Lockdown and COVID-19 Impact on Jubilant FoodWorks Ltd! Jubilant Food Poll Released Its FY21 Q1 data!! Will This Company Shut down Its Unprofitable Stores?

The lockdown and quarantine guidelines designed to abate the pandemic COVID-19 outbreak have hit most businesses very hard. In the list of companies decimated by the economic downturn in India, the hospitality sector is at the top.

The dining out business is feeling the heat of a slowdown, as since the outset of the coronavirus pandemic, restaurant chains, and industry insiders are facing difficult times. The coronavirus pandemic has brought about a once-in-a-lifetime crisis to the entire society and businesses, especially the restaurant industry. The lockdown shuttered many restaurants. Casual dining outlets seem to be the worst affected.

Jubilant FoodWorks Ltd, which runs fast-food outlets, Domino’s Pizza and Dunkin Donuts in India, said on Wednesday that it will shut down its unprofitable stores because of the company’s losses due to the pandemic and lockdown. The company will also slow down its Domino’s expansion.

The company reported that the consolidated net loss for the first quarter ended June 2020 is Rs 745 crore, which was caused by the closure of stores due to the COVID-19 pandemic and the ensuing lockdown.

The company’s revenue performance was strong until February 20, with a like-for-like growth rate of 8.4% on January 20 (SSSG 7.2%) and a growth rate of 14.9% on February 20 (SSSG 13.1%). However, in March 2020, due to the COVID-19 pandemic and the ensuing national lockdown, revenues dropped sharply, which affected the entire quarter’s performance adversely.

About Jubilant FoodWorks Ltd

Jubilant FoodWorks Ltd. is part of the Jubilant Bhartia Group and one of the largest foodservice companies in India. The Company owns the foremost franchise privileges for 2 international brands, which target two different food market sectors: Domino’s Pizza and Dunkin’ Donuts. The company also launched the first homegrown brand-Hong’s Kitchen in the Chinese cuisine market and has 4 Hong’s kitchen restaurants in two cities in India (as of June 30, 2020).

The company has forayed into the ready-to-cook section under the newly launched brand “ChefBoss”, offering a various range of pastes, gravies, and sauces.

The company said that the ChefBoss brand will start selling a series of Chinese and Indian sauces with Amazon, Flipkart Supermart, and Milkbasket (NCR), Mumbai and Bangalore areas.

The company currently runs more than 1,351 outlets for Domino Pizza, Dunkin’ Donuts, and Hong’s Kitchen, and is a market leader in the pizza field. The company has more than 32,000 brand ambassadors committed to delivering value to its consumers.

The Impact of Lockdown and COVID-19 on Company’s Revenue

Jubilant FoodWorks Ltd. has clocked a weak show in the lockdown led by COVID-19. Revenue was down 60% year-on-year, and SSSG was declining by 61% YoY (HSIE -54%). As dine-in pressure still high, the recovery of 70/85% in July/August is encouraging. Jubilant will take advantage of the situation (delivery-friendly demand, weaker competition, and increased delivery fees by aggregators) by charging delivery fees (30 rupees per order). It will support operating performance in the fiscal year 2021.

Lockdown Significantly Affects Performance

• JUBI reported that SSSG increased by -61.4% YoY (estimated: -63%) and sales fell 59.5% year-on-year to INR 3.8b (estimated: INR 4.2b).
• The LFL growth rate is -61.5% (this refers to the year-on-year increase in sales of non-split restaurants that opened before the previous FY). Excluding restaurants temporarily closed due to COVID-19, the growth rate of LFL is -47.3%.
• In the 1QFY21, 24 new Domino pizza outlets were opened (net addition of 19 outlets), and 4 Dunkin’s Donuts stores were closed.
• The gross profit margin increased by 260 bps YoY to 78%.
• Staff costs fell 18.7% year-on-year to INR 1.6b.
• Other expenses (including rent) fell 59.9% YoY to Rs 1.2b.
• EBITDA decreased by 89% YoY to INR 241 m (estimated: INR 487 m).
• The EBITDA margin for the first quarter of fiscal year 20 was 6.3% (estimated: 11.5%) v/s 23.3%.
• In the first quarter of fiscal year 20, Adj. PAT loss of INR726m (estimated: a loss of INR393m) and it gains INR748m.

Jubilant Food Poll Q1 Results

In the first quarter of FY21, the impact of COVID-19 was severely felt. The nationwide lockdown due to the COVID-19 pandemic resulted in the complete closure of several stores, with takeaway and Dine-In, remain closed for most of the quarter.

Jubilant Food Poll released its FY21 Q1 numerical data. The numbers are weak given to the lockdown situation. Revenue is supposed to be 300 million rupees and down by 60%. The loss is assumed to be 530 million rupees, and the profit is 174.8 million rupees on a YoY basis.

The operating performance also appears to be weak. EBIDTA’s loss is reached 110 million rupees, a year-on-year basis. The dominos’ SSSG dropped of 605 this year. The company’s revenue is also affected by lockdown. The delivery aspect is worthy of attention, which can hold at 60%.

Weak revenue: Revenue fell by 60% YoY (+10% in the first quarter of FY20 and 4% in the fourth quarter of FY20), far better than Westlife Development’s year-on-year decline of 75%. System sales recovered steadily at 70/85% in July/August. In August, takeaway and delivery increased by 55% and 10% YoY respectively, while the dining business remained weak at -84%. Domino’s net number of stores was 19 (a spillover of the number of stores in the fourth quarter of fiscal year 20), while Dunkin closed 4 stores. The company declared no new net stores addition in FY21.

The company has adopted several measures to curb the impact of operating de-leveraging.

Cost optimization measures such as reducing the operating costs of stores, renegotiating rents, verbalizing of store labor costs, and substantial reductions in discretionary and fixed expenses which helped in reducing the adverse impact on profitability to a certain extent.

It has leveraged supply chain networks, supplier partnerships, and logistics set-ups to assure a constant supply of raw materials to the stores. In this way, it can quickly reopen their stores. Delivery-domino’s is one of the fastest restaurants which re-opened with over 78% of the chains resuming services by June.

 Call Takeaways:

• Demand is expected to return to normal before the end of FY21.
• It plans to close 105 unprofitable stores (mainly located in malls and corporate parks with a dine-in focus) in FY21.
• It is expected to take a fundamental shift towards delivery-based participants.
• Management expects that due to the chaos caused by COVID-19, a large number of restaurants will be closed in FY21, ranging from 20% to 30%.
• It intends to open 100 new stores in FY21 and will maintain its number of stores.
• The shipping fees were started at 20 rupees per order and then adjusted to 30 rupees per order. Delivery fees do not affect the recovery rate of demand.
• Delivery costs will be sustainable.
  

The latest trading price of Jubilant FoodWorks Ltd’s shares on the BSE Exchange was Rs 2,392.75, compared to the previous closing price of Rs. 2352.25. The total number of shares traded on the day was 78,165, more than 5528 transactions. ( according to Tuesday data).

The stock hit an intraday high of 2313 Rupees and an intraday low of 2211.5. The net turnover for the day is Rs. 176926437.

Mr. Shyam S. Bhartia, Chairman and Mr. Hari S. Bhartia, Co-Chairman of Jubilant FoodWorks Ltd, when talking about the results of the first quarter of fiscal year 21, said: In the aspect of huge unforeseen challenges, our dual strategy has helped us overcome this difficulty. We acted quickly to restore operations and our business flow, although we have taken some vital strategic calls for the future. We have shown great agility, adaptability, flexibility, and courage to deliver outstanding performance. While the operating environment is still highly uncertain, we hope that normalcy will be restored by the end of the year.

Jubilant FoodWorks  Hopes to Expand the Scale of the Small Dunkin’ Donuts Store

Jubilant FoodWorks Ltd has also begun a pilot of a smaller-sized kiosk model for the bakery goods and coffee chains in India and is assessing opportunities to expand through the new format.

The company stated that it has piloted a low-Capex, kiosk-based model for Dunkin’ Donuts, a service that combines beverages, donuts, simple food with faster payback because of its low rent and smaller size. It added that these smaller stores are 100-200 square feet kiosks.

The Jubilant company opened its first Dunkin’ Donuts store in India in April 2012 and closed many stores in India in the past few years to reduce losses. In 2019-20, the company closed one store. In 2018-19, it closed 7 Dunkin’ Donuts stores, and in 2017-18 it closed 31 stores.

Jubilant FoodWorks stated in its annual report for the fiscal year 2019-20: “Dunkin’ Donuts India is using calibrated pilots to test a new form of restaurants. The company is now evaluating growth opportunities for establishing this model. We will continue to focus on optimizing costs and increasing efficiency.”

The company said it will focus on expanding its Dunkin’ Donuts brand in the nation. However, the company has been struggling to find the right format suitable for its brand.

Jubilant FoodWorks said that due to the COVID-19 pandemic outbreak, the entire business model of the restaurant industry demands to change in the future, and technology, hygiene, and safety will become the essential elements.

Restaurants must focus on their delivery capacity and add value through initiatives such as take-out menus only. Moreover, non-contact delivery will become the only way to go. It is expected that the seating capacity of restaurants will decline to comply with social alienation standardization which will be lessened meal volumes. In other words, the organized sector will develop faster, and the unorganized sector will gradually lose scale and scope, the company said.

Jubilant FoodWorks stated that the benefits of its core operating model make it easy to flourish in the post-COVID-19 world.

As the increase in people’s disposable income, the higher propensity to choose brands and delivery methods, and the penetration rate of online ordering, it is generally expected that the long-term macro trend will be favorable. The company added that COVID-19 has accelerated a wider shift to organized industries, and  Jubilant FoodWorks will be the main beneficiary.

CRISIL Reiterated The A1-Plus Rating:

Crisil reiterated the A1 or higher rating on Rs 100 crores commercial paper program of food services significant Jubilant FoodWorks.

Crisil said that the rating continues to reveal the well-established market position in the fast-food restaurant segment, the healthy operating efficiency driven by strong supply chain networks, and the strong financial risk profile.

It reckoned that these rating intensities are partially offset by the weak performance of the Dunkin Donuts division and the sensitivity of profitability to competitive strength and cost pressures.

As the nationwide COVID-19 situation temporarily affected the normal operation of restaurants (including dining), it is expected that revenue growth in fiscal 2021 will be suppressed, it said.

Besides this, Crisil said, the company’s financial risk profile is also supported by strong net worth,debt-free status, and a high degree of financial flexibility. The company has had no debts in the past three fiscal years. As of March 31, the company’s net assets were 11.83 billion rupees, and it is expected to increase further with the steady growth of reserves.

JFL CEO Pratik Pota said: Our revenue recovery in the months of July and August is encouraging. By August, we have returned to the growth in delivery and takeaway channels. We are excited about the future and are confident that we will emerge from this crisis more powerful than ever before.