Q2 22/23

Nov 8, 2022

Please note that this conference is being recorded. I now hand the conference over to Mr. Deepak Chachodia, Vice President, Finance, Jubilant FoodWorks Limited. Thank you and over to you, sir. Thanks. Good evening, everyone. Welcome to Jubilant FoodWorks Q2 FY 'twenty three earning call for investor and analysts. We are joined today by senior members of the management team including our Chairman, Mr. Shyam S. Bharatiya our Co Chairman, Mr. Hari S. Bharatiya our CEO, Mr. Sameer Kedripal our CFO, Mr. Ashish Goenka and our Group CFO, Mr. Arvind Chokhany. We will commence with key thoughts from Mr. Hari as Bharatiya. We will then turn to our CEO to share his initial impressions. Our CFO, Mr. Ashish Goenka will follow him with the operational and financial update for the quarter ended 30th September 2022. After the opening remarks from the management, the forum will be open for the question and answer session. A cautionary note, some of the statements made on today's call could be forward looking in nature and the actual results could vary from the statement. A detailed statement in this regard is available in Duplex FoodWorks' results release and earnings presentation, both of which are available on the company's website under the Investor Relations section. I would now like to invite Mr. Hari Alphatia to share his views with you. Thank you and over to you sir. Thank you, Deepak, and good evening everyone. Welcome to our earnings call. Let me start by highlighting some observations around the sense we are deriving from the current environment. On the demand side, economic activity remains resilient. We are seeing a sustained revival in demand for the food service industry after we have seen a big impact of COVID over many quarters in the last 2 years. The growth for us was equitable across all town classes. It has got further impetus with the onset of the festive season. The dining and takeaway sales have shown strong recovery and we continue to see further opportunity for growth in this channel. The delivery channel has continued to grow on a strong base of last year. On the cost side, the inflationary wins continue to persist and is driven by food and energy inflation. Notably, the CPI inflation continues to be above RBI's 6% tolerance level for 3 consecutive quarters. Within this, the food inflation continues to be ahead of the headline inflation. With dairy products, the prices for cheese, which is one of our key ingredients were at a price level not seen in the last 10 years. Overall, I am pleased with how our company continues to focus intensely on executing our strategy. The strength of our omni channel model and continuous focus on cost optimization has helped us deliver another quarter of strong all round performance. The focus of network expansion as outlined in the beginning of the fiscal year continues to be on Domino's. We added 76 new stores and entered 22 new cities in India. With this, we have opened 134 new Domino's stores in the first half and are well on track to achieve the store guidance of opening 250 stores in financial year 2023. Our continued investment in building our digital and data strength is yielding very good results. I'm happy to share with you that app installs at 9,400,000 and own asset contribution to delivery sales were at its highest ever level in this quarter. This has been possible through enhancements to our banking technology, data analytics, menu personalization and enhanced CRM capability. We are positively surprised with the tremendous response received to our loyalty program, Domino's cheesy rewards, the cumulative enrollment grew to over 7,200,000 since its national launch only few months back in May 2022. During the quarter, we became the 1st QSR company to launch menu innovation dedicated to East India. Our team worked with a panel of renowned chefs to create an amalgamation of pizza with authentic regional taste loved by the locals. This has been possible, thanks to our high store density across all regions and therefore we will continue with such menu innovation for different regions going forward. The Board in its meeting today also approved a restructuring exercise with regards to our international operations where all international operations will now be held in a step down subsidiary, Jubilant FoodWorks International Luxembourg. The exercise will result in simplification of structure without any change in ultimate ownership over the subsidiaries. I'm happy to share with you that Sameer has joined us in early April. Let me now turn over to him to share his initial impressions as a CEO and Managing Director of our company. Thank you, Mr. Bhatia. Good evening, everyone on the call today and thank you for making it today our auspicious day of Gurupurav. As you know that I joined Jubilant as a CEO on 5th September. So I was here for the last 3 weeks in the quarter and total of 8 weeks. I'm pleased to inform you that my learning and my transition is on track. I'm receiving tremendous support from my team and all other stakeholders. In the last 8 weeks, I have been traveling across India to and visited almost 100 stores, spoken with and read reviews of more than 1,000 customers and met more than 1,000 of our frontline teams serving customers inside the stores and delivering to customers. I also visited Harvard FoodTech Factories and was very deeply involved in launching the West Bengal range and no onion, no garlic range in Gujarat. My focus has been to learn fast, ensure execution and continue doing our strategy. My early impressions are following. Specifically, 4 of them I'd like to call out. Strength of JFL stems from a culture of customer led hustle inside the store. Deep domain expertise in data sciences and its very strong digital team. Unparalleled physical footprint, especially not only in Tier 1, Tier 2 cities but also in Tier 3, Tier 4 cities world class food tech factories that manage very complex forward and reverse supply chain, which is multi temperature and an awesome team that I have inherited. On the back of these trends, the team at JFL delivered a very strong quarter, serving more than 3 crore customers in this quarter, customer orders. Despite a very tough challenging environment, we delivered strong like for like growth, very consistent and industry beating EBITDAs, digitally acquiring customers at a new pace and loyalty is a big hit. We also added the net new stores, the highest ever net new stores in this quarter and internationally team internationally 2 teams in Bangladesh and Sri Lanka have delivered a strong quarter despite severe headwinds. On new and emerging brand fronts, I was there for many of the store openings in Bangalore and customers are loving Popeyes. They're coming back. And again, we've launched our own app over there last quarter or 2 quarters ago and that is also seeing great traction. HomeKitchen is iterating the service and we are very pleased to inform a very steady growth in orders and also repeat customer repeat rates. It is truly building up of India's first Chinese QSR brand. I will continue to devote my time in deepening my understanding of the business and the portfolio, embedding technology at a fast pace and furthering our digital agenda, driving customer centricity and accelerating execution in Q3. As you know that Q3 is our biggest quarter with multiple high decibel festivals and yes, that's kind of my focus. Let me now turn to Ashish to share financial and operational update for the quarter. Thank you, Sameer, and good evening, everyone. The revenue from operations of INR 12,868,000,000 grew 16.9% versus the prior year. In Domino's, growth in revenue was driven by like for like growth of 8.4% along with a healthy contribution coming from our newly opened stores. Our forecasting strategy also continue to work well for us. We've continued to face high inflation. This has significantly impacted our gross margin, which came in at 76.2% lower by 200 basis points year on year and 50 basis points quarter on quarter. However, despite that, we have been working on all fronts to drive productivity across our cost line and therefore delivered a healthy EBITDA, a growth of 9.2% versus the prior year. EBITDA came in at 3,125,000,000. This was at 24.3%, lower by 170 basis points over last year and 30 basis points quarter on quarter. Profit after tax came in at $1192,000,000 VAT margin being at 9.3%. We added 72 new stores on Domino's this quarter, entering 22 new cities and now we are serving our guests through 1701 Domino's stores across 3 71 cities in India. We have started with the journey of launching regional menu based innovations dedicated to local taste preference of a particular region. First in the series was a dedicated East India range. For the first time, we combined authentic local flavors like kasundi, kosha and malai on pizza. Similar regional menu innovation in the form of no onion, no galdi paint was launched in Gujarat in West India. We believe that such innovation will go a long way in expanding the market for pizza, which we have successfully done for over so many years. We are continuing on our path to significantly improve pre use order pre order in order and post order experience, while advancing own app adoption. In this endeavor, we relooked at old onboarding journey of on our own app and made a resolve to make onboarding even more seamless, faster and intuitive. In the new journey, we reduced the number of steps from new users to read the homepage from 5 to 1. SIM number detection, OTP auto read and background location detection were our means to achieve 1 step onboarding. On the new brands front, we added 2 new stores in Popeye taking the network spend to 8 stores. We are getting encouraging customer feedback and sensing the huge opportunity ahead. We are building pipeline and will step up store growth in H2. In Dunkin', we are pivoting the coffee first and have opened 3 new outlets with coffee queues across Delhi, Noida and Gurugram till date with 1 new store added during the quarter. The initial response has been very encouraging. In house kitchen, we are progressing well with planned reduction in number of processes from store kitchen to our central kitchen developed in our Greater Noorda commission. This is helping us make the model more QSR like and significantly improve consistency translating to higher customer satisfaction. Tanhul, to an update on international markets. In Sri Lanka, despite a very difficult macroeconomic backdrop, we delivered system sales growth of 37%. The growth was driven by dining and takeaway channel. The own app contribution to delivery sales was 71%, an increase of 7 basis points 7 percentage points year on year. We opened 4 new stores taking the network strength to 40. In Bangladesh, system sales grew by 42% and we opened 1 new store taking our total store count to 11. The own app contribution to delivery sales was 75%, an increase of 11 percentage points year on year. Turning to the update on sustainability front, I'm happy to share with you that the electric vehicle penetration in our delivery fleet has reached 31% as against 19% by end of March 2022. We've also started a program, Women on Wheels, where we are facilitating driver training for women from marginalized section of the society with an intent to help them become breadwinners for their family. In closing, we are pleased with the delivery of a balanced quarterly performance in the backdrop of significant inflationary challenges. As we look forward, we remain confident in our strategy and execution and feel that we are well positioned to lead this exciting phase of growth for Foodservice Industries. With that, let me now turn over to the moderator to initiate the question and answer session. Thank you very much. We will now begin the question and answer The first question is from the line of Nehal Jahn from Novoma Institution Equities. Please go ahead. Yes. Good evening and congratulations on the performance. Three questions from my side. The first one was that a lot of raw materials including our core material cheese is at an all time high. So would we look at pricing action in case that sustains? So thanks, Nehal. As you know that we are facing multi decadal high inflation and cheese prices also went up in this quarter. We had instituted 2 rounds of price increases earlier this year and one towards the end of last year. Currently, we are not looking at any further price increase and we would be looking at absorbing some of these cost increases in our margin. We are first driving productivity initiatives across the organization to mitigate the impact. Also we have also started seeing stabilization and softening of some of the other commodities, especially on the fuel side and on the oil side. So if cheese prices were to not go up further, we should be able to maintain and manage at the current level. Of course, within that, we will continue to look at pockets of technical opportunities to enhance our value extraction, but we are not looking at any overall pricing. Well, that is helpful. Moving on to the second question. We've added around 100 cities in the last 3 years and the aggression has been stronger than in the last two quarters. What I wanted to understand is for these new cities, how does both productivity and profitability work? Because I would assume a lot of these will be single store cities from a supply chain cost perspective also. Yes. So we have been making deeper inroads into Tier 3 and Tier 4 towns, Sanyan, and that's a part of our concerted strategy. We've added almost 66 new cities over the course of last 12 months. And I think the model works very well for us because not only we see robust demand in these new cities, but because of the lower operating cost, our profitability tends to be slightly higher and better than even Tier 1 and Tier 2. And therefore, the payback tend to be lower. So, I think it kicks in a virtual cycle of growth for us and we are seeing and we continue to believe that that model will continue to work for us in future. Sure. Just a last question on Domino's. As I understand, 3 initiatives at this point in time are something that at least we are reading or highlighting. First is the delivery speed that we are targeting. 2nd is obviously the menu launches. And 3rd is on the loyalty program. Would it be possible to give a sense that of these three which you think would be the most important in terms of getting new consumers or driving the engagement for the brand? So, Dihal, our constant trend over has been to continue to drive our LFL growth. And I think a combination of these initiatives is what we are targeting. And I think all of them will help us build the brand resilience and not only bring in new consumers to the category and our brand, but also drive frequency of our existing customers. So I think if I were to just talk about it, I think menu innovations are largely towards attracting new consumers to the category. And the delivery improvement vis a vis is a program which is aimed towards giving much higher level of customer satisfaction, which is equally true for both new and existing customers. Loyalty program again is directed towards driving frequency, but what we also believe is it also will bring in a lot of new consumers into the category. And whatever data we have seen or the experience we have looked at in the last 4 to 5 months of having launched the program, it is helping us actually recruit a lot of new customers onto the brand as well. So I think all these initiatives will act on bringing in new customers to the category as well as driving frequency and satisfaction of our existing customers. Sure. Thank you. Thank you. The next question is from the line of Amit Sashdeva from HSBC Securities. Please go ahead. Hi. Good evening, everybody. Thank you so much for taking my question. So my question is on the network rollout and the way it has been very impressive. And in this demand environment, revenue growth of 17% is great and new vigor in store rollout is indeed very impressive. My question comes from it, what is the cost you're willing to take in doing so? For example, if I were to assume that gross margin didn't decline, then PBT would have grown by 13%, all things remaining the same, which is about 4% drag to the overall sales growth. My sense is that it may come from small things ignoring, but coming from 2 impacts, store split impact and new stores still catching up to full throughput level, but investment has already been done in rentals, etcetera. Now, a question is that how much drag are you willing to take in aggressively rolling out strategy? Is there a limit of guiding principle you have set in the network rollout that we will not let earning drag coming beyond this level? Or there is some sort of thought how to strategically think about this network expansion and how we should think about earning growth lagging the revenue growth? That's a questionable answer. So, thanks Amit for your question. And I think as we have said in the past, store expansion is actually not having any negative impact on our overall margin. What is causing an impact on margin and dilution in EBITDA is largely coming from commodity inflation. And we are seeing that and inflation not just in commodities, but across lines. As you would know, we are seeing very high level of inflation in fuel, even in manpower cost as overall inflation has gone up, minimum wages have gone up. So, I think the pressure is largely on account of the unprecedented inflationary environment that we are seeing in the economy and not really because of store expansion. Because I think on a store expansion, we have a playbook that we have been following. And as the margins of the existing stores improve, while the new store may come in at a slightly lower margin in the beginning, But at an overall level, it does not really impact and we are able to absorb that. So I think once the commodity cycles were to turn, we should be able to improve our profitability from here. But if I may say, look at the other costs, I think you've done an excellent job in managing other costs. If I look at some staff costs to other expenses, I think everything is sub below sales growth in my view. I may be wrong a bit here and there. But on an average, I thought that every other cost item this quarter grew less than the sales growth. So you did actually manage other costs quite well. And I've already given the benefit of doubt that same margin did not decline 200 basis points, the PBT growth would have been 13% in that case. So what I'm trying to say what I'm trying to understand is that, when we grow 70 stores, 76 and 250 stores a year, would it at any stage be a case where PBT or earning growth would lag the revenue growth? Or it is like an earning dragging event for you or it is not? That is where I was coming from. How we should structurally think about that? Yes. Of course, you will see a higher impact on PBT than we will see on EBITDA because of higher level of depreciation. But I think that is yes, that is a cost of growth that we are willing to take because I think what we are willing to looking at protecting is of course our EBITDA margin because that is a far better reflection of the operating health of our brand. Higher depreciation would also be because of the investments we are making in our chemistry, because as you know we have a very well entrenched chemistry based model and that has really worked well for us. And as we expand, we'll also be looking at expanding our chemistry network. So in fact this year, Bangalore chemistry is under progress and we are making substantial investment there. So some of these investments are in store network expansion, chemistry network expansion. And so the digital capabilities that we are building will of course lead to higher depreciation and to that extent there will be an impact on PBT. But at an operating level what we are learning and monitoring very closely is to ensure that we continue to deliver a healthy level of EBITDA margin. And also, Nehal, the leverage in the line item below gross margin comes from, I mean, G and A, if you have more store higher store footprint, you get leverage in G and A, commissary costs, logistics costs and also marketing costs. So I think from that perspective, it works well for us, except for the fact that the inflation has been very high this quarter. Got it. Got it. I think that's very helpful. And I want to just understand how you're thinking about this, because I believe some cash costs are also sitting below EBITDA line, which is allocated to depreciation and interest expense as you open stores because of the accounting. And hence, PBT also becomes a relevant metric to look at for us as such to see that impact. But then I understood the point, sir. Thank you so much. Just very quickly on Popeyes, if you can share, Sameer, could you experience you share your experience. You said that you visited stores. And can you share some real economics? And what sort of senior numbers you've seen so far? And what impressions you've got? And how fast the store network rollout will happen in Popeyes? Can you share some targets for this year and next year, please? Yes. So, I think from a it's still very early days for a brand, which is launched in India. Our first imperative is to get the product market fit right. I think on that front, I would say the progress is ahead of our plans. Customers are loving the product and they are coming back for more. The repeat rates are very healthy more than 30%. We also launched Popeyes with our own app, which again shows the prowess of our digital and deep data heritage that we are building now. And again, that app is seeing great traction. So we launched with the right product, with the right set of assets and right stores placed in right areas. So we're quite satisfied with it. I think still in year 1, we would like to iterate the service, get on to aggregators, build the salience and then go from there. The guidance we have given is, I think, 20 to 40 stores, we should meet that guidance and then reassess as we enter into the next year for rapid scale up. Perfect. Thank you so much, Sameer. Thank you so much for taking my questions. Thank you. The next question is from the line of Kunal Vohra from BNP Paribas. Please go ahead. Yes. Thanks for the opportunity. My question is on the loyalty program. You mentioned that you had about 30,000,000 orders this quarter and 7,000,000 consumers are on the loyalty program. I just wanted to understand the gap. Is it because of multiple orders from same consumers, smaller than qualifying orders? Can you help us understand how to look at the loyalty program enrollment? And also if you can provide some initial feedback on what like whether you're seeing higher ordering frequency, higher order value from these loyalty program consumers? Yes. So, thanks, Poonal. So, roughly, I think first of all, I think the program is doing really well and we have looked at all global benchmarks and we also looked at other peers in the industry who have lost similar programs globally. I think our take rate in terms of the overall enrollment into the program and also the contribution of orders from enrolled customers seems to be tracking very, very well. So I think first of all, I think we're very, very excited and happy with what we have seen as an outcome of the launch. The full mix, just to give you a context, went live only in August, while we had launched the program in May, but it was an omni channel program. And therefore, the entire mix and we were rolling it out in a paced manner went live only in August. So this quarter, we have seen an overall enrollment of 7,000,000. Roughly 1 third of our orders are coming from enrolled customers, which also reflects a very high level of engagement. Our focus going forward will be to continue to drive enrollment into the program and overall customer engagement. Okay. Understood. Okay. My next question is, you've given the own app contribution to delivery skills in international markets, like I think you've given 71% for Sri Lanka, if you view Bangladesh number also, what's the trend for India? And what's the number if you can share that? So, Kunal for India also we report Ola contribution to delivery sales. We have been tracking upwards of 98% for many, many quarters now. In terms of our overall delivery contribution, it remains a dominant channel for us and this continues to grow in a very handsome manner, which augurs well for us because as we are seeing significant recovery in dining and takeaway, delivery continues to hold and grow. Then a number which I was looking for is the own app contribution, not the Ollo contribution. Own app will be how much and what will be the 3rd party? So, Kunal, we don't share that number, but I think I can tell you that we have been continuously driving our own app focus. And this quarter, we are the highest ever own app contribution from delivery sales. And quarter on quarter, we have seen movement from aggregator channels to our own app channel. Our dominant share of our delivery and overall orders actually come on our own assets. And this is a significant dominant share is what I can say. Okay. That's it from my side. Thank you. Thank you. The next question is from the line of Jaykumar Doshi from Kotak Institutional Equity. Please go ahead. Yes. Hi. Thanks for the opportunity. My question is on the pace of store network expansion. Now if I look at your September 2019 quarter revenues, it's about 12.65 stores, it was about INR 9.88 crores and then there is a price increase of about 15%, including delivery fees. So as I compare this quarter versus September quarter, adjusted for price increase, incremental quarterly revenue run rate is about INR 125 crores to INR 150 crores. It translates into annual run rate of 600 crores for 400 new stores that you have added. So is this trajectory in line with your expectations? And if not, would you consider slowing down the pace of network expansion a little bit? So, Jain, I've understood your question, right? You're trying to triangulate store expansion along with price increase to see whether our revenue buildup stack up. That's the question. Let me just sort of give you a bit of a color on our revenue growth. So, of course, our focus has been on driving overall revenue growth through store addition and as well as driving same store growth. And our LFL has been very strong in this quarter at 8.4%. Now, in terms of the construct of the growth, a large part of our growth is coming from order increases, which again is good news from us and a significantly higher volume growth. So the growth is order led and volume led. Of course, a lot of these price increase has not really flown into a ticket price increase for us, because in a highly inflationary environment consumers of course are making choices. And we are seeing these choices reflect in 2 aspects. 1 is marginal moderation in item per order and second is the product mix which the consumer buys. And therefore, all of these price growth that we have taken over the last 2 years, while has helped us protect margins, has not necessarily translated into an increase in our ATPs, yes? And therefore, when we look at our growth, what gives us a lot of joy and satisfaction is that our orders are increasing and our volume is going up, which means we are seeing far more consumers coming into our brand and are engaging more with us as they're buying more products. Of course, they're making a share of wallet choice by moderating their item per order and also looking at the product mix that they buy. So, I'm not sure if that helps you Jaykumar. Essentially what you are suggesting is on your 12 50 store network that was before pendant, right, you may have taken price increases. It has not translated into a proportionate revenue increase as the consumers are revenue increase as the consumers are down trading? So, what we are seeing is order growth, volume growth. But yes, you're right. Consumers are down trading to some extent and also reducing item per order. So the right thing to look for us would be to look at and also I think it's a combination of channel mix where we are now seeing a lot more increase in dandelion as a channel. And dial in as you know always comes with a slightly lower bill per order or average ticket price. And that also is leading to a bit of a channel impact on the overall revenue. So I think you have to look at a combination of channel and order versus DPU. So what we are seeing is, again, as I'm repeating myself, but what we are seeing is order late and volume late and maybe not all the pricing is translating into growth. And jekamath, this is Sameer. Another way to look at this is the wallet share or the spend share. The per order may be lower, but the overall customers are coming back and shopping on our platform far more than before. I think that's the function of loyalty and the value offering that we have. So that's another lens to look at. Sure. And just a follow-up question on loyalty. How do you think about the cost benefit analysis in this case? And if you could give us some numbers, if you can explain the cohorts in terms of what percentage of your customers were ordering at a much lower frequency versus what percentage of your customers were already ordering at a frequency that maybe there won't be a lot of benefit, but a cost associated with royalty? So, if you look at the economics of the loyalty program, I think it's a very clear case of higher frequency paying back for the investment in the program. Also since we are giving a product free, the overall the cost of the program tends to be much lower because the put down cost is only the food cost of the product and not giving out the entire value. So, the way we see it is that as we are getting more we are able to recruit more consumers because of the loyalty program and that will help drive growth and therefore pays back to the program. And the more important benefit is frequency increase of existing customers, which again pays back to the program. The other benefit that we are seeing of the program, Jacob Marr, is that also the churn that we were seeing in existing customer cohorts also gets retained. So for example, if there was a high user who would degrade to a medium user over a period of time, we believe that with the help of this loyalty program, we will be able to retain him at a high user level. So the inter cohort movement also we can help we'll be able to drive positive mix there through the help of this loyalty program. So I think a threefold benefit should more than pay back for the cost of the program and we believe that it would be margin accretive as we go along. Thank you, Sumit. And hi, Takiya, Rishula and best in your sense, Thank you. The next question is from the line of Parsee Pankaj from IFL Securities. Please go ahead. Hi, good evening everyone. Am I audible? Yes, I see. Yes. So my question is on store addition again, and I'm restricting myself to store addition in towns where you are sort of present since a very long time, large towns where you would sort of have a fairly good penetration of stores. What is the logic of opening new stores in those towns, especially when you are not fully utilized on your dining capacity, because the delivery can anyways be supplied from any store. It doesn't matter. In fact, the customer doesn't even many times know which store is serving him his delivery order. If the only logic is to reduce the delivery time from 30 minutes to 20 minutes, I'm not really sure whether that's really a huge enough advantage for us to invest in CapEx of a new store, because we are already market leaders in terms of delivery time in Indian or rather Mumbai context. If I'm getting a Domino's in 30 minutes versus that any other option if I order on Zomato, Swiggy, etcetera, it takes anywhere between 45 minutes to 1 hour. So moving that 30 minutes to 20 minutes, by itself, yes, it's an incremental positive. But do you think the amount of cost and the amount of investment you are putting in just to get just one single advantage, does it make economic sense here? So, Mercy, thanks for that question. First of all, let me clarify that we are not adding stores to reduce our drive time from 30 to 20. So, let me upfront clarify that that's not the reason we are adding stores. And we have been able to achieve the 20 to 30 by doing a lot of process engineering at our end in terms of reducing the time for making the pizza and also defining the polygons more sharply. So that's on are we adding stores to drive PCB? The answer is no. The reason we are opening more stores in existing towns is because of the growth opportunity in the wide spaces, which are already existing in these towns. So there are two levels of growth. 1 is, of course, as we have seen rapid urbanization in India and that is a macro trend, which is likely to continue. And therefore the city peripheries will continue to grow and there are therefore enough and more white spaces still remaining in existing towns where we can open a Domino's store. Yes, so that's one. 2nd, we have also been following a strategy of notification in these terms and we have explained this in great detail in the past as well that whenever a store reaches a level of demand that it is not able to cater fully and the store KPIs start deteriorating in terms of the operational KPIs, we look at splitting the store and open another store in the same facility. In most cases, we have seen that when we fit the store, the operating KPIs of the mother store become significantly better. We are able to reduce right time, operating costs, customer experience improves and the virtual cycle of growth kicks in where the mother store comes back to its original level in under 3 years. And the child store, which already gets a head start from the mother, also recovers its investment in like any other new store in under 3 years. So I think it's a virtual cycle of growth that we have seen and the model works very well for us. So the new store addition in Tier 1 and Tier towns or existing towns is only driven for the growth opportunity that it drives or provides or and not because we are chasing any operating KPIs. With this growth opportunity, can you not just sort of address by fortifying the existing stores by putting in, let's say, 2 more kitchen staff, 1 more oven in the store, etcetera? Why do you need to open a completely new store, which is going to be a much higher investment in CapEx as well as rentals? So, Pashi, I think that our entire brand is positioned on providing a great experience. So, I'm sure you'll not be happy receiving a Domino's Pizza in 45 minutes. The whole brand has been built on the delivery promise of get your pizza in under 30 minutes. So, I don't think we at any stage we would want to compromise on the core proposition and the promise of the brand. So I think that is a sacrosanct for us. And as I said that even from a financial perspective, if I were to keep aside consumer metrics for one second, even on purely financial metrics if I were to look at, this model really pays back for us. And the paybacks are as good as what we get in Tier 3, Tier 4 and AS account. So, there is no reason for us not to invest in this approach. And foresee we do that, right? What you're saying is debottleneck the store, do as much as we can during in the kitchen. So all of that is there is a standard playbook over there. Only when we start reaching the or nearing the laws of physics is when we split. So, right, I mean, we put the like Ashish said, we put the customer value proposition and the brand promise at the center after solving for all bottlenecks and constraints and then splits the store. Okay. My second question is on margin. So how many more quarters would you think before this I mean, how many more quarters do you think this phenomenon of YOY EBITDA margins being down as we have seen in this quarter will continue? Do you think it's a very temporary thing or this y o y EBITDA margins being down can continue for a couple of more quarters? So, Pasi, as I was explaining earlier, large contributor or almost all the entire contribution of this margin dilution is because of commodity price inflation, because the EBITDA margins have been actually reflecting our gross margin dilution, which has reduced by 200 basis points year on year. So even in last quarter, we were expecting commodity prices to have softened this quarter, which has not happened. So I think that could be anybody's guess in terms of when do we see the commodity cycles coming back and prices moderating. So it would be difficult to give you a time frame, but we've already started seeing signs of some level of moderation and some level of stabilization. And if we do not get any commodity stocks from here on, we should be able to recover some of this in the quarters to come. So if today's prices remain where they are, then do you think that Q3 was mainly sort of the price at the beginning of the quarter being high and that's why it caused an impact and by the end of the quarter or where we sit today, the prices are already low enough to nullify that margin impact or not yet? No, if prices stay where they are today, we would I think our margin performance will be where we are today. Of course, we can look at some productivity initiatives, some level of operating leverage as we grow. But by and large, we could get similar levels as we are today. Okay. That's all from me. Thanks and all the best. Thank you. The next question is from the line of Vivek Maheshwari from Jefferies. Please go ahead. Hi, good evening. A few questions. So first, Sameer, you did articulate your learnings and where the strengths for Jubilant FoodWorks are. What are the areas that you think requires attention? What are the places where you think there can be a potential for improvement or reasonable improvement to significant? Vivek, I see it more as opportunities for growth and margin expansion. I think getting the new brands to accelerate faster is definitely a priority. The making sure we double down on continue to double down on Domino's. Like I said, I will continue to do that. And lastly, the digital assets that we have is actually unparalleled. And we have an app running in Sri Lanka, Bangladesh on iOS, Android and a progressive web application. So I think the opportunity to kind of take the physical store footprint plus digital is so immense. If you double down on that, I think that is to me is a real opportunity plus the emerging brands is where I'm focusing on. Got it. And in that context, look, Domino's, any which ways you are the guidance for addition and the last year addition numbers, any which ways have been strong. So one of the another question that I have had was, what is your sense on, let's say, a Hong's or an Exane Biryani? Because that's where despite things opening up and being near normal for at least last 6 months, we haven't seen any buzz. We have actually we did see, I think, 6 stores closure last quarter. And this quarter, we haven't seen any additions. So what is the sense that you have either on the product or on the brand, specifically, Hong's as well as Hong's and Picktum? Yes. I've spent a lot of time to meet customers, look at their reviews, also benchmark versus the competition. So firstly, it takes time to get the product market fit right. And if you do it right, not only from a consumer standpoint, but also from store economic standpoint. I think we have fast reaching that stage by end of this financial year, we believe at least I believe across Dunkin', Homes and Pop Oil, we will be ready to scale faster. Where we've been focusing on is making sure we have a great testing product, customers are coming back and we have a store economic model that is ready for scale up. So from all these fronts, I'm happy to note very positively that things are going in the right direction. So does that mean that you will see store addition acceleration going ahead? Again, that's all what we want. There is still about 5 months in this quarter we should This is the operator. We have lost the connection for the management line. Please hold while we reconnect them. This is the operator here. We have the line for management reconnected. So please go ahead now. Yes. I think we I don't know where we lost connection. What I was saying was we have about 5 months in this year and our actions are geared towards getting the coffee first proposition right in Dunkin', base product and customer value proposition in arms, getting the store economics right, I think we should be ready to scale up as we enter the next year. Got it. Two quick questions. 1, sorry, a naive one, but what is the how do you account for the loyalty program? So as customers order, where does that the promise of free pizza sits in P and L and balance sheet? And ultimately, how will it unwind? So, we make this is accounted as discount as per the accounting norms. And we accounted basis a certain ratio of redemption based on the past trend. So, we account for that and it unwinds as and when the customer redeems the pizza. So, if I order pizza today and I get points, so it is accounted at the time of original order or it is at the time when I redeem it after let's say 6th order? No. So, we accounted the time of the initial order itself, but not 100% prorated to the likely redemption that may happen. So, for example, if only 20 out of 100 customers are redeeming, we'll account for 20% upfront. Yes. But I mean given that this is new, so you wouldn't have data as yet in terms of what the redemption would be. So, what will be the benchmark? So we of course do it based on our estimate and we have also got the pilot results with us because we ran an extensive pilot for the 1st 6 months before we rolled out nationally. So we have the pilot results with us which is which we are accounting. And of course we'll keep doing it up as we get more data on actuals as the program matures. Got it. Got it. And last observation, you have given ONAP contribution for really, really small markets like Sri Lanka and Bangladesh. Just curious that if you can present Sri Lanka and Bangladesh, what's the issue if you are gaining share in which ways for your own property for India, which is like the largest one. What is the issue that you can't share that number, but you can share Bangladesh and Sri Lanka? No, sir, Vivek, feedback taken. We will certainly evaluate this internally in the company. Thank you. There are no aggregators in those markets and their aggregators are very, very small. We have large entrenched aggregators in Agen. Of course, they are very close channel partners. So there is a certain level of sensitivity involved with that and that has got our thinking. But I take your feedback. We will discuss internally and we will come. Right. I'm sure they wouldn't mind if you shared your data. I'm sure aggregators wouldn't mind that. So I leave it that with you. Wish you all the best. Thank you. The next question is from the line of Arnab Mitra from Goldman Sachs. Yes. Hi. Thanks for taking my question. My first question was on the store expansion. Let's say, if you're good at 2 50 plus stores this year, any approximate ratio of how much is store split versus completely new stores? And is there is the gap between LFL and FCPenvy steady or is it increasing as store split proportion will be increasing? So I just wanted a sense on both of them. So, the third question, our split stores are broadly 1 third of the total stores that we've been opening. So, that ratio is by and large remain consistent, in fact slightly lower this year than we had reported for the full year last year. And to that extent, I think the LFL and SSG gap is also steady. There is no, I mean, deviation from what we have seen in the past. So roughly 1 third of our stores are split stores this year. Okay. Thanks so much. My second question was actually that this quarter like what Amit, I think, earlier asked, your EBITDA has grown by 8% or 9%, but your PBT is down 1%. So the depreciation increase that we've seen, how much of that is it evenly split between actual depreciation increase and rent decreasing and therefore, will this gap kind of continue in this phase of high store addition unless your SSD significantly starts improving? So, Anurag, as I explained earlier, I think the depreciation is moving in line with AI, I think new store additions, where we are investing in CFX and also because of the IFRS you would see lease accounting getting charged off in depreciation and interest. So that's directly proportionate to the number of stores we are adding and the investments that we are making in our chemistry and digital. But large part of the investment of course is going towards store expansion. And any inflation on the rent side that is there? I mean, how is the commercial rental market right now in terms of inflation as we look for the next 1 or 2 years? So, Anub, we have not seen any significant inflation on rental side. Anyways, for all our existing properties, we have long contracts in place and the increments are directly governed by the contract. And even for the new stores that we are opening, we are able to get fairly competitive rates given our overall presence and the strength of our business development team. So we are not seeing any inflationary impact or material inflationary impact on the rental side. Got it, got it. And one last question on Popeye. In Forms and Islam, you've seen iterative process as you rightly said it takes time, it's taken almost 2 years. Do you see Popeyes having a faster phase of iteration or it will also go through this phase before you can really commit very large expansion in that slow format? I think good question. I think there are 2 different playbooks. I think on Hong's, we are building the playbook. On Popeyes, there is an existing playbook that we are customizing to India. So therefore, that should be faster than developing doing grounds of invention. Okay. Understood. Thanks so much. That's it from my side. All the rest. Thank you. Thanks. The next question is from the line of Avi Mehta from Macquarie Group. Please go ahead. Hi, team. Thanks for the opportunity. I just wanted to understand the CapEx number. So for the first half, you've done almost about close to INR 400 crores of CapEx. Is this it could help explain what has been the reason for sudden increase despite I mean, it implies that first half CapEx itself risen sharply. So if you could give us a sense what has driven that? And in turn, what would be the number that we should kind of assume for FY 2020 3? That would be the first part. Thank you. Thanks, Harish. So I think overall CapEx has followed our store expansion. Our 1st store CapEx have seen marginal increase which is in line with inflation. We have seen about 8% to 10% increase per store. Larger CapEx outflow has also been because of some of the opening liabilities which has got paid out this year. Overall, I think I would say we would be close to INR 650 crores to INR 700 crores in terms of overall spend in CapEx this year because, A, we are as I said earlier, we are we'll go continue to invest in store expansion. We are also building a chemistry and large part of investment about close to 200 crores will go into our new chemistry that we are building in Bangalore and some amount of investment in our usual maintenance and digital assets that we are building. So I think a combination of these 3 should take us to that now. Okay, perfect. And the second part is just following up on the earlier participant. If I look at the difference between the headline sales growth and the LFL that we give out, that number has moderated despite the store addition as a percentage actually going up. So you did highlight that the split stores is not the reason that percentage has not risen. Would it mean that the new stores are taking longer to kind of flow through? Or is there a timing, if I can help on that, getting better or understanding on that, please? So, Survi, I think new our new stores continue to do well. Sometimes it's also a function of the timing of the opening of some of the new stores. Most of them have been skewed towards the end of the quarter. Also with dine in coming in, in a big way now and growing sequentially as well as year on year, As I explained earlier, there is also a slight bit of channel mix that has come in. And therefore, when you triangulate all of this together, you'll be able to sense I mean, you will see a slightly higher diversion between LFL and revenue growth this quarter. Okay. Okay. And last just a bookkeeping, if I heard you correctly, just if I could confirm, you would look to you would expect margins to remain at current levels if inflation does not kind of expand and it does seem that inflation is broadly kind of stabilized at this level. Was that I'm not sure if I heard it correctly. So I just wanted to clarify. That's right, Abhi. That's your understanding, Vikram. Okay. Thank you very much, sir. And wish you. Thank you, Avi. The next question is from the line of Tejas Shah from Spark Capital. Please go ahead. Hi. Thanks for the opportunity. My first question is, Samik, Samik, in your opening remarks, you mentioned the digital agenda of the company. And then you spoke about very, very entrenched digital asset on the customer side. So just wanted to understand obviously all the rules, but whatever potential insights you have, how do you see a role of tech playing on the back end of supply chain customer acquisition improving store efficiency side? Yes. Jim, multiple pieces to this like your question. Firstly, there is an element of our digital applications to acquire new customers, engage them through our loyalty programs and make sure that they're getting they can track their orders. So this whole fulfillment acquisition, fulfillment and engagement piece that is working extremely well and we'll roll that out to all international geographies have been done and to all brands. So that's kind of the piece over there. There are of course next version of those apps and more modules that will continue to add for example promotions could be another, personalization could be the next. So there is a clear roadmap over there. 2nd, you are absolutely right. What goes inside the store or in the kitchen also needs to be digitized and automated. How we manage our stores, inventory, point of sale systems, how our manpower and the store manager is operating the store, there is big room to kind of do that, digitize those processes and make life simpler than our store. 3rd piece you spoke about is the real back end, which I believe is our strength. And I visited the Greater Noida food factory and I was very impressed with the level of automation that I see not only in our production lines, but also in warehousing where we are using advanced robotics for storing and taking out. So, of course, there is room to make sure our logistics, our the middle mile planning that can be more data driven, but that is far for the course in my sense. Does that answer the 3 areas that you touched upon? Yes, very much, very much. That is a very detailed answer. Secondly, our pipeline, obviously, we all thought and based on your guidance as well that the Plivo book was relatively simpler and then basically it will be simpler as the other earnings cycle that we have. But last 3 quarter and in this quarter, but in particular store expansion has been muted. So it seems that we'll at least achieve a lower end of our guidance on 20 stores and not 30 stores. So just wanted to understand, is it typically second half early expansion that we'll do? Or are there views that on that guidance as well? There. Yes. I think it's a again, I will not read too much into this at the moment like for any new brand to come into India even with an existing playbook, you still need to customize the taste, flavors, product and build the brand salience. We are in that phase. I don't worry too much about it. And I think on your question on store guidance, Tazeen, I think as I said, we will accelerate we are planning to accelerate in the second half. And therefore, we should be at the lower end of the guidance that we had given earlier, which is 20 to 30 stores additions this year. We are also looking at opening 2 more cities in South. One of them should go live in this quarter and we are looking at opening 1 more towards the end of quarter 4. So we have a robust plan in place. But as Sameer said, sometimes new brands take a little longer than you plan for. But I think we are currently on track to be at the lower end of our guidance. Sure. And the last one, if I may. Justine Horace from the previous quarter, I had asked, the war has still continued and there's one more Asia, Ukraine, I'm not rushing to and there's one more international chain which is actually injected out of Asia. So just wanted to know where do we stand? Is there any pressure from your new partner on rethinking on this investment? Or is it continuous business as usual for us there? So, Pejus, the line was not clear. But if I understood your question right, was it around BP Eurasia's presence in Russia? Yes, yes, yes. Okay. So I think DP Eurasia is a listed entity, so we wouldn't like to really make a lot of comments. But the management has recently announced that they would be limiting their investments in the Russian territory and that primary focus now and currently is on the safety and well-being of their employees and customers. So, I wouldn't want to comment any further on that. Great. Thanks and all the best parts of our mix. Thank you. The next question is from the line of Ruchal Purnia from NERBILE PUNGI Institutional Equities. Please go ahead. Yes. Hi, team. Thank you for the opportunity. So my question is on innovations. So apart from the couple of regional launches that we have done this quarter, we couldn't really see to launches in other parts of the country, especially in the current festive and the sporting season. So what are the plans going forward? Are there any big plans in terms of innovations and new launches? Yes. I think that's a constant endeavor, Vishal. So I think you started with Parantha Pizza. I want to remind all of us, right, that's where our first innovation came and we have taken from there, taken to East then to West. And I think this quarter itself, we have planned to launch more. I think you should hear about it very soon in November itself. Understood. And secondly, last quarter we mentioned that the dine in recovery was very close to the pre COVID level. So what kind of growth have we seen for this particular quarter, if any? So, Vishal, in terms of overall revenue, we are seeing full recovery and growth over even pre COVID period. Our dining recovery has been very, very robust. And both sequentially and year on year, we are seeing robust growth in dining and dining plus takeaway put together as well. So it still hasn't reached above the pre COVID levels, right? No. In terms of overall revenue, as I said, it has breached or crossed the pre COVID level. In fact, we are growing from there. But of course, there is significant headroom for growth in dial in because we have always focused on being an omni channel player. The good thing is that our delivery being a dominant contributor continues to deliver very robust growth for us and continue to see the momentum. And we're also seeing a significant uptick in our dial in demand and we also see a significant headroom for growth in dial in. And therefore, we are taking a number of dialing specific interventions as well to continue to drive the growth on dialing. Understood. Thank you and best of luck. Thank you so much, Vishal. Thank you. The next question is from the line of Sheila Rathi from Morgan Stanley. Please go ahead. Yes. Thank you very much for taking my question. I just had one question and that is for Sameer. Sameer, my question to you is that during your tenure at Amazon, you have been involved in the incubation and scaling of a lot of new businesses, Amazon Fresh Food and few others. So I just wanted to understand any learnings from that experience that could help scaling off all the new businesses, which Jubilant has forayed into such as for Foy, Home's Kitchen and Exam? Yes. Thanks for that, Sheila. And firstly, I have to build upon the foundation that I am inheriting, right. So I think I'm very cognizant of that versus purely applying one model on the other. Having said that, there are several learnings and especially 3 I would like to call out. Firstly, the customer obsession piece and you would have seen in my narrative and my initial time that I've spent reading about a lot of customer reviews, meeting them, in fact, reading their emails, answering to them. So that's one culture I want to drive not only in the front end, but in our commissaries and also in corporate office. So that will I think that's a really long term value creation for us. 2nd piece is the agenda of technology and data forward. That piece like I have again touched upon it. We are already running 5 different apps in 3 different environments. And along with that, if you bolt on data and customer backward thinking, I think that we can grow at a faster clip. The third piece is on operations excellence. Ultimately, we are in the business of serving the customer a hot pizza and he or she really be having a delightful meal experience. So that needs to come together with a fast pace of growing the stores, having the culture of hustle inside the kitchens and making sure the delivery is flawless and on time. So operations excellence, continuous process improvement is something which I have not only picked up in Amazon, but also in McKinsey, GE and Hindustan Lever. So I will bring that to the floor. So these are my big areas, Sheila. And if I may just ask a follow-up here, which among these 3 would be the easiest one to do and the toughest one? Yes. I think for a hot pizza on your table, all have to come together. I wish there was one silver bullet. I think there is a great momentum of store opening, right, and culture of HUSLE, which like I said, which I'm inheriting, I need to build upon that. I think digital, definitely, we will move faster and forward with my experience. And bringing the customer centricity, I think these 2 probably, if I add on to the strong foundation that we have, we will enter them this quarter, we'll deliver better in this quarter and enter in next quarter far better. Thank you very much and best of luck. Thank you. We'll take the next question as the last question from the line of Robert Marshall Lee from Kuzana Capital. Please go ahead. So I was wondering if you can talk more broadly about the development of the competitive environment. So do you see increased pressure in particular places that we've seen in some of the other quick service restaurants, KFC, etcetera, consolidating? So I was wondering whether you see any kind of material impact to that and how you adapt the strategy with that in mind? So, Robert, I think if I got your question right, it was about the competitive environment and competitors growing it up. Was that the question? Yes. So whether you see any material increase in intensity from the QSR sector? So I think, Robert, India is a market I think of course is a market which presents a huge growth opportunity and the kind of macro trends we are seeing is what everyone else is seeing. So we are not surprised with the increase in competitive intensity. And therefore what we are focusing on is building on our strength as Sameer alluded to and also setting up our store expansion, which we have actually stepped up quite well in the last few quarters. So we will continue to focus on the customer and continue to focus on build on our strength and continue to the continue the pace of store expansion that we are embarking on. Also some of this competition actually also help in growing the market. So but yes, we will double down on our sense. Number 1 being deeply penetrated store footprint. 2nd is digital and our own assets. And third being world class supply chain that we have. So I take from that that there is an increase in the competitiveness overall, but actually potentially helpful in growing the market as well. Is that right? That's right. That's right, Rob. Thank you. Thank you. That was the last question for today on behalf of Jubilant FoodWorks Limited. That concludes this conference. Thank you for joining us and you may now disconnect your lines. Thank you all. Thank you.