JUBLFOODNSEQ3 FY2023February 7, 2023

Jubilant Foodworks Limited

11,925words

96turns

7analyst exchanges

1executives

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Management on call

Deepak Jajodia

Vice President (Finance), Jubilant FoodWorks Limited.

Key numbers — 40 extracted

10.3%

sult, Domino’s India reported a flat LFL growth in the quarter and our overall revenue growth was 10.3%, low by our own standards. Our team is focused on getting the LFL growth back - by focusing on pr

rs,

focused on getting the LFL growth back - by focusing on providing excellent service to our customers, doubling down on our digital assets, enrolling customers in the loyalty program and carefully plan

9.4 million

n driving our digital agenda, which has helped us deliver all-time record app installs and MAU at 9.4 million and 11.3 million, respectively. Cumulative enrollments to Domino’s Cheesy Rewards crossed 10.6 mi

11.3 million

gital agenda, which has helped us deliver all-time record app installs and MAU at 9.4 million and 11.3 million, respectively. Cumulative enrollments to Domino’s Cheesy Rewards crossed 10.6 million mark in Dec

10.6 million

million and 11.3 million, respectively. Cumulative enrollments to Domino’s Cheesy Rewards crossed 10.6 million mark in December and order contribution from loyal members reached 39%. We continue to add stor

39%

y Rewards crossed 10.6 million mark in December and order contribution from loyal members reached 39%. We continue to add stores at a rapid pace stores in India and have picked up pace in Sri Lanka

Rs. 13,166 million

y strategy and allied priorities with you before turning to Q&A. The Revenue from Operations of Rs. 13,166 million grew by 10.3% versus the prior year. In Dominos, revenue growth was order driven. The Like-for-Li

0.3%

the prior year. In Dominos, revenue growth was order driven. The Like-for-Like growth came in at 0.3%. The historic high inflation in cheese and flour prices had significantly impacted our gross marg

75.5%

flation in cheese and flour prices had significantly impacted our gross margins, which came in at 75.5%, lower by 213 bps year-on-year and 77 bps quarter-on-quarter. EBITDA was at Rs. 2,900 million, wh

213 bps

e and flour prices had significantly impacted our gross margins, which came in at 75.5%, lower by 213 bps year-on-year and 77 bps quarter-on-quarter. EBITDA was at Rs. 2,900 million, which was lower by 8

77 bps

gnificantly impacted our gross margins, which came in at 75.5%, lower by 213 bps year-on-year and 77 bps quarter-on-quarter. EBITDA was at Rs. 2,900 million, which was lower by 8.6% versus the prior yea

Rs. 2,900 million

hich came in at 75.5%, lower by 213 bps year-on-year and 77 bps quarter-on-quarter. EBITDA was at Rs. 2,900 million, which was lower by 8.6% versus the prior year. The EBITDA margin came in at 22.0%, lower by 457

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Guidance — 20 items

Deepak Jajodia

opening

“After the opening remarks from the management, the forum will be open for the question-and-answer session.”

Hari Bhartia

opening

“Let me now turn over to Sameer to share quarter’s highlights and plan to bring LFL growth back.”

Our targeted intervention for the same are two-fold

opening

“From kitchen operations, to supply chain and logistics, procurement to project management, and to last mile operations, across brands and countries we have to have a JFL’s way of execution – ‘The JFL Way’.”

Our targeted intervention for the same are two-fold

opening

“One critical outcome of this priority will be continuous improvement across cost lines and productivity.”

Ashish Goenka

opening

“Yes, just to add we will continue to follow demand because we don’t want to slowdown this virtuous cycle of growth but we will keep recalibrating and evaluating it every quarter as Sameer says there is no number to chase here but I think only thing will be chasing is demand or following demand so I think that is the guiding philosophy or principal that we are operating with.”

Ashish Goenka

opening

“But I think we will be doing a great disservice to the business and taking a very shortsighted view if we were not to split stores, which really need a split while keeping the customer in mind, and also the financial model works pretty well.”

Ashish Goenka

opening

“So we will be far more stringent in the way we look at splitting stores.”

Arnab Mitra

opening

“My question was also that this target of getting to 20 minute delivery.”

Ashish Goenka

opening

“So I think gross margin, by and large are currently governed by the commodity cycle and we do expect that in the coming few quarters it should 10 stabilize or start softening a bit.”

Ashish Goenka

opening

“One, I think in current uncertain both the demand and cost environment, I think it is very difficult for us to give any sort of guidance.”

Risks & concerns — 15 flagged

You have alluded to the slowdown in general, but are there any specific issue points either say channel wise or city wise that maybe we feel we have seen a deeper slowdown.

— Nihal Jham

6 Sameer Khetarpal: Yes, to me, I see this as an opportunity in fact I think as people are becoming more mobile so take for example we see robust demand now on moving trains; to me it also presents an opportunity to double down on our Dine-in channel and that is where I see as an opportunity and not necessarily a slowdown, because on the delivery side loyalty, app, “Tees se Bees” all of these are accelerating that I think we need to have a sharper program focused on Rs.

— Nihal Jham

So I do not see it is like a slowdown per se, I see more as an opportunity to be honest.

— Nihal Jham

We opened 265 stores in the last 12 months so given the trajectory of revenue at this point in time where there is not much positive operating leverage is getting accrued does it make sense to slowdown expansion a bit at least for the time being.

— Manoj Menon

Yes, just to add we will continue to follow demand because we don’t want to slowdown this virtuous cycle of growth but we will keep recalibrating and evaluating it every quarter as Sameer says there is no number to chase here but I think only thing will be chasing is demand or following demand so I think that is the guiding philosophy or principal that we are operating with.

— Ashish Goenka

So the guardrail for splitting the stores are very, very clear and we do challenge like why cannot this store do more.

— Sameer Khetarpal

I would assume that would also add to some amount of pressure on gross margin, if not anything else.

— Amit Sachdeva

And what about Popeyes impact, is it the right hypothesis that Popeyes structurally would be lower gross margin business, and as it becomes larger, it would have at least some basis points drag on gross margins.

— Amit Sachdeva

It will not have any material impact, I think, at least for the next few quarters on our overall margin profile, and of course, we will come back it starts making a more material impact, but I do not foresee any material impact of Popeyes on the overall gross margin, at least for the next four to six quarters.

— Ashish Goenka

There are more 11 variables and it is very difficult to sort of put together to construct to it.

— Amit Sachdeva

Where I am coming from is, is there a cost of growth and which is sort of offsetting that as well, and where things can be more volatile or at least 26%, 25% is not a normal margin, and it should tailor down or come down lower structurally.

— Amit Sachdeva

One, I think in current uncertain both the demand and cost environment, I think it is very difficult for us to give any sort of guidance.

— Ashish Goenka

Of course, the challenge remains for us is in terms of how do we step up growth more to start seeing leverage at even a PAT level.

— Ashish Goenka

So that remains a challenge, but we should be able to absorb 200 to 250 store addition without any meaningful impact on post Ind AS EBITDA margin.

— Ashish Goenka

If we see our gross margin decline is close to 2% from Q3 FY2022, and the EBITDA margin decline is close to 4.5% - 5%.

— Amit Rustagi

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Q&A — 7 exchanges

And just to add to what Sameer said, we did extensive testing to our loyalty construct before launching it, and we had evaluated an instant gratification program as well, but that did not find favors with the customer, and that is where we launched Cheesy Rewards, and response has been very good, and also I think any membership or subscription led program, which aggregators run, actually brings complementarity to the program that we are running because our customers still continue to earn the points on our program while getting the benefit of the subscription based program on the aggregator. S

Vivek Maheshwari

Interesting. Second, in your opening remarks, you made a comment that post November, there was a deceleration that you have witnessed in your business. Can you just talk about how the exit numbers were compared to, let us say, quarter average of where November was. I think we do not give month wise guidance. I think let me just say this, we have tremendous opportunity to tap in areas of demand and growth. So that is not a concern for me at all. 13 Vivek Maheshwari: No that I completely understand. But anything on how the trend has shaped out. So at least directionally was December better than

Thanks for the opportunity. A few follow ups on your earlier comments. The first one was, clearly, you are targeting to tap into the more value segment and you just alluded to the fact that you want to improve the value proposition to the consumer. Could you help me understand - you had mentioned earlier that even at a gross margin level the Rs.49 pizzas are more accretive. But I thought you have brought down the price points from Rs.59 to Rs.49 so are we changing the way the pizza is made or anything in terms of ingredients as well where you say that this will not be margin dilutive. So that

Ashish Goenka

Also just to add we were already having EDV 99 and now we are saying EDV 49 which you buy two products. And, therefore we are not compromising at all on the product quality and that is always sacrosanct for us. There is no way we will ever compromise on better quality. But we are able to manage the value proposition as Rs.49 becomes far more attractive to the customer than even an EDV 99 proposition. So what I wanted to understand is what is your hurdle rate of gross margin in your mind. So do we say that 75% to 76% is the new band of gross margins you are comfortable as a company, and even if

Thanks for taking my questions, and thank you for improving the disclosures here. So my first question was with respect to the demand. Yes, the demand has been lower and Sameer you have also mentioned the key reasons why the demand could have been slower. But just wanted to understand that the focus on value proposition, focus on double down on dining channels, is it that there is much higher competitive intensity which is coming back, especially from local and regional players, and that is the reason why we are focusing more on the dining side or is there any other reason.

Sameer Khetarpal

I think the reason to double down on Dine-in I think is one after pandemic, we see the opportunity right. I mean, the customer habits have shifted to delivery and we want to use Tees se Bees(30 to 20 min delivery) and capitalize and fortify that. Now we have a great set of stores. We have invested in new ace design. These are inviting, and why will we not get the growth when I am a neighborhood store. So whether it is a delivery or a takeaway, and when we spoke to consumers, it was very clear at this high inflationary environment they are looking for value, and therefore, it becomes easy to ma

Hi! Good evening Sameer. Thanks for the opportunity. Just a quick two observations when I look at last 2, 3 years, we built a very solid digital asset, and then we saw the traffic is humongous and then COVID is behind. Now what we have seen over the last 5, 6 months, we are now maintaining that traffic and you are building how we can get the depth of the customers. So we started Cheesy Rewards and then now we are saying we will deliver in 20 minutes. So one observation is that we have built a strong traffic, but the retention of the customer is not visible or rather that is declining. This is

Shirish Pardeshi

I think that is exactly my follow up question is that we have done the product intervention. So will you be able to share these innovations, what has come after COVID period and specifically over 17, 18 months. Is that new innovation is driving the growth, because I am not sure the product intervention what we have done actually is justifying that 0.3% LFL growth. Sameer Khetarpal: Of course, there are other factors too. So something you see that growth in delivery, and if you tease out Dine-in and therefore we have to fix Dine-in. Would product alone satisfy, I mean the answer is no. You have

One slightly strategic question, and apologies if it is going to be repetitive to what you guys answered, but just help us set the context of what guardrails to gross margins on your business are, I mean, you had a period where it went up quite a bit with the introduction of delivery charges etc., and obviously you are facing the pressure, you are doing the right thing by not taking up prices, so putting pressure in near-term but when you are thinking about this business three to five years out maybe on EBITDA margins or on gross margins, whichever way you are comfortable with. Just help us un

Ashish Goenka

On gross margin, I think as I alluded earlier, it would be difficult to give near-term guidance. But I think in the medium-term our target would be to be at a range of 23% to 25% on the post Ind AS EBITDA margin I think that is our endeavor and if all the things fall in place, as Sameer was highlighting earlier there is no reason we should not get to that. I think your second question was on the depreciation. So I think our depreciation has largely three components almost 70% plus increase attributable to new stores - combination of both the Capex and the lease increases. This quarter I think

Thanks Sameer and team for laying out your plan on the business ahead. I have just a couple of questions left. So first on the city penetration. On the store expansion, if I look at we have practically added 100 plus cities in the last two years. Now if I just try to see in context of what the food aggregators are saying, effectively 99% of their business is coming from the top 300 cities and then there is a long tail. Given that context, is there much upside left for us in terms of the geographical expansion into newer cities, and you already mentioned about the ROIs and guardrails that you h

Sameer Khetarpal

I think I will let Ashish answer the first part, but the second part on the consumer propensity like in tier three, tier four. So in tier three, tier four the Dine-in ratios are far stronger than tier one and tier two. So naturally in many cities, if you take Daltonganj, Karwar or Latur, we will probably be the only organized QSR player so we have become a natural destination for consumers in those cities to come and grab a meal or hang out. So the Dine-in portion is lesser. At least from a consumer survey or feedback perspective we have not seen that consumers are not willing to pay for deliv

Thanks for the opportunity. I just wanted to clarify on the Capex bit. You had indicated last time that you are doing about 650 - 700 Crores in the next 12 months and then there was subsequent release about 900 Crores in the next 12 to 18 months. Could you just elaborate what is the Capex plan and help us understand that more.

Ashish Goenka

I think in line with what we said, in this fiscal, we will be in that zone of 650 Crores to 700 Crores and as I just explained we will have probably a similar level of Capex in the next financial year as well. If you put the two together in the next 12 to 18 months, we are looking at the number of 900 Crores, and as I explained earlier I think bulk of the Capex would be attributed to higher store openings followed by investment in our commissary followed by investment in digital and followed by some of the store reimaging that we will do. Understood. The second question is I wanted to kind of

Speaking time

Ashish Goenka

Moderator

Sameer Khetarpal

Manoj Menon

Sheela Rathi

Amit Sachdeva

Latika Chopra

Chirag Shah

Nihal Jham

Arnab Mitra

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Opening remarks

Deepak Jajodia

Thanks. Good evening, everyone. Welcome to Jubilant FoodWorks Q3 and 9MFY23 Earning Call for Investor and Analyst. We are joined today by senior members of the management team, including our Chairman – Mr. Shyam Bhartia; our Co-Chairman – Mr. Hari S Bhartia; our CEO – Mr. Sameer Khetarpal; our CFO – Mr. Ashish Goenka; and our Group CFO Mr. Arvind Chokhany. We will commence with key thoughts from Mr. Hari Bhartia; we will then turn to our CEO to share his perspective. After the opening remarks from the management, the forum will be open for the question-and-answer session. A cautionary note: Some of the statements made on today's call could be forward-looking in nature and the actual results could vary from the statements. A detailed statement in this regard is available in Jubilant FoodWorks Earning documents. We will share today’s opening remarks along with the recording of the call on the stock exchange and on the company’s website under the investor relation section. I would now lik

Hari Bhartia

Thank you, Deepak, and Good Evening, everyone. Welcome to our earnings call. We are operating in a challenging macro environment. While the festive season helped us deliver record revenue in the month of October, the consumer demand momentum suddenly decelerated starting November. As a result, Domino’s India reported a flat LFL growth in the quarter and our overall revenue growth was 10.3%, low by our own standards. Our team is focused on getting the LFL growth back - by focusing on providing excellent service to our customers, doubling down on our digital assets, enrolling customers in the loyalty program and carefully planning on geographic expansion. Over the last 25 years, we have always executed with operational excellence and empowered the front-line teams of our restaurant managers while delivering high value-for-money quotient to consumers. In these years, our emphasis has always been on driving internal productivity and closely monitoring our cost structure. Notably, we contin

Our targeted intervention for the same are two-fold

 Firstly, we are swiftly executing our store reimaging program to convert tenured stores as per the latest ACE design.  Secondly, we will continue to bolster our high value-for-money quotient with an intent to attract new customers to Dine-in with unmatched value offering. The launch of EDV at Rs 49 each as a Dine-in only proposition is a step forward in this direction.  Helped by the store expansion, our delivery channel continues to grow on a high base as a result of permanent habit build across cities. To my mind, the launch of 20-minute delivery proposition in 20 zones across 14 cities is a game- changing customer-centric innovation. A series of interventions which included fortification of stores, extensive and continued training of Dominoids, kitchen re-layouting, automating ride time planning without compromising on rider safety, has helped us take this giant step in the direction of reduced delivery time. Elevated consumer experience through reduced delivery time is globally

Nihal Jham

Thank you so much, and good evening to the management. Sir three questions from my side. You have alluded to the slowdown in general, but are there any specific issue points either say channel wise or city wise that maybe we feel we have seen a deeper slowdown. In your opening remarks you also alluded to the first you are taking on the Dine-in channels. So if you could just give your comments on that. 6 Sameer Khetarpal: Yes, to me, I see this as an opportunity in fact I think as people are becoming more mobile so take for example we see robust demand now on moving trains; to me it also presents an opportunity to double down on our Dine-in channel and that is where I see as an opportunity and not necessarily a slowdown, because on the delivery side loyalty, app, “Tees se Bees” all of these are accelerating that I think we need to have a sharper program focused on Rs. 49 menu and a pleasurable and welcoming store experience that we are very rapidly reimaging. So I do not see it is like

Nihal Jham

Coming on my second question on the margin bit, I think it is four months where we are seeing inflation specifically in our key commodities that is cheese and flour, at this juncture do we contemplate taking a price hike to protect margins or do you believe that we want to keep our value proposition in place and hopefully wait for the inflation in these commodities to come down.

Ashish Goenka

Thanks Nihal I think as Sameer alluded to in his talk; inflation remains at a decadal high we were actually expecting a softening of cheese prices, which typically happens in the third quarter of every year but there were two rounds of milk price increase in this quarter so the softening that we were expecting has not happened and that has led to a contraction in our margins. At this stage we would not like to take any further price increase and we would like to continue to drive value proposition because the focus would be more on bringing volume and growth back to the level that we were anticipating and not really take up prices at this point.

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