Jubilant Foodworks

Heard the Q1 FY24 concall today, looking at the company after a long time since I exited more than a year ago.

Large part of the discussion in the call was on inflation, muted consumer demand and depressed margins. Popeyes is doing extremely well, says the company but no numbers were given. That is still some time away. Hong’s Kitchen seems to be struggling at the unit economics level, and hence no major expansion. Dunkin was not even mentioned, I think. DP Eurasia acquisition – company has taken a hit on account of the Ukraine War it seems. Though the war was unforeseen, I was never a fan of that investment, countries like Turkey and Russia are politically risky even otherwise.

Overall, no major upside triggers in Jubilant Foodworks right now – company seems to be just waiting for the overall environment to improve. A large Bangalore commissary is slated to open shortly.

My impression is that the company has already become quite large, and growth will only be incremental from here on. LFL / SSSG numbers are always in single digits, and growth due to store expansion will slow down too, since new store openings will add only a small percentage on such a large base (compared to the past). This means valuation has to correct from a growth stock to a stable cash cow stock. Non pizza revenues can be a new metric to track in future, once Popeye and others acquire a decent size. But right now, they seem to be too small to make a difference.

There is 4 quarters of EPS decline, resulting in a P/E of 118 which shows investors have not yet given up hope. The good thing is cash flows are strong, aided by negative working capital. Last three years, capex has been heavy. Capex will come down this year, which means company will accumulate even more cash. But their past capital allocation decisions do not inspire confidence. I have written about it before (click here). That is another problem.

(Disc: No positions)