equity company report 711201382408pm

7/28/2019 Equity Company Report 711201382408PM

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Jubilant Foodworks Limited (JFL)

Initiating Coverage - ACCUMULATE

Analyst

Nilesh Gandhi

[email protected]

11 July 2013


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Jubilant Foodworks Accumulate with a target upside of 8%

Key Data

Bloomberg Code JUBI IS

NSE Code JUBLFOOD

BSE Code 533155

Sector FMCG

Industry Restaurants

Face value (`

per share) 10Book value (`per share) 65.8

Dividend yield 0%

52 Wk.(H/L)(`) 1397.40/927.10

Market Cap. (`mn) 74,241

Consolidated (````mn) FY12 FY13 FY14E FY15E

Net Revenue 10,189 14,141 18,840 24,564

EBITDA 1879 2417 3187 4250

EBITDA Margin 18.4% 17.1% 16.9% 17.3%

EPS (`per share) 15.9 20.1 25.6 33.4

P/E (x) 71.3 56.5 44.4 34.0

EV/EBITDA 7.2 5.2 3.9 3.0EV/Sales 38.8 30.2 22.9 17.2

Price Performance CY10^ CY11 CY12 YTD

Absolute 331% 21% 71% -12%

Relative 301% 45% 43% -12%

ACCUMULATETARGET :```1230

CMP :```1136

Shareholding pattern Relative stock performance (Jul12=100)

Mar-13 Dec-12 Sep-12 Jun-12

Promoters 54.5% 55.2% 56.7% 56.8%

FII 41.6% 40.8% 39.6% 38.2%

DII 0.2% 0.2% 0.1% 0.1%

Bodies Corporate 1.7% 1.9% 1.7% 2.0%

Others 2.0% 2.0% 2.0% 2.9%

Total 100.0% 100.0% 100.0% 100.0%

Source: Company, Destimoney Research, Bloomberg

^ performance considered from JFLs listing on 5 Feb 2010.

70

85

100

115

130

Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jun-13

JUBLFOOD Nifty


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In a rapidly growing Indian fast food industry, Jubilant Foodworks is wellpoised to tap the opportunity

Incorporated in 1995, Jubilant Foodworks Ltd (JFL) is a Jubilant Bhartia group company. JFL & its subsidiary

operates Dominos Pizza brand with the exclusive rights for India, Nepal, Bangladesh and Sri Lanka. The

company is Indias leading food service company, with a network of 576 Dominos Pizza stores , as of 31st

March 2013.

According to Euromonitor 2012 survey, JFL is the market leader in the organized pizza market with a 62%

market share and 70% + share in the pizza home delivery segment in India. In last seven years, the

company has grown over 10 times in terms of revenue.

With more than 56% of population below 29 years age, increasing urbanization and rising employment

of Indian woman, Fast food industry is likely to witness substantial growth in the country. Various fast

food chains have established their presence in India to tap this opportunity. To outpace the

competition, JFL is also aggressively increasing its footprint predominantly in Metros and thereafter in tier

II and tier III cities. In FY14, the company plans to spend `2.5bn for opening 125 new Dominos

stores, and three-four commissaries to support the supply chain.

JFL has been continuously innovating its offering to attract more consumers and retain their loyalty, while

successfully maintaining margin profile. The company has been dynamic in terms of marketing and has

successfully adopted rapid changes in technology. Alongwith online ordering, JFL launched a mobile

application for delivery of pizza in May 2012. Online ordering channel currently accounts for 17% of

delivery business .

After testing success in pizza delivery market, the company ventured into all day food and restaurant

business in April 2012 and launched Dunkin Donuts in Delhi. As of 31st March 2013, it operated 10

Dunkin Donuts restaurants in India. It aims to increase Dunkin Donut store count from 10 to 100 in next

four five years.


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however it is currently facing headwinds from slowing consumption

JFL is a debt free company and has been working on negative working capital structure. All of its growth

plans for both Dominos and Dunkin Donuts are supported by internal accruals.

We believe that, the long term growth drivers support the companys aggressive growth plans. With a

professional management team in place, the company should continue to maintain its leadership in its

operating segments.

However, in current inflationary environment, the company has been facing headwinds in terms of cut in

discretionary spend and rise in raw material costs such as cheese. This has resulted in fall in same store

sales growth in last two quarters. In near future, the company is likely to witness a phase of low growth

(8-10%). Also with Dunkin Donut business model still evolving, the companys margins have been under

pressure. The management has hinted that the pressure would continue for some more time.

We continue to monitor the improvement in macro environment in the country to act as a catalyst for JFLs

growth. We initiate a coverage on Jubilant Foodworks Ltd with an ACCUMULATE rating and a target

price of```1230 per share.

The stock has been under pressure after posting a single digit (7.7%) same store sales growth in

Q4FY13, first time since FY09. Long term investors can build up their positions in this stock in case offurther correction in stock price.


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Jubilant Foodworks Ltd: A 18 years old young company,

Signs master

franchise agreement

with Domino

International for

north and west India

1995

Entered into a new

master franchise

agreement with

Dominos

International and

launched an IPO

2010

Master franchise

from Dominos

International

extended to whole of

India and Nepal

1998

Became subsidiary of

Jubilant Enpro Private

Limited

2003

Master franchise

agreement for Sri

Lanka and

Bangladesh

2005

First pizza store

opened in New Delhi

1996

Store count crosses

500 and the

company launched

Dunkin' Donut

restaurant in Delhi

2012

Tie up with Hindustan

Coca-Cola Beverages

Private Limited

2001

Launched '30

minutes or free'

programme

2004

Store count reached

100 and the company

became a profit

making company

2006

Source: Company


6/196

is a part of 10,000 plus stores spread globally, delivering Dominos pizza

Dominos brand was founded in the United States of America in 1960 by Thomas and James Monaghan.Since then, that business has grown into a global network of over 10,330 pizza stores in more than 60

countries.

Over its 53-year history, Dominos has developed a simple business model focused on delivering quality

pizzas in a timely manner. India is Dominos Pizzas fastest growing market globally in terms of new storesopened and is the largest market for Dominos Pizza globally in terms of weekly orders per store.

Market YE 2012 Store Count Delivery Market Position Potential Store Count

United Kingdom 750 1 1,100Mexico 581 1 700

India 552 1 1,000

Australia 464 1 650

South Korea 372 1 450

Canada 368 2 450Turkey 284 1 600

Japan 245 3 700

France 215 1 850

Taiwan 140 2 150

Dominos Top 10 International Markets and Opportunity

Source: Dominos Inc, US


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With multiple growth drivers for consumption in place

Favorable Demographics

Rising per capita Income

Increased urbanisation

Rising proportion of women employment

Source: NSSO survey, Economic Survey of India

186

213

168154

120

76 82

0

60

120

180

240

0-9 10-19 20-29 30-39 40-49 50-59 60 +

Populationper

1000

Age Group (yrs)

India: Population mix

56.7% of total population

19.8%

20.4%20.5%

19.0%

19.5%

20.0%

20.5%

21.0%

2009 2010 2011

Rising Proportion of woman employment inPublic and Private Sectors

Changing Consumer Preferences

Growing commercial and retail Infrastructure

Easy access to technology

Increased Tourism

Key growth drivers for rising consumption of retail food sector are:


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leading QSR chains have planned aggressive expansion in India

Indian Food ServiceIndustry =`430 bn

QSR=`430 bn

Organized Food ServiceIndustry =`90 bn

Pizza =`13 bn

Indias Food Service Industry in 2010 : Size and Growth Estimates

0

160

320

480

640

2010 2015E

`

bn

Food Service Retail Industry Oragnised Sector

Brand 1st store in a year Current Store Count Expansion plan

Domino's 1996 576 125 stores in FY14

McDonalds 1996 313* 200 stores in two years

Pizza Hut 1996 264 240 stores in two yearsSub Way 2001 260 740 stores in four years

KFC 1995 232 270 stores in two years

Leading QSR^ chains in India and their expansion plans

^ QSR means Quick Service Restaurant

* Out of 313 McDonalds outlets, 161 are operated by Hardcastle Restaurant in West and South India, while remaining152 are operated by ConnaughtPlaza Restaurants Pvt Ltd in North and East India

Source: Food Franchise Report 2011, Media Reports


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JFL is a dominant player in a Indian organized pizza market operating 576stores in 123 cities in India

Indias Organised Pizza market

Source: Euromonitor 2012, Company, Destmoney Research

Domino's62%

Other38%

Total Size =`16.5 Bn

State/ U T Cities Dominos Store count

Maharashtra 14 131

Gujarat 12 37

Uttar Pradesh 12 43

Haryana 11 34

Karnataka 8 76

Punjab 8 20

Tamil Nadu 7 39

West Bengal 7 26

Uttranchal 5 6

Madhya Pradesh 5 15

Andhra Pradesh 5 35

Orissa 4 4

Kerala 4 7

Chhatisgarh 3 7Himachal Pradesh 3 3

Jharkhand 3 5

Rajasthan 3 7

Assam 1 3

Chandigarh 1 4

Jammu & Kashmir 1 1

New Delhi 1 59Bihar 1 4

Meghalaya 1 1

Sikkim 1 1

Daman 1 1

Goa 1 7

Grand Total 123 576

JFL is the market leader in the organized pizza

market with a 62% market share and 70% +

share in the pizza home delivery segment in India.


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JFL has grown 10 times in last seven years, while the store count has increasedby more than four times

JFL has been aggressive in store opening and has been following a policy on 50% store opening in Metro or

tier I cities in last few years.

Delivery and takeaway business (more than 50%) forms majority of the business as against dine-in option.

The management plans its store opening in such a way that the pay back for individual store would be lessthan three years. New stores generally generate 70-80% of system revenue in initial years of operation.

To support these store the company has five commissaries which act as central ware houses, mainly

providing wheat dough to near by stores.

In 2012, the company opened two stores in Sri Lanka

Source: Company, Destimoney Research

Revenue grew over 10 times

0

4,000

8,000

12,000

16,000

FY07 FY08 FY09 FY10 FY11 FY12 FY13

`

mn

130181

241

306

378

465

576

0

150

300

450

600

FY07 FY08 FY09 FY10 FY11 FY12 FY13

while Store count increased 4 times


11/1911

JFL: Innovation in product and marketing

supported by new product and service launches with innovativepromotional campaigns


All these product launches were supported by effective promotional initiatives like discount coupons, ad campaigns

like Hungry Kya?, 30 minutes or Free, Yeh hai rishton ka time, Pizza Mania.

OLO ordering now accounts for 17% of companys delivery business.

Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12

Q2FY12 Q3FY12 Q1FY13 Q2FY13 Q3FY13

Wheat Thin Crust Pizza

launched

Re-launch of Pizza Mania

Pasta Italiano and Mexican

wrap launched

Introduced personalized

target coupons via themobile platform

Double Burst Pizza

launched to its array of

products on offer

Rolled out Online Ordering

(OLO) at national level

Rolled out one single no.

68886888 at national levelfor pizza ordering

Chicken Kickers launched


Butterscotch Mousse Cake

launched

Re-launch of new Pasta

Italiano

3 New Cheese Pizza

Launched and Nutty

Choco Lava Cake as side

order launched

3 New Pizzas with a new

range of toppings: 5

papers in veg, Zesty

Chicken and Chicken

Fiesta in Non-Veg

New Stuffed garlic bread

launched


Spicy Twistyz, Taco Indiana

and Potato Smackers

launched

Cheesy Boloroni Pizza

launched


12/1912

After testing success in Pizza delivery business, JFL has entered into a all dayfood restaurant segment, and operates 10 Dunkin Donuts restaurants in India

In 1946, Bill Rosenberg opened his first coffee and donut shop, the Open Kettle. After its success, Billstarted another shop called Dunkin Donuts. The first Dunkin Donuts was opened in 1950 in

Quincy, Massachusetts in the USA. Today there are more than 10,000 Dunkin Donuts operating world

wide.

In February 2011, JFL signed master franchisee agreement with international subsidiary of Dunkin Donuts

for 15 years with a option of renewal for another 10 years. The agreement provides JFL with the exclusive

rights for DunkinDonuts in India with the first right of refusal for Nepal, Bangladesh, and Sri Lanka.

Dunkin Donuts model is expected provide JFL, the flexibility to adapt menu to better suit the Indian palate

and consumer. Hence, the company has plan to open 80-100 stores by 2016. Overall, the company is

required to open 500 stores in the period of 15 years.

In Q1FY13, 3 restaurants opened in Delhi and currently it operates 10 restaurants with first stores in

Chandigarh out side Delhi/NCR region

Comparison with Dominos Stores

Commissary size: 2000-10000 sq. ft as against 20,000-45,000 sq. ft size of Dominos commissary

Average Store size: 750 sq. ft with most of area for dine-in vs 1200 sq.ft size of Dominos store with small area for dine-in

Expected pay back : less than three years similar to Dominos

Employeesper store: 5-7 as compared to 25-30 in case of Dominos

Average Capex per store:`

7 mn as against`

10mn in case of Dominos


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Quarterly Performance

JFLs recent financial performance has been satisfactory

During Q4FY13, JFLs revenue grew by 29.3% YOY at`3658.2 mn. This was mainly driven by new store

openings. JFL opened 111 new stores since the end of Q4FY12.

Operating margins of the company were at 16.7% in Q4FY13 as compared to 18.6% in Q4FY12. Apart

from rising costs, nacent Dunkin Donuts operations had a negative impact of 80 basis points at operating

level.


0.0%

6.0%

12.0%

18.0%

24.0%

0

1,100

2,200

3,300

4,400

Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13

`M

n

Net Revenue (LHS) Operating Margin (RHS) Net Margin (RHS)


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Store count and SSS growth

however Same Store Sales (SSS) growth, a key performance measure, haswitnessed sharp decline

According to JFL, Same Store Sales means sales from a store which was operating in consecutive periods

of comparison. In Q4FY13, SSS growth stood at 7.7%, while it was 16.2% in FY13 lower than the

management guidance of ~17%. Fall in consumer spend has been a major reason for lower SSS growth. Lower SSS growth is also because of higher base for comparision.

Company has been expanding its reach primarily in tier I cities. This has resulted in marginal drop in

revenue at existing store due to cannibalization effect. The management believes that once the new store

reaches to its stable state of operation, this impact gets neutralized.


0.0%

12.5%

25.0%

37.5%

50.0%

0

150

300

450

600

Q1 FY11 Q2FY11 Q3FY11 Q4FY11 Q1 FY12 Q2 FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13

Existing Stores in the Qtr (LHS) New Stores opened in Qtr (LHS) SSS Growth


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In near term, JFLs performance to face consumption slow down impact, howevercurrent investments are likely to pay rich dividends in long term

We expect the company to grow at 29% CAGR over the next three years and its margin profile improve

once macro economic situation improves.

JFL is a debt free company and has been working on negative working capital structure. All of its growth

plans for both Dominos and Dunkin Donuts are supported by internal accruals.

NOTE: WE HAVE NOT CONSIDERED DUNKIN DONUTS PERFORMANCE IN OUR PROJECTIONS


Estimated Consolidated Financial Performance

0%

5%

10%

15%

20%

0

8,000

16,000

24,000

32,000

FY12 FY13 FY14E FY15E FY16E

`

mn

Revenue (LHS) Operating Margin (RHS) Net Margin (RHS)


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Parameters FY12 FY13 FY14E FY15E

EPS (`per share) 15.9 20.1 25.6 33.4

P/E (x) 71.3 56.5 44.4 34.0

P/B 25.1 17.3 12.4 9.1

ROE 34.9% 30.5% 28.0% 26.8%

ROCE 58.6% 32.7% 29.9% 28.8%

EV/Sales 7.2 5.2 3.9 3.0

EV/EBIDTA 38.8 30.2 22.9 17.2

Valuation and recommendation

We remain positive on long term growth drivers

and JFLs aggressive plans to open stores.

At CMP, the stock trades at 44.4 and 34 times

FY14 and FY15 earnings respectively.

We continue to monitor the improvement inmacro environment in the country to act as a

catalyst for JFLs growth. We initiate a coverage

on Jubilant Foodworks Ltd with an

ACCUMULATE rating and a target price of

```1230 per share.

The stock has been under pressure after posting

a single digit (7.7%) same store sales growth in

Q4FY13, first time since FY09. Long term

investors can build up their positions in this stockin case of further correction in stock price.

Relative stock performance (Jul12=100)

Source: Company, Bloomberg, Destimoney Research

70

85

100

115

130

Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jun-13

JUBLFOOD Nifty


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Consolidated Financials Summary

Income Statement Balance Sheet


```Mn FY12 FY13 FY14E FY15E

Total Operating income 10,189 14,143 18,840 24,564

Total Expenditure 8,310 11,726 15,653 20,315

EBIDTA 1,879 2,417 3,187 4,250

Depreciation 377 556 797 1,122

EBIT 1,502 1,861 2,390 3,128

Interest & Fin. Charges - 1 - -

Other Income 60 79 85 100

Exceptional Items 41 - - -

PBT 1,521 1,939 2,475 3,228

Tax 488 628 801 1,045

PAT 1,033 1,311 1,673 2,182

EPS (`per share) 15.9 20.1 25.6 33.4

Ratios

Revenue Growth 50.2% 38.8% 33.2% 30.4%

EBIDTA Margin 18.4% 17.1% 16.9% 17.3%

Net Margin 10.1% 9.3% 8.9% 8.9%

```Mn FY12 FY13 FY14E FY15E

Liabilities

Share Capital 651 653 653 653

Reserves & Surplus 2,312 3,645 5,318 7,501

Shareholders Equity 2,963 4,298 5,971 8,154

Long Term Provisions 57 15 15 15

Net Deferred Tax Liability 69 201 201 201

Other LT Liabilities 39 60 60 60

Other Current Liabilities 1,533 1,887 2,533 3,267

Short Term Provisions 10 57 57 57

Total Liabilities 4,671 6,518 8,838 11,754

Assets

Fixed Assets 2,678 4,052 5,755 6,333

Long Term Loans & Advances 557 700 933 1,217

Other LT Assets 2 3 - -

Current Investments 923 940 940 940

Other Current Assets 512 822 1,210 3,264

Total Assets 4,671 6,518 8,838 11,754


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Key risks

Prolonged slowdown may impact the companys performance negatively and result in potentialdowngrade in our estimates .

Any sharp rise in milk price and other raw material costs would impact companys margins negatively.

Any change in government policies for MNCs operating in Indian retail food market may impact on

companys operations in India.


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equity company report 711201382408pm

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