20 Sep , 2022 By : Monika Singh
We upgrade JUBI to BUY. Drivers of our optimism are (i) loyalty program potentially driving higher order frequency (~15% of Domino’s customers account for ~56% of revenues – a classic marketing case of heavy-user dependency – which is good, in our view), (ii) continued network expansion ahead of competition, (iii) likely positive surprise in Popeye’s execution and ramp-up,
(iv) lower incremental impact from fortressing (splitting of stores) strategy and (v) 24% underperformance vs Nifty over last 12 months.
We believe JUBI remains best positioned to realise industry tailwinds driven by (i) already existing digital infrastructure and delivery capability & relationships and (ii) lower competition thanks to industry consolidation (~25% of restaurants have closed as per National Restaurant Association of India).
We will monitor announcement of a refreshed strategy, if any, under new CEO. Sameer Khetarpal. Upgrade to BUY; target price at Rs 750.
* Cheesy Rewards (loyalty program) likely to drive higher order frequency and retention of customers: JUBI has launched a simple milestone-based loyalty programme where customers get a free pizza after every 6th eligible orders. We believe, this loyalty programme is likely to drive higher order frequency and help JUBI retain its customers. ~56% of revenues for Domino’s comes from ~15% of its customers, indicating it’s a heavy user dependent business. Loyalty programme will likely help JUBI retain them when competition is rising among organised players and drive higher order frequency.
Secondly, loyalty programme is also likely to drive higher traffic for Domino’s app as cheesy rewards can be received across platforms but can only be redeemed through the app.
n Absolute store expansion of Domino’s continues to be higher than Pizza Hut: JUBI has indicated plans to open 250 Domino’s stores in FY23, while Sapphire Foods and Devyani have also been aggressively opening Pizza Hut Stores. JUBI has gone through the learning curve of expanding aggressively JUBI’s own delivery capability (either through own app or food aggregators) allowing it to own customer data.
Valuations and risks: Our earnings estimates are largely unchanged, modelling revenue/ Ebitda/PAT CAGR of 21/24/29(%) over FY22-24E. Upgrade to BUY with DCF-based revised TP of Rs 750.
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