This Midcap Food Services Stock Grew 190% In 5 Years, Buy For 41% Robust Gains: ICICI Securities

Stock Outlook

The Current Market Price (CMP) of stock is Rs 511.25/share on NSE. It fell 4.22% from its previous close. The stock in the past 1 week has fallen 1.72%, whereas, in the past 1 and 3 months it fell 5.42% and 17.68%, giving negative returns. Over the past 1 year, it gave 27.68% negative returns. In the past 3 years, it gave 62.05% positive returns. In the last 5 years, it gave 189.69% multibagger returns. 

Now communicating to customers about 20-minute delivery USP

JUBI has now started communicating to customers, who are in express delivery zones (20 such zones in 14 cities), through banners on Domino's app about 20-minute delivery USP. This is the fastest possible time for delivery. JUBI pioneered 30 minutes delivery guarantee in 2004. However, the current 20-minute delivery is not a guarantee. JUBI currently delivers 2/3rd of its orders in less than 20 minutes.

India outperformed on execution

Out of top 3 global markets (US, India and United Kingdom; 65% of total stores), it's only in India that JUBI has been able to successfully execute 20 minutes delivery at large scale (65-70% of total orders). This was driven by JUBI's 1) densification of stores (fortressing strategy), 2) aggressive investment in building digital assets (app for customers, back-end IT; store managers can now track all fine store-related details etc.) and 3) saving time at other places (changed kitchen layouts to save time in pizza preparation). In UK, average order delivery time is 25-27 minutes while in the US it's c.30 minutes.

A decadal history of gaining delivery-market share in US despite 2x competition

In US, we note Domino's has consistently gained pizza-delivery market share over the last decade from 42% in 2012 to 53% in 2022 despite doubling of competition. During 2012, top 2 players (including Dominos) commanded 53% market share in US pizza delivery while in 2022 there are 4 companies that corner 59% market share. We believe, Domino's in India, with superior execution capabilities, should be able to survive the rise in competition in delivery channel.

Better placed than food aggregators to win customers in delivery business

Convenience has always dominated (~40-50% revenue contribution) pizza category in most countries globally. JUBI enjoys structural advantage in offering cost-efficient fast delivery compared to food aggregators; (i) aggregator delivery boys have to deal with different layouts (of restaurants) while picking order for delivery (loss of time) while Domino's has similar layouts and hence, has structural advantage for fast-delivery, (ii) Domino's offers higher predictability of orders and no requirement of capex/cashflow-management (cost of petrol and bike), hence, it is able to attract delivery personnel at competitive rate compared to food aggregators, (iii) during peak demand, delivery service (the timing) of food aggregator is impacted due to unavailability of sufficient riders; however, JUBI's ability to predict peak-demand and hence, employ delivery personnel is more robust, (iv) Domino's delivers pizza in hot-bag while food aggregators are using ordinary bags for delivery

Valuations and risks

Maintain BUY with DCF-based target price of Rs 720. According to the brokerage, the key downside risks would be Raw material costs turning inflationary and increase in competitive intensity.

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.