Jubilant FoodWorks Limited ($JUBLFOOD)

Ladies and gentlemen, good day, and welcome to Jubilant FoodWorks Limited Q4 and 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, Head, Investor Relations and M&A, Jubilant FoodWorks Limited. Thank you, and over to Mr. Saraswat.

Thank you, Nirav. Welcome to Jubilant FoodWorks Quarter 4 FY '26 earnings call for investors and analysts. We are joined today by senior members of the management team including our Chairman, Shyam Bhartia, Our Co-Chairman, Mr. Hari 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'll [indiscernible] with the question. Along with the financial results, we have also released...

Sorry to interrupt you. We are losing your audio. Can I request to come closer.

Nirav, am I audible now? Is it better?

Yes. This is better.

Okay. Thank you. Please note that the earnings call is scheduled for a duration of 45 minutes, and we will commence directly with the Q&A session. Along with the financial results, we have also 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 count of questions to only two. 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 these statements made on today's call will be forward-looking in nature, and the actual results could vary from such statements. I will now hand over the call to moderator to begin the Q&A session. Thank you.

[Operator Instructions] The first question is from the line of Nihal Jham, HSBC.

You have highlighted in detail about the like-for-like performance. I just had one question to it with two subparts, that if I look at even the 2-year CAGR, there has been a deceleration from 9% to 6% from Q3 to Q4. And even if you bifurcated both for dine-in, which is anyway sitting on a low base, so that is not the case. And even delivery that I say, fell from 28% Y-o-Y growth to 10%. So if you could just give more clarity in detail about the sequential deceleration. I understand the long term 5% to 7% with the sequential acceleration and both the subsegments?

Yes. I think, sir, again, see, quarter-on-quarter is more noise, right? Therefore, what we should look at is a full annual number, which actually for 2 years have been closer to 7%, right? So I think if we -- the double-click on dine-in is more important, right? And I think Delivery continues to grow strong, right? That's number one. That is our strength. We continue to have very strong operating metrics. We continue to see strong like-for-like growth. There are two underlying headwinds, which are there, which we've called out in Dine-in and Takeaway. And second was the average order volume drop. The average order value drop because we have very consciously moved to match the competitors on the minimum order value of INR 99. So we were -- just to recall we were -- our minimum order value was INR 149. To gain market share to make sure that we are building a business for longer term and acquire new customers. We are very consciously taken a call to reduce minimum order value from INR 149 to INR 99. And as a result, there was a drop in the average ticket size. And that is the subtext to it. So therefore, I'm not too worried on the variation of 9% to 6%. The real challenge to solve is over there is the Dine-in and Takeaway sales.

Understood, Sameer. The other thought is that how was the discounting trends seen during this quarter? And to your 2-year goal of 5% to 7% growth and the 200 basis point margin improvement can they be achieved simultaneously?

Yes. I think a great question, right? So the -- from a -- from a priority standpoint, we've prioritized growth. And from a growth standpoint, we prioritize volume metric growth because we are building a business for the long run. And you're absolutely right. If you drop the order value, it puts additional headwinds towards margins, but we believe in our business where -- where almost more than 50% of the cost is fixed cost. Growth is the biggest driver of margins. And hence, I continue to remain optimistic about driving both both growth and margins. Just to remind you, there is a drag of new businesses like Popeyes, Hong's and Dunkin'. And we have taken very conscious calls to focus on a few areas and drive profitability. That drag or dilution is actually ahead of the plan. So again, I continue to be optimistic on achieving both growth and margins.

Next question is from Avi Mehta from Macquarie Capital.

Team, first of all, I must compliment you on the shareholders letter. It was extremely nicely done. I just had two questions. First, Sameer, on this the outlook as we speak. You have cited that there are some near-term headwinds. There is competition that has changed. I wanted to understand how do you look at store additions in this context and whether what is the base that you would be more comfortable with as we go forward would be the first question, and I'll come to [indiscernible].

Avi, I think the -- If I just cut the noise from the -- all what's happening, right, there is one truth that Domino's has [indiscernible] in the category, it has gained share in the QSR space. And we have a separate panel of [indiscernible] customers run by Nielsen. They are also indicating that we have gained share, and we have gained share materially in pizza as a category. So this allows us to expand more aggressively. This allows us to penetrate more and invest more in brand building, right? So from a store addition standpoint, I also check how the new stores that we have opened are doing. So from all accounts, right, store addition expansion is not a worry, which would open someone like similar like about -- similar to about 230 to 250 kind of restaurants this year.

We have mentioned in the letter also.

Okay. No, where I'm coming from, Sameer, maybe I'm just clarifying on this question. It was not on the quantity but also on the type because as you can see, Delivery is where the growth has been. Does that require a reset in the way we look at store additions? Does that mean we kind of look at change in CapEx and hence, that's where I was coming from. So that was the underlying question. I'm sorry for not clarifying.

No problem. So see, we are constantly calibrating and learning, right? So if you look at our go-to model in large metros is actually a delivery carry-out store, right? So understandably, it is a mall which is [indiscernible] like there is a [ food court ]. So if we do -- we are opening more in the carryout stores, which are about 700 square feet. When I joined the company 4 years ago, there were a lot of store approvals we were giving, which were 1,500, 1,600 square feet, don't do that even in Tier 3, Tier 4. We have also resized remodeled our kitchens to be more efficient and put more seating space and some of the...

Sorry to interrupt, we are losing your audio.

So we are constantly calibrating our store format store model. And as a result, our CapEx per store has actually reduced year-on-year, and almost nearly 3 years in a row by 20%, right? So it has come down by 20%. And we are constantly calibrating that -- and there are places where, in fact, we also realize that we need to add more seats. We are also doing that. So that's a constant exercise we have in our -- in the company.

Got it, sir. And just a follow-up on some bookkeeping questions and particularly on the gross margin. You've seen a very healthy sequential margin expansion at the gross margin side. And the drivers of it seem to be more stable and sustainable. Is that -- does that mean that we should kind of look at the 75.5% as the more steady-state run rate as we go forward? That was the first part. And the second part is, if you could also give us just what is the inflation levels that we are looking at in the input cost so that you can better understand the near-term margin pressures? That's all from my side.

So we had actually mentioned, if you recall in our earnings call or 3 or 4 earnings calls ago that we'll improve the gross margin, right? So -- and -- and for the conscious choice we had taken, like, for example, we have taken calibrated price increases in Volcano Pizza. We had worked on our cost. We have reduced wastages materially. We launched Big Big Pizza launched Sourdough Pizza, we launched some of the like more premium products, but conscious effort of wastage reduction, premium -- launch of premium products, mix changes and calibrated price increases, we have increased the margin, that it has happened. In terms of inflation, I think -- it is one number. It's just -- at least I don't have a very good handle on at this stage because the numbers are moving very quickly. We've been at the most in the in the energy cost, right, which is very real, where the cost of LPG has increased cost of P&G has increased. So that is one additional calibration that we have to do in our system between electric ovens and gas-based ovens, we are doing that. But that is the biggest piece, which has been -- if tomorrow war were to die down and things were to go back to normal, we also know that the energy prices are at an all-time high elevated level. So it can also come down, but can work on both sides. But we -- I think there is an inflation. We're entering an inflationary at least near-term inflation pressure is high. To what extent it's been very hard to calibrate Avi, but the energy is definitely the tune of 100 to 120 basis points, that is -- we are already beginning to see come into the P&L.

Sir, sorry, I missed your -- you said 100 to 120 basis points hit from energy, right?

That's right.

When the price increases are around 1.2 percentage, that should kind of offset...

So we are taking price increases, right? So...

Yes. So energy is but also there are a couple of other things. Commodities, I think we'll all wait to see how it plays out. in this right now, some amount of commodity inflation has come, but as you would all well understand covering the consumer sector that if petrol diesel prices go up and as logistics cost goes up across the board commodities, we'll see further inflation. So we are also trying to model but we'll have to wait and watch. While we'll continue to drive, of course, efficiency [indiscernible]. The other big headwind, which has been coming our way and again, something we'll have to see how it materializes consumer inflation goes up in the market of wage inflation. right? And that's also hit us about 11 states have already increased minimum wages as the fiscal year started, plus the labor code also brought in further headwinds on labor inflation. So those are the two inflation, which are already in -- so if I look at it back to your question on saying 120 bps on energy, we have taken 120 bps of pricing, all of the pricing, of course, doesn't flow through into the margins to that extent. That's the one that flows through. But we also have other headwinds. So we do believe that in the near term, there might be some compression. But coming back to your point on structural improvement, they continue to -- will stay the course. So wastage reduction, improvement in mix and looking at the premium part of our portfolio. looking at productivity and better scale benefits from sourcing, that will [indiscernible] to flow through and hopefully help mitigate some of the inflation coming our way.

And no ranges that you would kind of give us on labor that's only -- probably request -- it's possible or not?

On labor?

On labor because you said 10 to 15 basis points or if I remember, 10 to 20 basis points impact from the labor code. So I'm just trying to appreciate the extent of the impact. So it doesn't seem large. That's why I was coming from. So is -- is that understanding correct?

Yes, labor code, but I'm getting to the -- I'll help you out with that. So there are a few things on labor costs which are coming our way. One is, of course, labor code in absolutely writeup about 20-odd bps. But the minimum wage increases that we have seen across some of the states that have already gone live or the [ 2911 ] have announced, and we'll wait and see some more, but that's not the 20, 30 bps, which is there. And then even the delivery mix headwind, right? We've had a 76% delivery mix on that, and that is another inflation headwind on the labor cost. So that's -- there are 3 or 4 elements to it, which takes it higher than the 30 bps only on account of the labor code, which we had indicated in the past.

Next question is from the line of Dhruv Luthra from Bernstein.

So my first question is, so through some of our channel checks, we saw that you took price increases in April, which have been rolled back. So could you walk us through what you observed during the period that led to the rollback?

So there has been no prices, which has been rolled back in April or anything. I think our price increases are very calibrated after 14 to 16 weeks of strong experimentation. I can't recall something that has been rolled back.

We haven't rolled back in -- any specific instance, which makes you say that Dhruv?

So some of my order history -- in April, the garlic bread stick a INR 10 price reduction in, versus my order in April.

That will be very store specific and discounting specific. We do a lot of this recalibration of prices and at an overall level there's not any of that changes that have happened. But -- so no roll back. We don't anticipate anything like that.

Okay. And sir, my next question is, so as you mentioned that we are seeing inflation in some of the raw materials, milk prices going up and with petrol and diesel going up. So how should we think about SSSG and margins going forward?

So SSG, we've given a commentary already, right, on Q1 and the longer term or the annual number, 5% to 7% remains. The quarter 1, we've already given better running -- better than Q4. And in terms of margins, actually, we are modeling our sales growth. There is -- things are changing very rapidly. On [indiscernible], the three elements where there is inflation, i.e., energy, labor and commodity, right? [indiscernible] We are -- we are -- what we are doing is to of course, first tighten our belts and not pass on everything to the consumer and the resultant will have to pass on to the consumer after doing a thorough calibration of price increases.

Next question is from the line of Aditya Vikram from DB Securities.

So the optimism doesn't say, but the numbers are saying something else. And the way the story is panning out in terms of the war and everything along with the margin pressure. If I see our results on this time around, right, the cost of goods so purchase has slowed down drastically from Q3 to Q4. I just want to know if that is sustainable because assuming Jan-Feb would have been very good for you in terms of raw material initiation. However, from March onwards, it would have started giving you jitters, right? So do you see similar directly in the month of April in May as well?

So actually, the -- I think gross margin is sustainable. I think we answered that before. And there was no such -- I think your assumptions are incorrect again in Feb and March, I don't know where you have got that from, at least in our P&L, it doesn't say that.

And in terms of the margin, right? So we already read the shareholders letter, there will be short-term margin pressures. So are you seeing -- I understand that one of the aspects of this is war and how the global economic pans out in terms of the energy cost and everything. But do you see margin pressure for next couple of quarters? Or just one more quarter at best and then all the -- all the initiatives is the company taking will get us back to 20-plus percent margins?

Aditya, I think at this point, it's very difficult for anybody to anticipate, right? Every day, the increasing number has been -- we do hope that we'll stay on the next couple of quarters. But if you guys have recent [indiscernible] of the industry players, I'm sure you'll have a better view on that. Very difficult to predict. I can't really give you [indiscernible] at this time.

I think the broader [indiscernible] Domino's is gaining share. The 5% to 7% is what is the business we are building. To do that, we have enough levers to get back to the margin that we wanted [indiscernible].

See, Sameer, I understand that I completely appreciate the honesty behind all the statements that you are making. The Q4 like-to-like growth is only 0.2%. So I'm hoping that Q1 wouldn't be that bad, right? So that is well understood, right? However, only if you provide some calibrated view about margins, right? And then only we can actually go ahead and reprice any inputs which we have at our end. And that is why the question around that, right? Q4 cannot be a benchmark, a 0.2% like-for-like growth. There's not a benchmark, Q1 [indiscernible] need, right? But -- for the entire year, like-for-like growth as like one of the other participants pointed out, Q3 to Q4 has been lower, obviously, because of LPG issue, but LPG also now there are news floating around that there is a shortage. So you will see significant cost on that front. Now that is precisely why the other questions around that, right? But if the company hasn't calibrated it yet, it might be a [indiscernible] if the company can come back and at least give some guidance on margin front because every other competitor of yours have said the same. However, they have given some margin guidance, which is all through earlier, right? Jubilant, we expect transparency to be very high, considering how the company works and performs.

Aditya, would like to correct on that. I think it's a long question, but we have said there's going to be short-term margin. We're being [indiscernible] transparent on what's the kind of inflation margin pressure we're seeing on energy. We have also talked about labor, commodities. We are seeing, we see muted right now. But I think at this stage, any company that we're seeing, when we also track all the companies and competitors. I think we're very hard press when you say what will the kind of inflation that will hit, right? And of course, we've internally calibrated our numbers. But the way the dynamics of the market are moving, we're having to recalibrate numbers ever two days. So of course, they have been transparent. They are all the structural initiatives on getting the margin expansion going then. In a note also we have said the long-term margin guidance on 200 bps holds and we'll try as quickly to get to that elevated number. But short term pressure exist. Now will it be for a quarter, 2 quarters, 3 quarters, I think, at this stage, is anybody's guess, right? And I don't think that [indiscernible] from the fact that, of course, the management is more concerned on ensuring that we keep calibrating this judiciously what needs to be done on pricing, on cost austerity measures, and to ensure that we still manage our consumer franchise, right? I hope that answers the question, but if there's more detail on the cost of purchase, we can take it off-line.

See, that's what I'm saying, right? You are not able to quantify whether it's for one quarter, two quarter, three quarter. That does not give enough clarity and it has nothing to do against you, whether you are calibrating it or not. Just that how the market dynamics are. And the pricing pressure, competition and everything. I'm just reading the shareholder letter, which is why I'm asking because it doesn't give enough visibility either we do it here and say that the initiatives will do this and will help us take X amount versus Y amount is on the cost right? Anyway, I'll take this offline. There are other participants as well.

Next question is from the line of Karan Taurani from Elara Capital.

My question purging to the cost invasion, right? So from a commodity standpoint, it's large equivalent for other QSR we changed versus yours. But from an NPD perspective, you've got a significantly higher exposure towards NPV basis Pizza category. And second, of course, is the employee cost right, you have got your own delivery fleet. You run your own [indiscernible], which means that the inflation, wage inflation costs again, the petrol cost of operating. So from that context, what is the kind of negative impact one can see on margins? Again, I know it's not possible to quantify. But can we say that you will have a significantly higher negative impact on margins versus your peers?

Actually, no. And Suman can add. Firstly, like-for-like growth will help. Second is the large part of our fleet is actually electric right? I think, therefore, we believe we have an advantage versus the rest of the market. Number three, I think there is an impact of LPG that we are calibrating and part of the profit we have already mentioned in our newsletter, pass back to the consumer to tune of 1.2%.

And what is the potential for moving these LPG-based outlets toward electric. I mean what percentage of the outage currently would have gone to electric or what is the kind of OpEx of running the outlets on a electric basis. And how can this number change? They say if this war were to continue for the next 3, 4 months and the inflation pressure is very high on LPG as commodity. Would you move to electric? And is the OpEx cost higher? And is it possible first to shift a large share of your outlets to was electric?

I think we're constantly doing that. The teams have done an amazing job of converting LPG to electric, we would work -- our own solution kits. We will also be able to import quite a lot of electric ovens. And we are also converting very quickly to pipe natural cash, and there is a mandate from the government to convert to pipe natural gas. So from a business continuity standpoint I don't see any risk unless until I'm surprised by the extent of war and control of LPG in India -- so we've -- I think the teams have done an amazing job of managing the situation. From a price standpoint, there was a positive delta towards LPG, but with the LP price increasing and on commercial cylinders, actually, the delta between electric and the LPG is no longer there. So things we can -- so we'll be able to shift thing. I want to assure the investors and we've released two circulars also earlier, that the impact of LPG availability was very minimal on the business operations. On the cost we already said, the -- it impacts to 120 basis points. We've already passed on the pricing to the tune of 120 basis points to the customers. And there are other initiatives in the work -- so I think we should assure you that as a team, we will continue -- have the wherewithal to continue to grow at the desired pace we want and also improve our margins, barring one or two quarters which may -- we will not do major price increases that is out of the table. Otherwise, we are -- we know what used to be done on the margin front.

So if I may squeeze in being the last question. So apart from the Dunkin Donuts business, which has been high [indiscernible] apart from lower losses [indiscernible] you may see going ahead. What are the structural margin levers that you're building for the next 2 years for Domino's India? What should one consider the lever that could drive margin improvement of 200 bps in the next 2 years?

So the biggest lever is the growth, right? So which covers for inflation, the like-for-like growth. Second is the gross margins, have you seen already improved, right, on account of better management of operations. We've already launched premium products, which have better margins. And then there is -- there are several productivity initiatives at work. In fact, our supply chain cost has been lowest ever, right, in the history of this company. We believe there is even more juice over there. Our logistics cost, actually, we believe, can improve further. So again -- and I can go on and on. This is my favorite topic. So there are enough productivity levers that exists across large line items. We are opening 250 stores every year. We are -- or we are able to go back and renegotiate with our landlords because this is giving them annuity rental income. So there are several levers that we are pulling, which -- and therefore, feel confident to meet our numbers on the margins.

Next question is from the line of Vishal Gutka from ASK Investment Managers.

I just had a simple question. I think during the World Cup final day, they suggested that system -- our systems were down for 6 hours, maybe in the second half of the day, which impacted the sales to an extent. My questions are, what is the probable impact [indiscernible] sector through. And sir, what steps are we taking that such instances do not remain in the future?

Firstly, the information is incorrect. The systems were not down by 6 hours. Incorrect. The systems were not down. There was a minor downtime on our app, but rest of the system was working and we recovered very quickly. So there was not even like a notable impact in that we -- that is noteworthy of calling out over there. And systems are very stable. So don't worry.

Next question is from the line of Nihal Jham from HSBC.

Yes, just one follow-up. Just one follow-up on the market share that you mentioned that as per the Nielsen panel, you've gained market share both on Dine-in and Delivery. The only data point, let's say we track is that if we look at aggregators, which is say sort of the larger QSR basket, but this is sort of the first quarter where the divergence in growth has been as much versus, say, Domino's and say, the aggregator. So just your comments on that.

Nothing, sir, I was referring the good question. So I think, firstly, the data that we track is only for Delivery, right the most like accurate data available through a consumer research. So I was referring to that. And the -- I think you -- when I was saying that the -- among the 30-odd players that we track, we have gained share among that. Those are largely QSRs which will go to almost like 0.3%, 0.4% of market share. So I was mentioning against that. So you are right, the aggregators have grown faster than the delivery of Domino's, that I agree, which would only indicate that the UFR as a basket has not grown as fast. And therefore, the aggregators are getting growth from other non-QSR players or premium players is what my sense is. I don't have their data. And we are -- we have plans to increase our delivery growth rate.

Ladies and gentlemen, we'll take the last question from the line of Avi Mehta from Macquarie Capital.

I just wanted to clarify on the gross margin a little bit. See the reason why the confused [indiscernible] in is we have seen almost a 5% realization decline which means that the underlying cost of bills are essentially reduced, does that mean that the expansion has more to do with the move towards INR 99? If you could just throw some light on that, please? -- on how do you reconcile the decline in realizations with the expansion in gross margin? Or is that method also inaccurate?

So can you just maybe explain when you say expansion on gross margin...

No, no. The gross margin has gone up 100 basis points from 74.5% to 75.5%. And your realizations have gone down by 5 percentage points, which means that the cost of materials have to go down to almost 8%, 9% over percentage points. So I'm just trying to understand -- how is this kind of reconciling? Is it because of the new -- the move towards the cheaper or the lower price point is actually towards better gross margin products? Because the comment that you made about premium products, mix improvement should have also held realizations. That didn't pan out, but the margins pan out. So I'm just wanting some help on how to reconcile these two.

Maybe some more nuance question. Can I suggest we take it offline?

No, we have data but I think it's a reconciliation point. So maybe you can pick it up with Apaar.

Thank you very much. I now hand the conference over to Apaar Saraswat for closing comments.

Thank you, everyone, once again for joining the call and for listening patiently. For any other further questions, please reach out to the Investor Relations. You will find the recording and transcript of this call on the Investor Relations page of our website very soon. Thank you, and have a very good evening.

Thank you very much. On behalf of Jubilant FoodWorks Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.