Jubilant FoodWorks Limited (JUBLFOOD) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Q1 FY '27 Earnings Conference Call hosted by Jubilant FoodWorks Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Apaar, Head of Investor Relations at Jubilant Foodworks. Thank you, and over to you, Mr. Apaar.

Thank you so much, Sagar. Welcome to Jubilant FoodWorks Limited's Q1 FY '27 earnings call for investors and analysts. We are joined today by senior members of the management team, including our Chairman, Mr. Shyam S. Bhartia, our CEO and MD, Mr. Sameer Khetarpal, and our CFO, Ms. Suman Hegde. Please note that this earnings call is scheduled for a duration of 45 minutes, and we will commence directly with the Q&A session. Along with the Q1 financial results, we have released a letter to our shareholders in which we have shared our outlook and have already answered certain pertinent questions about the performance. Hence, the participants are requested to limit the scope of discussion to only strategic questions and the count of questions to only 2. If you wish to seek any accounting clarification, kindly get in touch with the Investor Relations team later. A cautionary note before we move ahead. Some of the statements made on today's call would be forward-looking in nature, and the actual results may vary from such statements. I will now hand over the call to the moderator to begin the Q&A session.

[Operator Instructions] Your first question comes from the line of Kunal Vora with BNP Paribas.

Thanks for the disclosure on Popeyes. So I just wanted to understand the acceleration in LFL growth from 9.2% in 1Q FY '26 to 45%, 45% in 1Q FY '27. What's driving it and when does this normalize and what level do you expect it to normalize at?

So, Kunal, firstly, I think Just stepping back, Popeyes definitely has become a second growth engine for JFL, and we genuinely believe the work that the team has done to take Popeyes, which is a relatively lesser-known brand in India but very popular in the US and is the second-largest brand after Chick-fil-A. So it has overtaken multiple pizza competitors -- sorry, chicken competitors, fried chicken competitors in its market. On the back of 3 things which we have replicated in India. Firstly, a superior product through a better marination process, the fresh chicken, and supported by a very strong supply chain of Jubilant FoodWorks. So, firstly, it is that pieces are intact. Second is we've built the brand very assiduously in terms of on flavors, launching wings, and product innovation that differentiates brand relative to the competition. And third is the execution on store opening has been very, very good in the last 3 quarters or 4 quarters. So these 3 structural tailwinds or structural factors are giving us 40%-45% growth rate. As you see, the ADS is still behind the, the number one player in the market, right? And we believe we should surpass that. We should -- yes, the brand has legs to even go beyond it. That's how we are viewing it. We are not like-- I would want this number to 45% to be there forever, right? If fishes were horses. So we are not taking a view on this will normalize to 10% or 9%. That's not how we are thinking. So our first goal is to make sure that we are -- our average daily sales are materially higher than even where we are today.

What I was trying to understand is like, how did 9% become 45%? So what, like, what action resulted in a significant acceleration? Okay, same thing.

Better store execution, and the differentiating the marketing story and the culinary story on more flavors. And like, things like we have 6 flavors of chicken wings, right? Very few players in the world are able to do it, right? And with different sauces. Similarly, we obsess about buns. Right? And the amount of time the team has spent on one. So as a result, customer experience on product satisfaction is among the highest in the world in the Pop --it's not a big brand in 90 countries, but still whatever 30-40 countries it is present in, it is among the best or top quartile among the 30-40 countries that Popeyes is present in. So that's been the, the simple recipe for, for 40% growth.

Understood. Second question, your employee cost per store does not seem to have increased in the last year. Like there will be wage inflation, minimum wages have increased. So can you help us understand that? And lastly, also if you can comment on CapEx, what's the number been for this quarter as well as what do you expect for FY '27? That's it from me.

Want to take wage inflation?

There is wage inflation so…

I'm just trying to understand where you're reading the numbers from. Because we've seen a 12% increase in personnel costs on the standalone basis and about 15.6% on the consolidated basis year over year. So which number are you referring to?

I'm looking at the– on a per-store basis. I was looking at like per-store basis employee cost, because your store count also has gone up by similar number, right?

So yes, no, the store count is not gone approximately, but let me, let me give you some flavor on what we do. So yes, If I look at a per-store basis, now there are headwinds. Okay, let me come back. There are headwinds on the cost. There are headwinds on account of minimum wages. There's headwind also on account of some of the new stores that we open from an absolute point of view. Having said that, our productivity in store, right? And so how many-- we've spoken about this in the previous calls as well-- our productivity in terms of what we measure of orders per hour that, person can do in the store has materially improved, which kind of brings down our cost within the store while the absolute can go up. So that's one of the key factors for bringing the per-store personnel cost down. But if I look at an overall headwind in terms of wage increase, wage bill increase, and in terms of what we have seen on overall stores increase that we have seen, that of course is down.

Also getting-- I think this includes supply chain headcount also. Marginally, right? That's also-- we're getting leverage over there as more stores come in, and also we've driven productivity. So there are combination of factors, but rate has gone up for, for labor per hour.

Understood. Okay. And lastly, if you can comment on CapEx, for the quarter and for the full year, what the expectation sir?

I think we've already given the expectation. We don't give it by quarter. So for the full year, I think we have indicated last time as well, the guidance has been in the range of INR 750 crores to INR 900 crores. Which has been what we have spent in the previous couple of years as well, and we continue to maintain that number for now. Of course, the profile of that capital, like, I want to reiterate, is now more indexed on investments behind new store expansion. Now, of course, Domino's, but now with Popeyes also becoming huge, that's also coming in to have a play there. Our existing store network, as it becomes larger, With the base going up, we will continue investing behind it. We have spoken about last quarter on how dine-in is an important metric for us, and hence there will be investment behind our existing stores to ensure we give the right customer experience out there. And then the large third bucket is our technology investments that we will continue to put behind because we do believe that's a key vector of differentiation versus the competition and where the consumer also currently plays. So this is where it is. The supply chain investments are materially down from what it used to be a couple of years ago, which means that the overall CapEx as a percentage of turnover will continue to improve given we're maintaining the absolutes to where they were over the last couple of years.

Understood.

Does that answer your question?

Yes.

[Operator Instructions] Our next question comes from the line of Vivek M. with Jefferies.

So 2 questions, First is on the dine-in bit, what you have mentioned about the new leader, 400 stores, et cetera. Can you just elaborate? And you have also indicated there is some success, early success you have seen, but one needs to be patient. Can you just talk about a bit more about what exactly you are doing there? What is the level of intervention and investment that you will do? And what is ultimately, when you say sustainable growth, what is it that you expect from the dine-in format?

Yes, so, Vivek, firstly, I think the playbook that we are building is, or even at a higher level, the mental model over here is we care about this channel, especially with 2,500 neighborhood stores with high density. So it's a, we have to continuously iterate the service. At a very high level, Domino's became, started giving free delivery, then aggregators moved to INR 99 minimum order value, order value and free above that, and now to INR 49. So coming into the store, the proposition needs to be sharper, right, for a customer to leave the home and the convenience of home and, and battle the traffic, et cetera, park their vehicles and come to the store and collect their order or order there. Is it-- is we understand there are more admin than what they were 2 years ago. So what we are doing is we are very carefully segmenting our stores into, into which are in more dine-in clusters, where we already have existing dine-in on High Street, where the dine-in share is higher relative to others, mall stores, food court stores, university campuses stores, and the other stores which are becoming more and more delivery, delivery first. We recognize Domino's is a delivery-first brand, and it kind of like-- I assume as much as pizza comes to mind when you say Domino's, delivery is also the second word that you associate with the brand. Specifically, what we've done is we've built an organization or channel team which focuses on dining takeaway. Under a very able leader and who can think about marketing, operations, and also business segment. So, so that's the first thing we've done. We have– as we speak, we are almost built our regional organization for this channel so that we can focus on this particular piece. There are specifically 3 pillars for this. Number 1 is the basics of service, which is speed of service, product quality, accuracy, and store experience, which we want to be functional. Each store is being tracked. There is a mystery audit which is being done, and that score we see improving. Secondly, this, this channel continues to be an acquirer of new customers, and therefore we need to give new customers to leave the comfort of their home and come to the store. So two specific offers. So we have a Best Deals Ever Wednesday. That property is only available on Wednesdays inside the store where there are food abundance and buy more, get more. Type of deals. We are doing partnerships with other players, which like payment players and aggregators, to drive traffic to the stores. And, and third is where we are working on, which is working on is a differentiated menu, right, which is, which is focused on solo occasions. And where, when we looked at the– and did the analysis, the solo occasions, which were less than INR 250 ticket size, saw the maximum drop. And why did they see the maximum drop? Because the minimum order value across the board has come down to INR 99 and INR 49. These numbers used to be INR 350, just as a reference, that above INR 250, INR 300, the delivery was free, and below was you had to pay for delivery. Now that number is INR 99, INR 49, and therefore we have to come up with product propositions which are available all day, but can't be availed on, on delivery, and give renowned value to customers. So that's the, that's the playbook, the 3-pillar playbook that we are following. And early results, we've been able to, at least on Wednesday, we've been able to reverse the trend and we see growth. And then the-- some other work is going on. So again, we are not saying that we have, we have climbed the Mount Everest. We know we have started the journey. It is a little farther away till we come. The first goal is to stop the bleed, right? Because if we are growing at 8%-9% on, on delivery, can we just hold flat from an LFL perspective on dining takeout. If you do that, then we know we can far exceed the guidance that we have given on our LFL.

Got it. And on your LFL, second question, Sameer, you have mentioned that, you know, the quarter has started on a positive note. It has been better than what it was in the first quarter. Can you just, you know, guide us in terms of how the progress will be? Because, you know, your base of LFL starts getting better from second quarter and further dips in third and fourth quarter. Do you think for rest of the year you can get to 5%-7% growth that you have, you know, have guided in the past?

Yes, absolutely. And that's the endeavor, Vivek. And see, even if you look at Q1 where we grew 2.5% and the corresponding number in the previous year was 11 -- 11.6. So if you total up the two, it is about 14.1. So again, if you divide that by 2, a simple average takes you beyond 7, right? So that's what we are attempting. We are building a business of 5% to 7% as basis gets corrected. And you will see for last 2 quarters that we've been in that, in that ballpark range. And therefore, 0.5% in Q4, at 2.5% in Q1, and we believe Q2 will be better than Q1.

The next question comes from the line of Tejas Shah with Avendus Spark Institutional Equities.

Sameer, you had called out earlier that the whole plan on Popeyes will be to balance the 3 deliverables such as ADS, gross margin, and consumer experience. Now looking at what we have achieved in last few quarters, would one say that you have crossed that hump and now it's all about acceleration and execution on ground in terms of scaling up the franchise?

Thank you for remembering that. Firstly, I'm glad that you remember. Yes, these were the three goals the teams are tasked on: average daily sales, gross margin, and then distinctive consumer experience. Now why gross margin is important is because that shows that you have pricing power or not, right? And while I see several opportunities on gross margin because the scale is still low at 90 stores, logistics cost and conversion cost and buying cost, whatever leverage you get from Domino's, it's still-- I think still there are opportunities. Having said that, so what's the, so what's the next Rubicon to cross. It is actually the– like I said, the ADS needs to be much higher. I don't like anything less than 100K. Glad to report that there are 7 cities which are above 100K for the full quarter. So we need to be much higher than that. If the product is distinctive, it needs to command the pricing and the volume per store. And then the, then the, then the, the part around unit economics which is we are able to see restaurant-level profitability in multiple stores, but marketing costs are high. We've, like I said, at about INR 100 crores of revenue, we invested in a team which will take us to INR 2,000 crores. So some of those costs will get amortized as we scale, and getting to EBITDA profitability is the next challenge in front of the team. So that's what we are focused on. And the, the journey that actually has been– has been faster than what we had anticipated earlier.

Great. Second, just another recap question. In our analyst meet 15 months back, we had also highlighted one commitment, or one goal rather, that we'll go for free cash flow maximization by using dynamic capital allocation. So any thoughts on that? Because we are kind of committed to high CapEx. We are cycling through that [ distillate ]. So just wanted to know where do we see that maximization coming from, let's say, next 2 years or 3 years?

I think I will give my high-level answer and Suman can give more specifics on it. So certainly we are very conscious of that, Tejas, and therefore I'll give a few examples. We did not invest in homes at all, right? We, in a large category like coffee, we have said that we will not play at all, right? And therefore let go of Dunkin'. So that these are examples where we believe, we have painfully taken, capital allocation decisions and moved capital to businesses where the higher ROI is. ROI will be there. Secondly, we stopped investments in-- or we believe the investments in supply chain are-- we are way past our like peak. And while we commissioned the Mumbai food factory in March and some bit is yet to be commissioned, but from a cash flow stand-- from a cash standpoint, we are not building such large assets and we have done for up to almost 5,000 stores. Now it's about time to shred these assets. And therefore the capital allocation will go into Domino's stores and Popeyes stores, which is all revenue-generating CapEx. I hate to use that word, not that supply chain is not, it's more revenue-enabling from a framework standpoint. Suman, anything you want to add?

No, I just want to build on that. We're going to talk about cash flow, free cash flow maximization. I think over the last 2 years, I mean, we did see a dip in free cash flow, in FY'24-25, but, and we did turn around end of FY '25. FY '26 came out strongly free cash flow positive. I think on the right journey there, also given the commentary I just gave in the, for the earlier question with Kunal, right, that, CapEx is being within the range it will. And with the business growing at the rate we know it's growing at, at double digits, right, overall as JFL, your operating cash flows will go up. Even if I hold my margin steady, which is not the intent, the margins will improve. So your profit will grow ahead of your top line. So you will generate free cash flow. I think for us as a corporate, in a while, yes, we should have positive free cash flow. The maximization that we are looking for internally is maximization of return on that capital, which is how is the ROC progressing. And hence, if I need to invest capital in a high-growth business and the free cash flows are a little lower, it still makes sense. And why would you keep that cash flow within your balance sheet if it's not generating as much return as it could if you deploy it? So that's the key metric for us-- how much return am I generating on that capital that I put into the business. And the second one is saying, am I improving my overall profit metric with my earnings per share? Is that improving consistently? So I think these are the 2 metrics we track. The free cash flow is an input into these 2, is the way we look at it.

Our next question comes from the line of Jignanshu Gor with Bernstein.

So I have– I wanted to extract some more color if possible on, on this 2.5% growth that you have seen, and we want to see the higher number ahead in context of the 140 bps of price increase that we seem to have taken on an overall basis. So which means our volumes were sort of under more pressure. And these are largely digital volumes because that's 76% of business. So how do you think-- how do we-- and we've acquired customers, but our efficiency of MAU to MTC is sort of dropping, right? So am I reading the problem right, that we need to get and convert more digital customers in our app? And how do you think– where do you believe the problem is and sort of what is the solution to the problem without assuming a demand increase at a macro level?

I think the-- I will not read too much into MAU to MTU conversion because it has Popeyes, Hong's, and like, I mean, standalone Domino's conversions have been very high, right? And we obviously took price increases, and therefore to that extent there was some drop in conversion, but that's marginal. It comes back in a quarter or so. So I will not-- again, Jignanshu, I will not compare, look at that. I think the fundamental question that you're asking is, can we grow faster on, on delivery, right? And delivery as a channel which -- right, that's the-- and it has, in percentage term, it has come down compared to what we were growing. And, and we are now– and then profitability is also a key driver. And therefore, we'll keep on balancing between discounting, price increases, packaging charges to ensure the shape of the business remains in the range where we want to, right? And it's a-- Domino's is a, like probably India's largest direct-to-consumer brand. It has very high digital adoption, and we have the levers to pull in terms of digital marketing and new customer acquisition and drive up the volume over there. But in the last quarter, we did focus on taking price increases, improving the average order value, and therefore flowing it through. So there's a conscious choice, and we'll balance as the cost– like if tomorrow the war goes out and we do see LPG prices have come in, right? This is a structural advantage that exists with us, from a pricing perspective. Now we can use some of the money to– for more marketing, drive up more new customers. These things will continue to play Jignanshu. So I will not read too much into MAU to MTU conversion.

And the delivery, just to add to that, the delivery order volumes have grown, right? Just to -- the delivery channel has not been impacted, you know, in terms of order volumes from the price increases that have been taken. And as you, well see, our price increases have not been, substantially as high, right? 1.5% to 2%, I believe the brand has the capacity to absorb.