Jubilant FoodWorks Limited (JUBLFOOD) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Jubilant FoodWorks Limited's Q2 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Apaar Saraswat. Thank you, and over to you, sir.

Thank you so much, Rao. Welcome to Jubilant FoodWorks Limited's Quarter 2 FY '26 Earnings Call for Investors and Analysts. We are joined today by senior members of the Board and the management team, including the Chairman, Mr. Shyam Bhartia; the Co-Chairman, Mr. Hari Bhartia; the CEO and MD, Mr. Sameer Khetarpal; the Turkey Business CEO, Mr. Aslan Saranga; and the CFO, Ms. Suman Hegde. We will commence with the key thoughts from the Chairman, followed by remarks from the CEO and MD. After the opening remarks, the forum will be open for a Q&A session. 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 could vary from such statements. We will also share the replay and transcript of the call on the company's website under the Investor Relations section. I would now like to invite Mr. Hari Bhartia to share his views. Over to you, sir.

Thank you, Apaar. Good evening, everyone, and thank you for joining us today for our quarter 2 FY '26 earnings call. We are pleased to report another quarter of well-rounded performance driven by robust top line growth across all markets. Our India business has delivered industry-leading revenue growth and a steady operating margin. Our Turkey business continues to demonstrate strong performance. It is also PAT accretive to the group on a year-on-year basis. We are seeing improving sales on the back of a strong franchise network and portfolio innovations. We continue to expand our network footprint with a run rate of approximately 1 new store per day, and we have added 93 stores during quarter 2 across brands and markets. And now we operate close to 3,500 stores, out of which close to 2,500 stores are Domino's. In terms of our performance during the quarter, our consolidated revenue from operations increased by 19.7% year-on-year to INR 23.4 billion. This is on back of a consistently strong like-for-like growth in Domino's India and Turkey and large network expansion. Domino's India delivered a strong 9.1% like-for-like growth despite the early onset of Navaratri this year versus last year. Through judicious cost control measures and continuous improvement in productivity, we have demonstrated sequential improvement in EBITDA and PAT margins. On a stand-alone basis, our pre-Ind AS EBITDA margins have improved during the last 2 quarters, up by 37 basis points versus the same quarter last year. We continue to drive innovation in our product portfolio. Following the successful launch of Big Big Pizza and Chicken Burst. We introduced 4 cheese Sourdough Pizzas in quarter 2, which has received exceptional customer feedback. Going forward, we remain focused on delivering value to our customers. This has been possible because of the strong foundation that we have built with technology, supply chain, delivery capability and most importantly, our talent and people. We have been building future-ready organization, one that combines scale with agility, innovation with discipline and growth with resilience. Thanks to this, we are starting to adapt artificial intelligence in our technology platform to improve productivity across all our functions. You'll be happy to note that Domino's launched Cheezilla with a breakthrough campaign ad created entirely by artificial intelligence. Finally, in the conclusion, I would like to add that we are extremely delighted with the steady top line growth across all our markets. Our India business continues to grow ahead of the market, while also witnessing a consistent improvement in operating margin and PAT margin. Our Turkey business is consistently delivering value accretion with robust pipeline growth and healthy PAT margins. Sri Lanka and Bangladesh businesses are also witnessing strong growth. Overall, our strong performance and the momentum generated in first half, we believe, has set Jubilant FoodWorks for a very promising second half. With that, I will now like to invite our MD and CEO, Sameer Khetarpal, to provide more details on our quarter 2 FY '26 performance.

Thank you, Mr. Bhartia. Q2 was yet another dream quarter. Domino's across geographies had strong positive like-for-like growth with India growing at 9.1%, Turkey at 5.6% adjusted for inflation and Sri Lanka at 81%. Popeyes also grew double-digit SSG. In the quarter, like-for-like -- due to like-for-like growth, we gained market share, expanded store footprint and improved margin simultaneously. Domino's India delivered a positive like-for-like growth 7 quarters in a row and is now serving in 500 cities -- serving customers in 500 cities. India business as an entity continues to deliver double-digit top line growth led by strong order volume increase. The revenue from operations increased 15.8% to almost INR 17 billion. Domino's India saw strong growth of 15% year-on-year and revenue growth of -- order growth of 15% year-on-year and revenue growth of 15.5%. Like I said, like-for-like growth was 9.1% and delivery like-for-like growth was 16.5% year-on-year. Delivery channel revenue growth continues to be over 20%, demonstrating the lasting effectiveness of our free delivery initiative. Just to remind, it was launched 5 quarters ago and relentless focus on speed of delivery. JFL's network expansion is ahead of our internal plan. It aligns with our internal expectation of growth in the QSR market and our ability to gain incremental market share. In Q2, we expanded the store network in India by 88 stores over previous quarter, out of which there were 81 new Domino's stores. YTD number for Domino's is now 149 in the financial year. During Q2, the footprint for Domino's network expanded by 16 new cities, taking the service to 500 cities. Along with this, we opened 8 new Popeyes stores, out of which 4 were in Mumbai, marking the entry of Popeyes into Western part of the country. Product innovation continues to be an important growth lever. During Q2, we launched Sourdough Pizza and Breads, a new product form, which is already gaining traction among customers. It also -- it follows the launch of Big Big Pizza, Chicken Burst and our Flavor Burst that were launched in previous 3 quarters. For us, Popeyes is equal to bold flavors. To build on the reputation of most flavorful chicken brand, team at Popeyes launched Flavor Burst Burgers. Digitally, in Q2, we achieved a major milestone. Our tech teams launched an ad monetization platform on Domino's app, through which iconic brands like Apple, Tata Neu, Flipkart, which have adopted the service, get more eyeballs and almost nearly 15 million monthly active users that come on the app. The app traffic grew 28% and loyalty member base rose to more than 40 million. On profitability front, the pre-Ind AS EBITDA margin of our -- of India business has seen an improvement year-on-year and on quarter-on-quarter basis through improved operating leverage and productivity gains. The team has been able to maintain a very tight cost control throughout the supply chain, which is highly commendable. The business in Turkey exceeded our plans and -- exceeded our plans. Post IAS 29, Domino's LFL came in at 5.6%, reflecting a strong growth momentum driven by orders. The business reported INR 5.9 billion in revenues and a PAT margin of 10.4%. Coffee as a brand in Turkey is ramping up with compelling proposition and strategic pricing. We added 5 new stores for coffee during the quarter and now operate 172 cafes. On a consolidated basis, revenue from operations grew 19.7% year-on-year to INR 23.4 billion and reported EBITDA grew at 19.5% to INR 4.8 billion. Post Ind AS interest costs declined by 23.5% year-on-year, largely due to efficient refinancing of the acquisition debt in Turkey. Consolidated PAT from continued operations grew 53.7% year-on-year, which validates our strategic capital deployment and relentless focus on execution. To summarize, deeper focus on the 3 brands across Turkey and India geographies, consumer-first product launches, tech-forward approach continues to power our growth across all markets and brands. We see momentum carrying forward in Q3 2026 with sales in October beating our internal plans. I now request the moderator to commence the Q&A session.

[Operator Instructions] The first question is from Vivek M. from Jefferies.

Sameer and team, am I audible?

Yes, Vivek. Please go ahead.

Perfect. My question to you is, we have seen how your peers have reported in the last few quarters. This year, your [indiscernible] numbers or LFL numbers have been very good, but there was also an element of base. As the base gets reset from December quarter, what number of LFL you will be happy about or that you are targeting at this point of time?

Yes. Great question, Vivek. This is how we build our internal plan. So we want the India Domino's business to grow closer to 15% year-on-year, right? That's what internally we target. Now the roughly 5% to 7% should come from like-for-like growth, and we should increase 7% to 10% on the store expansion. So together, if you really see the number varies -- can vary from 12% to 17%, right, the upper end and lower end of the ranges. So that's how we model. And within 5% to 7% like-for-like growth, there should be 1% to 2% improvement in pricing or mix. So that's how we model and about 3% to 4% in terms of underlying volume.

Got it. And just a follow-up to that, Sameer, while the base of -- in case of, let's say, delivery is going up, your dine-in still has a low base. So do you -- I mean, this quarter was flat on a Y-o-Y basis. Do you envisage that will pick up as we go forward now?

I think -- see, the work on delivery took time to scale, time to build, right? And therefore, we feel good about how delivery is growing, and we believe there is more juice over there. The work on dine-in or in-store is very much underway. Like, for example, the INR 99, like the renowned value meal that we launched for dine-in between 11 and 3 is giving us the joy. We have expanded that to delivery at about INR 150 during lunch hours. So long story short, there are several initiatives, which are in works to increase on-premise sales. And very soon, we'll be launching our offerings during that, plus the focus on lunch, right? Lunch as a percentage of sales, dine-in and takeaway as a preferred channel is much higher during lunch hour versus dinner hours where delivery is much higher.

I see. Okay. And the second point is on the GST bit, you were not direct beneficiary, but there was an input side benefit. Can you just elaborate on what exactly was the quantum benefit? And how have you -- what have you done with that, let's say, saving or whatever?

Yes, I think our internal estimates, while -- see, we were at a 5% regime, and we continue to be at a 5% regime with no input tax credit. Having said that, we are thankful to the government to bring down the GST on some of the input like the ingredients, like cheese and sauces that we get from 12% to 5%. And therefore, the weightage of that in our mix is about 50 basis points in terms of margins. Like the purpose of this initiative is to expand consumption in India, and we have passed on this into selectively, like into -- deeper into our products. Like, for example, in Big Big pizza, we had taken the price increase to INR 899. We have brought it down post GST reduction to INR 799. So on selective products, we have taken some deeper cuts. But at the moment, to drive consumption, especially during -- also during festive period, we have passed it on to the consumers.

Okay, sure. And lastly, Sameer, when we look at GST cuts, obviously, it's not that the customer will be using the same money in the same category. Do you think that we have seen in case of autos, a pickup in demand? Do you expect category will like yours should also benefit now in coming times?

100%, Vivek. I mean it's -- like if Diwali was an indicator, right, I think the -- while the auto sales boomed, pizza also was eaten in abundance. So I genuinely believe -- see, the consumption is good for us. And through multiple initiatives of the government, be it interest rate coming down, income tax rates coming down and also GST benefits. Ultimately, it will boost consumption, right? And I'm quite hopeful, and we are seeing that in places also the demand for eating out will only go up.

The next question is from Jay Doshi from Kotak.

Just continuing on Vivek's question, just following up. One is in the 45 days so far, is the growth trajectory ahead of your estimate of 5%, 7% or in line? And how does it make you feel about the rest of the quarter? And second is...

Go ahead, why don't...

Second question is, see, last year, you had double-digit LFL for last 4 quarters, and you saw a certain margin expansion at a pre-Ind AS level. This year, for the next 4 quarters, that LFL growth you are targeting would be lower. So in that case, how should we think about the Y-o-Y margin expansion trend for the company over a 4-quarter period, not quarter-to-quarter? And the last question would be, could you sort of give us some sense of progress of Popeyes, especially on ADS trends and unit economics?

Yes. So I'll try and answer all the 3 questions, but I may ask you to remind one of them, if I forget. So Jay, on -- from the -- like I said, the October has been a very good month for us. It continued. It was ahead of our plans. Having said that, the last year, Diwali was at the last day of October and the momentum post Diwali, which exists because of Bhai Dooj and Chhath Puja and Gujarat, right, all of those like are -- will come into the basis in November. So at the moment, I continue to be confident about the numbers, the way October has gone. December was again a very high base for us. So I fully understand your -- the intent behind the question that this is the quarter that will really prove our growth hypothesis. At the moment, I remain very confident looking at how October has gone. So I'm not giving you a particular number saying yes or no to it, but we are ahead of our plan, right? And the second, I think the margins -- see, there were 2 interventions which were there on the margin side. One was free delivery. And as a result, delivery mix continued to increase in our portfolio, right? So that was one headwind. For the first time, we are beginning to see the ticket size increases, right, so which augurs well from the margin standpoint. And second headwind was the -- we launched certain products with very aggressive pricing, which were cheesy. And therefore, to counter that, we've launched more premium products like Sourdough Pizza, which come in at higher margin. And we believe now we are shifting mix, which was driving volumetric growth towards mix that is driving more ticket sizes. So therefore, I do expect margins to improve. I think we stand by our guidance that we have given or that what Suman gave during Investor Day that we should improve 200 basis points, right, Suman, that's what we -- over 3-year period, that we are very confident of achieving. And you're beginning to see some bit of it reflecting in the coming quarter, and we'll do more in the current quarter. And the last piece on Popeyes, very delighted with the double-digit growth. The product is not truly being loved by many customers. Performance in Mumbai has totally surprised us, exceeded all expectations. And Bangalore and Chennai continue to grow on ADS, very, very strong performance. And as a result, underlying profitability is also improving. Again, we will come back once we reach 100 stores, we'll give a full color on how it is. And at the moment, we are focused on getting to 100 stores. But in terms of ADS, in terms of profitability, the goal for the team is to hit the industry average ADSs and beat the gross margins that are there in the industry. Then we know we have a very scalable platform that then we know how to open stores, we can open stores very quickly. And we are not far from that goal.

One last, if I may. Could you sort of also talk a little bit about your market share in Pizza? There was a phase where you were losing market share to maybe the likes of La Pinoz. So if you can sort of comment a little bit on that.

Yes. No, I think it's a great question. And internally, while -- unlike FMCG, where ACNielsen or Kantar like do a very detailed job of GT and MT, we have to rely on our own databases and internal sources. So I think from the -- some of the listed players, you can compare the number of stores opened and the average daily sales, right? We have disclosed our mature store ADS upwards of 82,000, 83,000, right? So that number you can compare. This is on a base of nearly 1,700 stores that we have disclosed. I was in the Western market last week, and I went to quite a few stores of competition, including the names that you are taking. We are materially ahead in terms of number of stores opening and also the ADS per store. So our internal estimates suggest whatever between 65% to 70% market share, we continue to be there and growing. Same news we also get from the aggregators to the extent they share the news. I think the opportunity to me is there is a growing opportunity on the premium end of the pizzas, which is more Gourmet, Wood Fired, Sourdough. And therefore, I believe the team has done a great job of bringing in a Sourdough pizza into the mix. So that is the fastest-growing subcategory and now we are playing over there, too. And we are very happy with the results. In fact, we are surprised by the uptake in Tier 2, Tier 3 cities of a product like this. We thought it's more metro, but we are very surprised by the -- how India is consuming.

The next question is from Percy Panthaki from IIFL Securities.

Again, just a question on the margin. I know you have given a guidance of 200 basis points over 3 years. But just wanted to understand it in a little more granular fashion in terms of what are going to be the drivers to this 200 basis points? Because in the last 3, 4 quarters also, we have had several sort of positive initiatives, which should have driven the margins, but have not. So going ahead, what would be the margin drivers?

I think, Percy, I'd first like to correct that the last few quarters have not driven. I think you don't see the Domino's P&L, it has driven, right? There is a drag of new businesses, and we have like 3 new businesses like there, and we have corrected that also, by the way, you'll see sharper correction over there in the coming quarter. But having said that, the -- I want to -- Domino's margins have been improving overall also, right? Overall also, it has improved, and Suman can give more details. The breakup is very simple. We have to recover 100 basis points from gross margin through mix, through other procurement initiatives. So that's one. If we grow 5% to 7% consistently, right, the leverage is coming in, at least in rental lines, other lines will also come. Very calibrated, we have taken price increases. That is flowing through. And the other cost line items that we track internally like G&A cost, supply chain costs, that is beginning to give us a lot of leverage. And there is far more juice over there. So again, Percy, it's a conscious choice that we have taken place to get growth. Some of these initiatives, like I said, are more policy decisions that we can take. We have chosen not to do. We have chosen to invest in growth. And as a result, we can open nearly like 1,000 stores in the next 3 years, right? So we'll be materially a very different business, right? And we have not added cost at the center. We have not added cost in our supply chain, right? Our payback periods for new stores is only improving because we are getting more margins. So you have to think of a business, take a 3-year view and then you model the P&L, you will see the results.

The next question is from Nihal Mahesh Jham from HSBC.

Congratulations on the strong performance. I had 3 questions. The first one was again on margins that last quarter, you mentioned there were 3 reasons primarily because of which your margins have got impacted. There was obviously the aggression on Big Big pizza, offers on chicken and also the extended IPL. And the expectation somewhere was that at least on a GM perspective, the improvement from Q1 to Q2 would be much better given a lot of these one-offs sort of normalized and even you took a price hike for most of the quarter for the Big Big pizza. So just wanted to understand that did you have to keep the activation going? Or where is it that it was invested back?

I think -- see, there is -- I think there was like largely -- firstly, we executed on those initiatives. On Big Big Pizza, we did take a reversal, right? And in terms of pricing to pass on the GST benefits, though it was like almost end of the quarter. And there is some inflation that we've been hit on the cheese prices because milk prices post the Maharashtra election has really shot up. Having said that, we will continue to improve gross margin this quarter.

Got that. Second bit, again, on the OpEx side, if you could just highlight the initiatives, which has led to this kind of a reduction in the cost base and how do we see that sustaining?

Yes. So I think there are 4 initiatives over there on the operating cost cycle. So one is our supply chain cost, right? So that we are driving massive automation and the higher sales per store is getting leverage over there. So that is one straightforward piece. Second is on -- we've launched initiatives on store manpower and the delivery cost. So those are yet to, in fact, kick in. Store level productivity, we have gotten a lot. But on delivery side, we are beginning to frame our initiatives. Third is I have been the most hated employee in the company from a G&A standpoint, right? So I track it like a hawk. And in fact, we are getting -- beginning to get G&A productivity and G&A leverage. So I would say these are the broadly 3 initiatives, plus there are ongoing initiatives in terms of electricity, LPG, store level consumable cost management, which I am not naming. Similarly, on Popeyes, right, there is a massive drive to improve gross margins, look at various -- because the stores are building their playbook. We've controlled wastages. We've controlled oil consumption. We've controlled product wastages. We are sourcing better. So as we gain scale, that margins will, I believe, and the business grows, that margin will grow. Lastly, in-sourcing. So a lot of the seasoning that you get along with Pizza is manufactured at Bangalore. Those capacities we are adding on. The Popeyes marination now is -- we were -- we had outsourced it. Now we have in-sourced it. So other stuff like that is also there, which -- because we have the commissaries and the scale, without adding CapEx, we are actually bringing some of these cases inside.

Final question, just coming to that. Despite launching the INR 99 menu more than a year back, what is the growth in the core dine-in, leave apart some of the business that we have shifted to delivery, which is take away. So what's the core issue there? And are you looking at more than 250 stores in Domino's, given you added 140 in first half?

Yes. So if I just -- see, you have to think of the customer ordering in 3 ways, right? So one is the most known is the delivery where I sit at home and I order in. Second is I go to a store, which is called delivery and dine-in and I eat there inside the store. So it's a dine-in experience outside dome. And third is I come to the store, I don't eat there, but I pack and get it packed and take away from home -- takeaway to my home or any workplace that I eat. So delivery, I mentioned, grew more than 20%, dine-in grew 14% last quarter and takeaway declined by 19%. So that business, we know the takeaway business will continue to decline for the very simple reason, we are giving 20-minute and free delivery. So the incentive for the customer to come to the store and do a takeaway is less. And delivery, we know once the basis get corrected, we have invested in our stores in terms of look and feel, service, and also our product is best experienced when it is fresh out of the oven. So we believe that at least dine-in we'll be able to claw back and take away once the bases get corrected and INR 99, of course, during lunch hours are a help. So confident about that. We have several initiatives. We will not leave that because we are a neighborhood store, and there are occasions when you -- either it's impulse purchase or a value offering like INR 99 will draw footfalls to the store.

Just on the store adds, if you can tell us.

Store, what? Sorry, sorry, I missed that.

You've added 140 stores of the...

So I'm not -- so I think it's -- it is less about the guidance, like so we are committed to about 900 stores, like we said, in the 3 years, right? So that target doesn't change. In terms of store adds, we may grow a little faster. But see, we want to make a fundamental shift in ops, right? If you see our track record, we've opened most number of stores in Q3 and , right? And we want to open most number of stores in Q1 and Q2 because we are not in the business of opening stores, we are a business of operating stores. So the -- so once the more stores you open before Christmas, big days, Dussehra, Diwali, that is when you get more sales. So there is no upward revision of our store opening. I think what the guidance that we have given, we will stick by the guidance. And if we do end up opening more stores because we -- because the return on investment is making sense, we will go ahead.

The next question is from Avi from Macquarie.

Just one question on Turkey. Is there seasonality in the margin profile and -- or not? And how should we look at it from a full year perspective? That's the only question I have.

No. So let me take that, Avi. No, there's not really any seasonality per se. Of course, quarter 1 for Turkey -- and there's a minor seasonality from a growth perspective. Quarter 1 is big for them. It's post Ramadan. It is also when the holiday seasons are up. So that's where you can see some leverage benefit coming through in margins. But otherwise, they have a fairly standard margin profile at an EBITDA level. The only thing that can impact it, and we have a look at it in the sense is given it's a hyperinflation economy, there are a couple of accounting adjustments that happen. So there's something of monetary gain loss or your balance sheet gets restated. So depending on how much inventory they are holding at a certain point in time, right, and how that gets revalued into the P&L, there could be some seasonality impact of that. But from an underlying business performance, there's not much of a seasonality impact on EBITDA margins.

Got it, Suman. Suman my question is more from first half, second half because the base year or FY '25, we saw very sharp variation. So I just wanted to understand was that was the way things are because you only have 4 quarters of performance to compare, hence, the question...

You're talking about PAT margins? You're talking about PAT margins...

EBITDA margin, EBITDA margin. So your operating performance should be -- first half is a better metric to look at it from a full year perspective. Is the right takeaway? Is that?

Yes. Yes, it is. But like I said, last year, because we were also coming the year -- if I look at the calendar year for 2024 of Turkey, they started a very high inflation level and at very high stock levels of inventory because the prices were increasing every week literally on their commodities. And hence, they were sitting on very high inventory levels, which kind of gets flushed into the P&L. So you saw a lot of up and down in the P&L in the last calendar year. This year, they had a more steady state of inflation. So we have not seen that much of an up and down in terms of the margin -- EBITDA margin profile. Last year also, PAT margins saw a bit of an up and down because of some tax-related reasons in the country dynamics. So you should not see any of those variances going forward. It will be more steady state going forward on EBITDA margin.

The next question is from Tejash Shah from Avendus Spark.

Sameer, you called out 2 interventions that impacted margins earlier, free delivery and then more focus on value launch. But somewhere, the initiatives also helped us to unlock demand and deliver robust LFL versus industry. So now on this base to deliver LFL, which should be healthy, would you need to unlock more benefits or the current status is good enough in terms of consumer value proposition?