Gross margins for jubilant remain good and stable. However its the expense ratio that can go out of control. The improvement in the expense ratio that we have seen this qtr is probably a result of them closing down further dunkin donut stores. The main cost that needs to be checked is the rise in delivery costs which has ballooned in the wake of ecommerce offering lucrative remuneration to delivery boys. Several dominos outlets are short staffed for delivery talent. They have also terminated arrangements with third party delivery vendors to save some margins. I think they will have some pressure on that front which will impact cash flows. However, I think they will maintain their long term ROE of 21% but it will be difficult to exceed that in this sector which is a mix of two bad sectors - restaurants and online food delivery - both which we know have bad economics. At these levels even after the steep correction - perhaps it would be prudent to wait if looking at fresh investments.
On the plus side - its got a fabulous recall and a strong brand name , pizza eating culture is only intensifying and it remains the king of junk food, pizza is addictive due to it’s savory elements , dominos has the widest reach of any qsr chain in India and it has a strong balance sheet.
Disc - invested