported just a 3% increase in its net profit to Rs33.24 crore from Rs32.35 even as its total revenues, including sales jumped 28% to Rs436.70 crore, same period last year. During the second quarter, the company reported total expenditure of Rs371.40 crore. JFL attributed the hike to increased input cost inflation, higher level of sales promotions and spends on marketing.
"Jubilant FoodWorks’ Q2FY14 results were marginally below expectations at the top line but the real negative surprise was on margins, which came in at 15% down 220 basis points (bps) versus our estimate of 16.5% down 70bps. Same-store sales growth (SSSG) came in at 6.6% in Q2FY12, which is only marginally ahead of the 6.3% they delivered in Q1FY14. There did not seem to be any pick-up in growth momentum during the quarter," it said.
Nomura said, according to the feedback from JFL management, full year number on SSSG is likely to come in lower than 8% to 10% it had guided to earlier. For the first half of FY14, it was 6.5%, which means management does not expect a strong pick up in the near term, Nomura said.
JFL revised upward its target to open 135 Domino's Pizza restaurants in FY14 compared with 125 earlier. During Q1, the company opened 74 restaurants. Similarly, the company increased its target to 20 from 18 for opening Dunkin Donuts store in the country. Jubilant is entering a period of higher costs and uncertain revenues. Are investors who are jumping into the stock now being too optimistic? Jubilant FoodWorks is trading at 16.49 times of its FY13 net profit.
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