18 November 2014
Update | Sector: Retail
Demand environment remains soft
Moderating inflation augurs well for discretionary demand
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
SSG to recover to high single digits after four to six quarters.
Lower inflation positive for discretionary demand and margins.
receiving good response in new markets.
Aggressive expansion plans for next three years.
Financial Snapshot (INR Million)
2015E 2016E 2017E
21,029 28,866 37,945
2,749 4,193 5,686
1,332 2,140 3,024
105.0 137.6 183.9
Shareholding pattern (%)
Sep-14 Jun-14 Sep-13
*FII includes depository receipts
Stock Performance (1-year)
Sensex - Rebased
Soft demand outlook; incremental sales trend stabilizing:
interaction with JUBI’s management, it indicated softer demand
environment for the next few quarters before returning to high single digit
same store growth (SSG). However, incremental sales trends are not
worsening and have stabilized. If inflation continues to moderate,
discretionary spends can revive and boost QSR spends, and indeed margins.
From RM price viewpoint, prices have stabilized and gross margins will
remain in the 74-76% band, as per management.
Competition increases; will expand market in medium-to-long term:
Competition is intensifying both from Pizza and non-Pizza QSR players
(competition for share of stomach), but it is not the core factor which drove
SSS slowdown. In fact, the same store performance of cities where
competition is intense versus those where competition is benign does not
defer materially. While higher competition can impact sales and margins in
the short term, it should help expand category in the medium-to-long term.
Management noted that long term potential of Indian pizza market remains
unchanged and the potential store size for JUBI has not been lowered. It is
planning 180 new store additions per annum for three to four years.
received good response:
has received a good
response in Mumbai and using the learnings from Mumbai and Delhi, it
entered Bengaluru where, according to the management, it achieved
highest first day QSR sales. Despite dine-in format and lower margins, JUBI
expects three-year store level payback for
No respite in manpower costs:
Management has guided for continued
inflation in manpower costs due to revision in minimum wages (revised
significantly upwards in Maharashtra from July 2014) and also to prevent
attrition. However, it is implementing several cost cutting initiatives in
logistics and ensuring better supply chain planning. On discounting, it aims
to keep the surprise element relevant to prevent consumers from planning
orders in advance, which otherwise can cannibalize regular pizza sales.
Near-term SSG disappointment will present good entry
opportunity, in our view. We believe JUBI offers a good play on urban
consumption recovery given the size of the prize, expanding market share
of JUBI, its superior execution on ground and also the operating leverage
residing in its business model. We maintain a
with a target price of
INR1,600. Extended period of SSG slowdown is a key downside risk.
(Gautam.Duggad@MotilalOswal.com); +91 22 3982 5404
(Manish.Poddar@MotilalOswal.com); +91 22 3027 8029
Investors are advised to refer through disclosures made at the end of the Research Report.