Analyst Call - Feb 2011

8/6/2019 Analyst Call - Feb 2011

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Jubilant FoodWorks Limited

Q3&9MFY2011Investors/AnalystsConferenceCallFebruary8,2011

UrvashiButani:Thankyou.Goodevening ladiesandgentleman.WelcometoJubilantFoodworks Conference Call for Investors and Analysts. The call has been hosted to

discuss to the financial performance and share operating highlights for the quarter

endedDecember 31 2010. I havewithme on this call todayMr.Ajay Kaul, CEO of

Jubilant FoodWorks and Mr. Ravi Gupta, CFO. We will commence the call with

comments fromMr.AjayKaul followedbyMr.RaviGuptaandpost thatwe should

openthefloorforQ&Asessionwherethemanagementwillbeverygladtorespondto

anyqueriesyoumayhave. Iwouldalso liketomentionthatcertainstatementsmade

wouldbeforwardlooking innatureandtheactualresultsmayvarysignificantlyfrom

thesestatementsandthecompanydoesnotoffertoupdatethesepubliclytoreflect

thechangesinperformance.AdetailedstatementinthisregardisalsoavailableinJFL

Q3 FY11 Release,which is available on the companys website under the investors

section.IwouldknowliketoinviteMr.AjayKaultocommencebysharinghisviewson

theperformanceforQ3and9MFY2011. Overtoyousir.

AjayKaul:Thankyou,averywarmwelcometoeveryonejoiningusthisafternoon.ThequarterhasbeenyetagainanexcitingoneforJFLanditisclearthatthestrategyand

ideologiesputinplaceovertheyearscontinuetogaintraction.Wearepleasedwith

ourresultsforthethirdquarterofthefiscal.Clearlythemomentumthatwehadseen

inthefirsthalfofthisyearhascontinuedforJFLeveninthethirdquarter.Movingon

tothefinancialhighlightsforthethirdquarterandalsofortheninemonthending31

December,2010.

OurbusinesscontinuedtobuildmomentumwithTotalIncomeofRs.1857.1millionin

the quarter, up 58.2% yearonyear. Our Net Profit for the quarter was Rs. 189.6

millionup66.7%ascomparedtoRs.113.7million inQ3FY2010.Fortheninemonth

period, JFLsTotal Income stoodatRs.4846.4million.Thecorrespondingnetprofit

stoodatRs.526.7millionupby133.4%overthesameperiodlastyear.

It'sbeenasuccessfulquarterandtherereallyisalottobeexcitedabout.Webelieve

we have built an authentic brand which provides great value and consequently

customersatisfaction.Thisquarterwaspartofmanyfestivitiesaswellastheendof

the year celebration, which was also one of the factors behind our higher sales.

Besides this, we remained focused on our key initiative which is to expand our

presence inexistingandnewcities. WehaveduringQ3FY2011continuedthisdrive

onanationalbasiswithcommitmentonenhancingpenetration levels in tier II& IIIcities.Todayourstoresarespreadacross87cities in India.Today therearetotalof

364stores includingtwosubfranchisedstores inoperation.Thisquarterwesetout

our footprints for the first time in several new cities such as Patna, Bhubaneswar,

B - 214, Phase II, District Gautam Budh Nagar, Noida - 201 305, Uttar Pradesh, India


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Bhopal,Howrah,Salem,Saharanpur,ZirakpurandBilaspur.Whenwelookatthesales

figuresofthesetowns,weareextremelyexcitedwiththepositiveresponsewehave

received.Everywherewegotheresponsehasbeenveryheartening;thereissomuch

pentup demand for the products offer and plus our consistent communication

through

national

media

has

created

a

strong

affinity

for

the

Dominos

brand.

We

are

no longersurprised toseehardcorepizzaenthusiasts in these towns,whicharenot

behind at all,when it comes to consumption. This is very encouraging for us as a

companyas itreinforcesthesuccessandthebondweareabletoestablishwithour

consumersacrossthecountry.

Forusinnovationandqualityformtheessenceofourproductsandtheirsuccess.This

iswhat keeps rolling.During thequarter,we saw the introduction of thedelicious

DoubleBurstPizza,whichisourefforttocreateanewexperienceforourcustomers.

We have received positive feedback and this encourages us to further strive for

innovation. Besides this,we also continue to receive appreciation for our previous

launchessuchasPastaItalianoandMexicanWrap.

Movingahead,thefoodindustryandthepizzaspaceinspecificcontinuetooffergreat

opportunitiesforustoprogressand increaseourfootholdacrossthecountry.There

continuestobeamajorshift in foodhabits inmetropolitancities,whichwebelieve

bringsgrowthintheQSRspace.Factorssuchasriseindualincomelevelandstandard

oflivingandconveniencecontinuetodrivethegrowthintheQSRspace.

We believe that JFL is well positioned to capitalize on such opportunities in the

industry. We have all the right ingredients to scale up our model in my belief.

Moreover,

we

do

realize

that

in

such

a

dynamic

market,

we

need

to

constantly

keep

ourselvesabreastwith theneedsof thecustomerspalate.Whileat thesame time,

makeemployeeempowermentakeyresultarea.Wehavealwaysbeenaheadofthe

curvewithrespecttoindustrylearning,consumerengagement,tasteandinnovation.

Weviewitimperativetoconsistentlyinvestinourbrandstodrivegrowthinorderto

furtherscaleourbusiness.

Withthisinmind,wehopetocontinuetoimproveouroperationalperformanceand

expecthealthyrevenuegrowthandexpansionasanaturaloutcome.Thisbringsmeto

theendofmyremarks.IwouldnotliketohandovertoMr.RaviGupta,ourCFOwho

willtakeyouthroughourfinancialperformanceingreaterdetail.Thankyou.

RaviGupta ThankyouAjay,awarmwelcometoallonceagain.IshallbrieflyprovideyouwithanoverviewofourCompanysperformanceforthequarterandninemonths

ended31December,2010.

Wearedelightedtoshareasolidsetofnumberswithyouthisevening.InQ3FY2011,

ourTotalIncomewasRs.1857.1millionwitharobustgrowthof58.2%overthethird


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quarter last year. Growth is our sales is primarily related to the increase in our

networkofstorestoatotalof364storeswhichincludes2franchisedstoresandalso

theadditionofthenewvariantssuchastheDoubleBurstPizzatoourmenu.

OursamestoresalesgrowthforQ3FY2011wasat35.7%ascomparedto23.1%inQ3

2010 and this growth is attributable to enhanced penetration together with an

increaseinnumberofordersreceived.

Moving ahead, with respect to profitability during the quarter, our EBITDA was

reportedatRs.322.5millioncompared toRs.197.2million in the sameperiod last

year.WhileourEBITDAmarginswereat17.4%ascomparedto16.8% inQ3FY2010.

Wearepleasedtonotethatourprincipledapproachrightfromthestartistranslating

intosuchexcellentnumbers.

Webelieve inpressingahead systematicallywithutmost importance toour criteria

suchasquality,value,andinnovationforourcustomers.

ForFY2011,wehadsetatargetofopening70storesofwhichwehavesuccessfully

launched and inaugurated 58 stores, across the country. This quarter, we set our

footprints in8cities inthisquarter,18cities in9M,andtoday,wehavepresence in

totalof87cities.

Giventhepaceofourbusinessexpansion,wemaintainourcommitmenttoimplement

an efficient expense management system at every level. While we are optimistic

about our growth and that of the industry,we certainly do not discount the risks

intrinsictoourbusiness.Aspartofthefoodindustry,JFLisconstantlyfacedwiththe

concernofthe inflation,whichcanputpressureonourmargins.However,ourscale

and prudent measures of cost containment, which we religiously apply at every

functional levelthathavehelpedusgeneratehealthyearnings inascenarioofrising

costs.

Another important area that helps us curb our exposure to inflation is an efficient

logistics system operating at JFL. Our robust supply chain, follows a policy of

centralized sourcing from an optimal number of vendors, warehousing and

distribution, this further facilitatescostefficiencies.Further,wecontinue innovating

andworkingonnewingredients,newrecipes,andmoreefficientprocessestoensure

thatweareable to reduce cost.We alsowork closelywithour vendorsand share

knowledgetohelpthemimprovetheirproductivityandreducecost.Suchfocusonthe

logisticshelpsJFLattainconsistentquality,getbetterpricesfromvendorsandensure

timebounddeliveryofarticlestothestore.Insuchamanner,weareabletoalignour

coststotheincreasingsaleswitnessed.


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Movingon,our interestcost inthequarterstoodatRs.0.14millionascomparedto

Rs.20.8millioninQ3FY2010.Thereasonforsuchadeclineisprimarilytherepayment

oftermloansinthepreviousquartersinthisyear.

Finally, our PAT of the quarterwitnessed a robust increase of 66.7% to Rs. 189.6

millionascomparedtoRs.113.7millioninQ3FY2010.Thisisagainrelatedtooursolid

performanceattheoperatinglevel.

Now coming to our performance for the nine month duration. JFLs Total Income

stoodatRs.4846.4millionregisteringagrowthof61.5%ascomparedto9MFY2010.

Ourexpansionduringninemonthperiodhasbeenincreasingatasteadypaceandasa

result,wetodayhave364DominosPizzastoresoperatingatthenational level.We

arealsointroducedsomeofthenewproductsinthisperiod.Westartedtheyearwith

thesuccessful launchandpositiveacceptanceofWheatThinCrustPizza.Bypopular

demand,werelaunchedPizzaMania,whichcontinuestobetrulylikedbycustomers.

InJulythisyear,introducedPastaItalianoandMexicanWrap,addingmorevarietyand

choicetoourexistingmenuandthusgivingmorereasonstoourconsumerstoorder

from Dominos Pizza. This quarter we also introduced the Double Burst Pizza, an

indulgentanddeliciouspizzafortheconnoisseur,whichagainhasbeenwellaccepted

byourcustomers.

OurEBITDA for9MFY2011wasRs.871.2millioncomparedwithRs.471.4million in

thecorrespondingperiodlastyear.TheEBITDAmarginsstoodat18%ascomparedto

15.7%9MFY2010.Lastly,JFLsPATfortheninemonthperiodwasatRs.526.7million

witnessingagrowthof133.4%ascomparedtoPATofRs.225.7millionin9MFY2010.

ThecorrespondingPATmarginswereat10.9%and7.5%respectively.

DominosPizzaIndiaisveryseriousaboutdeliveringqualityproducttoourconsumers

andqualityperformancetoallourstakeholders.Ourrealgrowthdriverisourfocuson

our core consumers. This keeps us pointed in the right direction. We have quite

amicablymanagedthefoodpriceinflation,launchednewcampaignsandproductsand

havedeliveredgrowth.TheopportunitiesforQSRaregrowingandwebelieveweare

a player that can move cleverly in this crowded market place first to reap rich

performancedividend.

Insummary,weare lookingforwardtoendtheyearwithapositivenoteandexpect

continued accelerations in our overall growth aswell asmarket share.With this I

wouldliketoconcludemyopeningremarksandwouldliketorequestthemoderator

toopen thecall forQ&A. Ajayand Iwillbehappy toaddressanyqueries thatyou

have.


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Moderator Thank you verymuch sir.Our firstquestion is from the lineofPriteshCheddafromEmkayGlobal.Pleasegoahead.

Pritesh Chedda: We have seen for the quarter that the cost of goods sold as apercentageofsaleshasincreasedandthegrossmarginhastakenabitofhit,(a)What

is the year to date cost inflation that we are seeing in the business and

correspondingly,whatarethepriceincreasesthatwehaveimplemented?

RaviGupta: Pritesh,thepriceincreasesthatwehavetakenareconsistent.Moreovertheprice increasedecisionsarenormallytakenabout23months inadvanceforthe

particular timewhenwewant to implement it. So typically, likeprice increasewas

2%2.5% twice inayearand thatswhatwehavedoneso far in thisyear.However

foodinflationisslightlyhigherthanthatoneandthishasslightlyimpactedourmargin

forthisquarter.Wecouldnot increaseourpriceshigherthanwhatwenormallydo,

becausethepriceincreasedecisionsarenormallytaken23monthsinadvance.Soit

takesaboutaquarterortwoforallthistoadjust.

Pritesh Chedda: So at this juncture, the price increase is not equal to thecorrespondingmaterialpriceincreasethatweareseeinginthesystem.

Ajay Kaul: Absolutely, if I mayjust add to that, inflationary pressures have beenpresent in thepast aswell; it isnot somethingwhich isnew.However, in the last

couple ofmonths, Imust admit, that the pressure is coming particularly fromone

ingredientwhich ismilk leading tocheese,which isobviouslyourbreadandbutter,

thatsourcoreingredientandisputtingabitmorepressure. Iamsure,youmusthave

readarticlesaboutit.Havingsaidthat,Imustalsosayonethingthatbeingthefastest

growingbrandinthecountry,therebyourrequirementsbeingmorethanlotofpeople

put together, in allmodesty, I am saying this,we are able towork alongwithour

businesspartnerstoeitherhelpthemgeteconomiesofscaleor inadvancetheyare

ableto invest infurthercapacitiesandmanufacturingthattheyareabletobringthe

unitcostdown.Sodespitewhateveryoumaybereadingthatthereis15%16%kindof

inflationinthemarket,itisfarlowerthanthatforJFLsofar.SoIamjusttryingtogive

you some comforton that the fact that it isnot that ashigh aswhat youmay be

reading inthenewspapers, infact it is far, far lower.Buthavingsaid that, firstlyour

intention is never to pass on huge increases to the customer despite whatever

pressures, so twiceayear,2%2.5%webelieve isgoodenough for theelasticity to

existwherecustomersdontfeelthepinch.Inthisparticularinstance,withinthelast

couple ofmonths inNovemberDecember, the increase in inflation has been a bit

morewhichisreflectedinourCOGSorcallitrawmaterialcost.

PriteshChedda:Okay,soifIjusttakecuefromwhatyousaidcurrentlyandmostlikelythattheyeartodatepriceincreasethatwemusthavetakenshouldbeabout4%5%.


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RaviGupta: Thisyearwehavetaken4%5%priceincrease.Pritesh Chedda: Secondly on the employee cost side, any significant action takenthere. I know quarter three generally is a high employee cost typically because of

beingamuch largerseasonandabetterseason foryou,versusotherquarters,but

otherthanthatifthereisanyinputontheemployeecostside.

RaviGupta: Pritesh, if you recall in the last concall, we had discussed that inSeptember,which is at the end ofQ2,we had increased the salaries of the team

membersatthestorelevel.Andatthatpoint,Ihaddiscussedthatthiswillimpactthe

wholeofthenextquarter.SoithasimpactedonlyonemonthinQ2andallthethree

months inQ3. There isno further increasewhichhashappenedspecifically for the

team members level in this quarter. Although, we have put our new scheme of

incentive for the next level to the store managers, which is a level below store

managers we call it Shift Manager. So that is a new development which has

happened,butthegoodimpactisfortheincreasewhichwehavedoneinSeptember.

PriteshChedda:Okay.But thesearequarterly incentivesor theseare actual salaryincreasestakenwherebythebaseforthenextyearthenhastobeconsidered?

RaviGupta:Theseareperformancedriven incentiveswhicharegiven fromOctoberonwards.

PriteshChedda:Okay.Onlyforthatquarter?RaviGupta: No,IsayQ3onwards.PriteshChedda: Okay,it'songoing.AjayKaul:Seejust tokindofhighlightone thingagainherePritesh foreverybodysbenefit. One, our own requirement of people at all levels is far, far higher than

anybodyinindustry.Secondly,havingcreated,inallmodestyagain,afairlysuccessful

food brand,we become almost a pot of good people,which is easily available for

otherstokindofgofor.Wearenotasmuchfussedaboutthesecondpart,because

wehaveenoughexitbarrierswhichwecreateforourpeople intermsofculture, in

termsoftheenvironmentwegivethem.Youareawarethatwehaveoneofthebest

employersinthecountry. Butthisisbeingdonetomakesurethatwearedeveloping

goodmanagersforourfutures,sothatprogressivelyaswe increasesimilarnumbers

ofstoresinfuture,wehavestaffwhohavebeenwithusforsometime,whoknowthe

DominoswayofworkingorusedtotheDominoscultureandarejustreadythento

take charge of these stores. So for your information, this incentiveplan is actually

unique,becausenobodyelseatthat level inour industryoffersan incentiveplan.A


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variable incentiveplanwhich isEBITDA led,which isdrivenbytheEBITDAgenerated

bythestores.

PriteshChedda:Yourexpansion inthesenewercities,just ifyoucouldhighlightMr.Kaul,generally these cities,what is theupper limit foropeningpizza stores,maybe

DominosormaybePizzaHutdoingof it, sogenerally thesecities canabsorbwhat

countofstoresifitispossibleto?

AjayKaul:See itdepends fromcitytocity, if I lookatquarterthreealone,wehaveopened8newcitiesfromPatnaandBhubaneswarandBhopalwhichare likealmost

capitalcities,toZirakpurandSaharanpur,whichare intheirownrights,much,much

smallercitiesandsoon.Sothepotentialineachisdifferent,onecan'tputtheminthe

samebucketorcategory.

PriteshChedda: Ifyoucouldtaketwocities,BhopalononeendandZirakpuronotherend.

AjayKaul: I thinkZirakpur inall fairness, is likea suburbofChandigarh, I thinkonegoodstorethatwehaveopenedisgoodenoughfor,Iwouldsaytheforeseeableone

totwoyears.ButBhopalforexample,wealreadyhaveopenedthesecondstorealso

inBhopal.SotherearealreadytwostoresinBhopal.Similarlyifyouaregoingtolook

atBhubaneswarandPatna,theyareclearlyatwotothreestoresmarket,soallthat

huntisalreadyhappening.Soit'samixofthisandthat,butImustalsotellyouthat,

ononesidethereisthepentupdemandandallthosefactorswhichRaviwastalking

aboutearlier,butmorethanthatthepaceofchangeintermsofhabitsisalsopretty

stupendous and as a result what may be relevant or what may be yardstick or

benchmark today,becomesalmost irrelevantayear,yearandahalfor faster than

that from now because there is such an upsurge in terms of consumption and

acceptanceforfastfoodlikeours.

PriteshChedda:SowhenyousayonestoreforZirakpurwith50%marketshare,therecanbeapossibilityofonemorestorefromothercompetitor,ifIjusttakeitforward?

AjayKaul:No,50%marketshare,Inevermentioned,wheredidthatcomefrom.PriteshChedda:No,Iamjustputtinganexample.AjayKaul:ThewayDominosmodelworks,itisdeliverycentric,wegobyhouseholdsin that neighbourhoodwhichwe address and there is a certain numberwhichwe

normally feel should be adequate for it to become sustainable. It is almost

independentofwhatourcompetitionisdoingbecausetheirmodelsarefootfalldriven

andtheircustomerscouldbecomingtothemfromanywhere.


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JaibirSethi: And during say the seasonal peaks for example, what you had seenaroundDecember,doyoubringinalotoftemporarystaffintothestorelevelaswell

oristhatapractice,whichyouavoid?

AjayKaul:Youseeithappens,seeunlikeatapwhichyoucanopenandclosesoeasily,in this case, you have to bring in people, you have to train them and, yes this is

probablytheonlyseasonalityinourbusinesswhereDecembertendstobeadefinitely

higherthanlet'ssayNovemberandtothatextentabitforJanuaryalso.SoDecember

we do tend to rely a bitmore on call it parttimers,wherever they are available,

although it's not so easily available in India, butwe do have part timers.We also

believeonweekendersespeciallytalkingaboutthe25th

Decemberand31stDecember

partoftheyear.Andaswemove into Januaryandsoon, it'ssomeofthesepeople

thatobviouslyarenotapartofthesystemandsoon.

JaibirSethi: Okay,butthat'snotamajorcomponentforyou?AjayKaul:See, it iscomponenttoanextentthat it isa labor lineand it is importantand given the fact that we had increased salaries recently, we constantly watch

productivityinourstores,howourefficiencyandlaborproductivityonlyincreasesand

doesnt go down.Wewatch such aspects very, very closely.We have productivity

models,wehavemanpowermodelsandweareconstantlyworkingonthem.

JaibirSethi: Alright.Thanksalot.Moderator: Thankyou.Ournextquestion is from the lineofAmnishAgarwal from

MotilalOswalSecurities.Pleasegoahead.

Amnish Agarwal: I have a question which is primarily related to our new stores,becausewe have added around 25 stores in the currentquarter. So howmanyof

these storesare in theTier II,Tier IIIcities?Howmanyof these storesareactually

havingsomefinediningassociatedwiththemandhowhasthestoreeconomics,the

storesintheTierII,TierIIIcitiesarepanningoutvisvisthestoreswhichareinthe

metros?

AjayKaul:Speakingspecificallyofquarterthree,wehaveentered8newcitiesinthequarterandthetotalnumberofstores inthese8citiesare9,because inplaces like

Bhopalwehaveopenedmore thanone store.But if Iwere to gobeyond thisand

classifystoresintothetop10citiesandthenthenextsetoftheothercitieswherewe

arealreadypresent,Iwouldhavetotakeaguessrightnow,butprobably50%ofour

storeswouldbecomingfromtheTierII,TierIIIcitiesandtheother50%,asofthumb

ruleingeneralwouldcomefromourtop10cities.

AmnishAgarwal:Okayandthetop10wouldobviouslyincludeallthemajormetros


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AjayKaul: Itwill include rightup toAhmedabadand Hyderabad,Chennai,Kolkata,Bangalore, Mumbai, Delhi of course, Pune, so it would be all these who would

contributetomaybe50%andeverybodyelsewouldcontributeto50%.Igivetakeone

or twopoints; Iam speakingabit frommymemory rightnow.But in the50%and

there

would

be

a

substantial

portion

which

has

this

time

come

from

new

cities

becausethereareasmanyas8newcities.

AmnishAgarwal:Okay.Andoutofthesestores,whichyouhaveopened,howmanyofthemhavefinedining?

AjayKaul:InfactallTierII,Tier IIIcitieshave,Iwouldnotcallitfinedining,becausethatsnotwhatweare in.Wehavecreateddiningenvironmentwhicharegoodand

congenialforconsumingfastfood,whereyoucansitwithyourfamilyandfriendsand

maybechillout tosomeextent.Soagain it'sgoing intermsofnumberofseating is

thatqualifiedmystatement,anythingfrom4060seatinginsuchplaces,becausereal

estateandallthatinsuchplacesdoesnotplaysuchasignificantrole.Ofthesestores

whichhavebeenopened, let's say in the top10 cities, thebigones, inDelhisand

Mumbais,thenumberofcoverswenormallygoforis2025andinotherplacesitcan

gouptoeven3035inplaceslikelet'ssayBangalore,Kolkata,Chennai,andsoon.And

interesting piece is that our delivery business is growing as fast as our dineinbusiness.

AmnishAgarwal:Okay.And ifyouhave to lookat this storeeconomics then thesecities particularly in Tier II, Tier III where we are having some sort of a dinning

environmentbeingprovidedtotheconsumers,sohowdifferentisstoreeconomicsin

these

cities

vis

vis

the

store

which

are

not

having

the

dining

environment

experience?

RaviGupta:Thecriteriaweuseinternallyisthesamecriteriawhichweapplywhetherweopenastore inmetroorweopenstore inTier IIorTier IIIstore.Thecriterion is

that thestoreshouldpayback the investment inthreeyearsor less.As longas the

storepaybackwithin threeyearsor less,wenormallydonotdifferentiatebetween

howmuchbottomlineastoregeneratesordoesntgenerateorthetopline. Togive

anexample,astoremayhaverental4timeshigherthananotherstore, inthatcase,

thefirststorehastogeneraterevenuewhichismuchinexcessthanthesecondstore.

Intermsofpercentageyoumustsayitisstilllower.Butwedontatlookpercentage,

we look at the absolute amount of payback, the absolute amount whether it's

contributing toanextentthatwegetourpayback from thestore in lessthan three

years. Solongthathappens,wearehappyto invest. Andweareprettyhappywith

the performance of the stores in the new cities and they have been meeting our

benchmarks.


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AmnishAgarwal:Okay. Ifwehavetospecifically lookatthestoreswhichhavebeensay opening in the say past twelve months or so, if you look at your aggregated

EBITDAmargin of say around about 18% odd, so are the storeswhich have been

opened in the past 12 months also around the same level or is there a huge

differential

between

the

stores

opened

recently

in

those

opened

2

3

years

back?

RaviGupta Amnish,whathappens is thatwhenanewstore isopened, typically itssalesarelowerthanthesalesofthematuredstores.Thereisnodefinitionofamature

store,;but you can say these are storesopenedmaybe 34 yearsearlier,because

whenastoreisopened,penetrationandfrequencykeeponincreasinginthedelivery

areaandasaresultsaleskeepongrowing.Whensaleskeepongrowing,marginsalso

keeponrising.Sowheneverweopenanewstore,themarginscomparedtotheolder

storesarelower.Andastheymature,theirmarginskeeponincreasing.

AmnishAgarwal:No, toput itdifferently, if Ihave to lookat say the5or10beststoresofyours in thecountry,would theybemaking sayanEBITDAmarginof25%

plus?

RaviGupta:Seewewillstillnot like tocommentspecificallyabouttop10storesorbottom10stores,buttheydefinitelymakehighermarginsthanthebottomstores.

AmnishAgarwal:Okay,thanksalot.Moderator: Thankyou.OurnextquestionisfromthelineofHirenDasaniofGoldmanSachs.Pleasegoahead.

Hiren Dasani: Hi thank you for the opportunity. Just in terms of store opening,consideringthatwealreadyopened58storessofar,arewestillstickingwith70orit

couldbesomewhatbetterthanthat?

AjayKaul:Of theguidancewehadgiven in thebeginningof theyearandwehaveconsistently maintained is 70 stores and we believe we will definitely meet that

number.

HirenDasani:Meetingisobviouslyaveryeasytasknowconsideringthat58isalreadyout.

RaviGupta:Butweneedtoappreciatethatfirsttwoquarters,wecouldopenonly33stores,sowecansayanaverage16stores, it'sverydifficult tosay atthismoment

thatwhetherwecanexceedthetarget,sowewillliketostaywithtargetof70right

now.

HirenDasani:Okay.Andanysenseonthenextyear,woulditbesimilartothisyearaswell?


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AjayKaul:Giventhatoverthelast3yearswehadbeendoing60odd,lastyearwedid65, this year we will definitely end at 70, given this pace and given that at the

consumers sentiment level and the opportunity level, there dont seem to be any

majorchangesornegativeappraisalhappening.Wedobelievethatyoucan logically

extend

the

past,

present,

into

the

future.

HirenDasani:Asfarasthestoreopeningareconcerned?AjayKaul:Yesthestoreopeningpart.Hiren Dasani: Okay. And few data points in terms of what would be number ofemployeesattheendofthequarter?

AjayKaul:Seethenumberwouldbeonhigherside,somebodyrightlytoldusthatinDecemberwehavetobeefupourstaff,Ithinktheexactnumberprobablywouldbein

thevicinityof12,000orso.ButasyoumoveintotheJanuary,thisnumberwouldtend

tofallbecausefortheDecemberduetoactuallywehavebeefupourstorestrength

andeverything.

HirenDasani:Sure,itwas10,750asofSeptemberifIamnotwrongAjayKaul:Right.HirenDasani:Andgrossdebtandcashandcashequivalentattheendofthequarter?RaviGupta:Thedebt isnotthere inbooksatall.Andwehavecash inhandisaboutRs.45croreasofDecemberend.

HirenDasani:AndwhatwouldbetheCapEx fortheninemonths,cumulativelyovertheninemonths?

AjayKaul:AboutRs.55crore.HirenDasani:Andvirtuallyallofthatwouldbeonthestorerelatedonly?RaviGupta:Mostof it is store related, Iwould say,both fornew storesaswellasexisting store. Sincewe are doing 39% same store growth,we need to reinvest inexistingstoresalso,intermsofadditionalequipmentandotherthings.Sowekeepon

reinvestinginexistingstores,somajorityoftheportiongoestothestores.

HirenDasani:Whetheritwouldbeaboutmorethan90%roughly.RaviGupta: Yes close to90% you can say, forbothnew storesaswellasexistingstores.


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HirenDasani:Okay.Andnewwouldbe60%ornewexistingwouldbe6040orwoulditbeequalintermsofnewversusexisting?

RaviGupta:Ballparkyoucansay7030newVsexistingbutitcouldvaryyeartoyear.HirenDasani:Okay,greatthankyou.Moderator:Thankyou.Ournextquestion is from the lineofNatraj fromQuantumMutualFund.Pleasegoahead.

Natraj:How longorhow far can the same store sales keepgoing,andata certainstageyouwilldecide toputanotheroutletnear thesameoutlet, is thathow itwill

work,orhowshouldwereadthelongtermscenarioonthatside?

RaviGupta:Seeperiodicallywekeepondoingthisexercisewhatyoujustmentionedandwedothisnotbecauseofthestorevolumesaregrowing,orsomethinglikethat.

Whathappensis,astorehasadefineddeliveryarea,overaperiodoftimebecauseof

trafficcongestionandotherfactors,ourservicetotheperipheryareasstartssuffering,

andwhentheconsumersstartreceivingtheorderonthe30th

minuteor32nd

minute

ormaybein29minutesandthepizzaisnotveryhot,hedoesntenjoythepizzaandin

amatteroftime,hisfrequencyreduces.Nowwedontwantthatsituationtoarise.So

before that happens we tend to open another store in the vicinity of the store,

althoughthestore isabletodeliverthemwithin30minutesbutstillto improveour

customer satisfaction,wenormallyopenanother store in thevicinity.Andwehave

beendoingthatconsistently.Atanypointoftime, isyouconsiderthe lastcoupleof

years,ateverypointoftimetherewillbeabout30storeswhichwecallsplitstoresat

anypointoftime.

Natraj:Okay.Soatanypointoftimethereinvestmenthastokeephappeningsotheexisting360storesmayentailoverit5yearperiod,youcouldbedoublingwithinthe

samecitiesitself,ifatallthesamestoreskeepgoingatthesamerate.Iamsayingthat

samestoressalescontinuetokeepgoingatthesameleveloratthelowerlevel,inthe

existingcitiesthatyouhavealreadyapresence,thenumberofstoreshavetoincrease

significantly.

Ravi Gupta: See number of stores in the same cities has been growing, we justmentioned earlier in the concall saying that in the top 10 cities alsoweopen the

storesandstillthesamestoresalegrowthisat39%forfirstninemonths,itisafterthe

splittingofthestore,inthesensethatwheneveryouopenastoreinthevicinity,sales

reducesforthestoreafteraccountingforthereductionalsothereisagrowthof39%

inthefirstninemonths.


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14

Natraj:Okay Iamjustone last sir,youhaveplans to launchanotherbrandof foodchains,anyupdatesonthat.AnyotherbrandifyoulookatbesidesDominos.

AjayKaul:Yes,letmeupdateeverybodyonthat.Comparedtoourlastdiscussionwewhen we had also talked about new brand but being discrete about it;we still

haventreachedastage,althoughImustadmitthatwehaveclearlyprogressedinour

discussion with I would say more than one brand. The idea is not to launch the

multiplebrands,the idea isto launchonebrandbutweare indiscussionwithmore

thanone.AndIwouldreckonthatwehavereachedthestagewhereinthenext4to6

months,weshouldbe inapositiontoannounceandhopefullyalsostarttheactivity

relatedto launchofthebrand.Why itmayhavetakenabit longer is,thatfirstlythe

brands both organizations us as well is them, they need to come close not only

commerciallywhichismostobviousbutevenideologicallyintermsofthewaywelook

at customers, employees and everything thewhole ecosystem and that is taking a

littlebitofatime.But I'mhopefulthat innext4to6monthsweshouldnotbeonly

abletoannouncebutstartfromreallymaterialworkinthisdirection.

Natraj:Thankyou.Moderator: Thank you.Ournextquestion is from the lineofAtulBhole fromTataMutualFund.Pleasegoahead.

AtulBhole:Howmanyemployeesare thereon theadminandbackendandsecondquestion is how do you see the leverage panning out as you grow the number of

storesandstoresmaturefromthesupplychain,backendemployeeside,etc.?

RaviGupta:Seeinthecommissaryandthebackendsoastosaythereareabout700employeesandrestareallrelatedtovariousfrontsinoperations.

AtulBhole: Okayandtherewouldnotbeanygrowthinthatnumberofemployees?RaviGupta:No, that has to grow but that does not grow at same pace as in thegrowthinthebusinessnormally.

AtulBhole:OkayandmyquestionisoverFY09youhaveseensome5%improvementinmarginsandoverFY10some2%to3%.Sohowdoyouseethemarginpanningout

further,next2to5yearsthatperiodnotforthenextquarterorso?

AjayKaul:Wewillnotbeabletocommentintermsofquantifiedprojectiononthose.WhiletheplanfornextyearisunderwayandwearekindoffreezingthatbutwhatI

cansayisthatwehavemoved2% 3%pointsimprovementinlastyearcomparedto

theyearbeforethatandsofarthisyearagainithasbeenaround2%.Webelievethat

therewillbemarginalimprovementsinourmargininoverthenext4to5years.


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15

Atul Bhole: Okay and you mentioned about maintaining bench strength, so canquantifythat,willthatbe10%to15%oftheemployeesonbenchorlesserthanthat?

AjayKaul:The rateatwhichwearegrowing,wehavenotquantified it in termsofpercentages.Welookatitmoreintermsofwhatourplanareforopeningstoresand

what level of requirement is there because there could be store managers, there

couldbedistrictmanagers,therecouldalsobepeoplewhowetakeasbenchstrength

tofillupthesecondlevelofmanagementwithinthestorewhoareabletopickup&

growas managerstoreaftermaybe1.5to2years.Butclearlywearebringinginour

scienceintothat,wemaynotbeabletoexpressandpercentage.

AtulBhole:Okaythankyou.Moderator: Thank you. A next question is from the line of Krishnendu Saha fromQunatumAMC.Pleasegoahead.

KrishnenduSaha: Ijustwant tounderstandyourbusinessa littlebitbetter,doyoutakepriceriseequallyallthroughoutinthesensePizzaissellingforRs100inbigcityis

itsellingforRs100inTierIIcity?

RaviGupta Allourpricesarealmostuniformacrossthestores.Weprocurecentrallyalltheingredientsatthefourcommissariesandthishappensinthosefourpoints.We

thushavethebenefitfromvolumesleverage,evenforthestoreswhicharemaybein

farflungareas.Thusweareleveragingourvolumeswithourvendorssothatwecan

negotiateabetterrate.Sothatisthereasonfromaconsumerpointofviewwehave

kept

the

same

rates.

Otherwise

somebody

can

argue

the

other

side

saying

that

tier

II,

tier III citiesyou shouldhavea lowprice.One canalsoargue saying thatyouhave

highercostofdeliverythere,youshouldhavehigherprice.Theycanargueeitherway

actually.Butwehavekeptthepricesalmostuniform.

KrishnenduSaha:ReasonI'maskingisifIamlookingatforthepastcoupleofquartersyourcostshavebeenaround24% to25%,26%of thisquarteracceptedbecauseof

inflationwhatsoeverand thepricesare fixed.Where Iam trying tounderstand the

pricesarefixed,isuniformallthroughoutIndia.Sowheredoyougettheleverage,you

gettheleverageinrentalsandotherincomewhichhasbeengoingonconstantlyfrom

11%to8%rightnoworonotherexpenseswhichisgoingdownfrom29%from31%?

I'mjusttryingtofindtheleveragefactorandwhereiswillcomefrom.

RaviGupta: Leveragemaycomefrommostoftheheads,but inshorttermwedon'tforeseealeveragecomingfromrawmaterialsandstaffcosts.Sointheshorttermwe

don'texpectany leveragetocomefromtherebutona longtermbasis leveragecan

comefromtherebecausewekeeponworkingoninnovationinrawmaterials.Asand


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16

when innovation happens normally we keep that margin with us, although our

endeavour istokeepondelightingtheconsumerssothatoverallfoodcostsremains

around25%range.Butifthereisinnovationwemayhaveamarginallygrowthinthat

case.

KrishnenduSaha:SotheEBITDAlevelsthatcanexpectleverageinthisquarterfromtherentalsandallthoseotherexpenditure?

Ravi Gupta: SG&A will always give you leverage, rentals will always provide youleverage.Wehaveseenthatinthepasttoo,Ithink78quartersresultsareavailable

withyounow,andyoucansee thatconsistently factors like rentalsandother fixed

costscangiveyouleverage.

KrishnenduSaha:ArethosearebasicallySG&A?RaviGupta:Theyarekindoffixedcostsorsomevariablecostsofstoresorcorporate;exclusivelyyoucan'tcallthemSG&A.

Krishnendu Saha:And thenat theEBIT levels thedepreciationkicks in through.AllrightIgetthat,thankyou.

AjayKaul:Thankyou.Moderator: Thank you. Our next question is from line of Subramanyam PS fromSundaramMutualFund. Pleasegoahead.

SubramanyamPS:Thesame storessaleshowmuchwould itbeasapercentageofyourtotalsales?

AjayKaul:Wecan speak in termsofnumberof stores,whenwe started theyear Ithink241storeswerequalifyingforthesamestorecalculation,outofthetotalof306

stores.Sorightnow,aswespeak,wehave241storeswhichfallintothesamestore

category.Thereare65 storeswhicharenot same storebutwhichhadopened last

yearbutwillrunforthefullyearthisyear,buttheyarenotsamestoresandwehave

opened58 freshstores thisyearso far.So thereare threebucketsbasically.So the

numberisvariableatthebeginningoftheyearitprobablywas241by306andbynow

ithasbecome241dividedby364soitisamuchsmallernumber.

SubramanyamPS:Howmuchwouldthese241storesbecontributingintermsofyouroverallsalesofRs.183croreduringthequarter?


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17

RaviGupta:Approximatelyitwillbeabout75%.Butatthispointinthisit isclosetotheratio,justsay241dividedby339(storeatthebeginningofthequarter)youwill

getsimilarkindofratio,withadifferenceoffewpercentagepointshereandthere.

SubramanyamPS:

But

ideally

this

percentage

should

be

higher

than

the

store?

RaviGupta:Thiswillbehigherdefinitelybutverysignificantly.AjayKaul:Anotherway to lookat it isas thesearepublishednumbers,our systemlevel growth for this quarter is 58% and our same store growth is 35%. So the

differentialobviouslyiscomingfromeverythingelsewhichisnonsamestore.Sothat

mayhelpyoutoalsoarriveatsomenumbersintermsofpercentages.

Subramanyam PS: Okay and of your same stores, what kind of same store salesgrowthwouldyoubeexpecting? Doyou think someof themhavehita saturation

pointandyouneedtoopenupnewstores?

Ajay Kaul: See new stores will keep happening and I do admit that new storessometimes can cannibalize a little bit of sale from the existing stores. But let me

answer thisquestionwithoutactually talkingabout the futureverydirectlybecause

wedonotdothat,ataprinciplelevel.Wedonotgivetheclearguidanceonwhatour

samestoresnumberis. IfItakeyouthatintohistory,thisyearsofarisunprecedented

andImustadmitthat.Asperourforfirstninemonths,samestoregrowthnumberis

ataround38.7%whichisunprecedented,inourhistorywehaveneverdonethat.Last

yearwedid22%samestoregrowthandifIlookattheblockof5yearsbeforethatour

averagedoutsamestoresgrowthwouldbeinthevicinityofaround18%.IfyouweretobackoutonebadyearwhenthedownturnhadhappenedIthinkalmosteveryyear

wehadbeendoingaround18%to20%samestoregrowth.Thisispast.Inthepresent

yearweareclockingataround38%,thisquarterhasbeen35.7%.Icaneasilysaythat

thesenumbersarenotsustainable in futuresuchhighgrowthnumbers35%andall

that.However,wherewilltheygoandgravitatetowards issomethingwhich Iwould

nothazardaguessrightnow.

SubramanyamPS:Anyguidanceonyouroverseasstoresexpansionplans?AjayKaul:YesallIcansayisthatwehadsaidwewouldwanttoenterSriLankaandopenourfirststorethisyear.Ithinkweareoncourseofthat,itmaybeendofMarch

oritwouldbeearlyApril,butweshouldbeabletoopenourfirststoreinSriLankain

thenext2to3months.Ourcommissaryorfactoryisalsounderconstructionthereso

thatwill allhappen simultaneously andwhile thepotentialof Sri Lankadespite an

improvedtouristyclimate,improvedeconomicclimatelooksverypositivebutitisstill

far, far lower thanwhat Indiawould offer or for thatmatter issue as a compared

Colombo toDelhiandsoon.ButnonethelessweareupbeataboutSriLankaand in


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due course our plan for Sri Lankawould also unfold.We are in themidst of also

finalizingourplanfornextyearforSriLanka.

SubramanyamPS:Okaythanksalot.Moderator: Thank you. Our next question is from the line of Umesh Gupta fromRelianceWealth.Pleasegoahead.

UmeshGupta:Youmentionedinthebeginningthatinflationisnotabigriskasfarasyour rawmaterial side isconcerned;youhavebeen fairlyable topasson.And the

secondthingyoumentionedyourMRPsaremoreorlesssameacrossthestoresbeit

TierI,TierII,sofromthedemandsidethisinflationespeciallyinthesmallercitiesthe

waythepricesarerisingnotforthepizzabutfortheotherthings.Sofromthewallet

shareperspectivewhatkindofriskareyouforeseeingoristhereanyriskinyourview

fromthedemandpointofview?

RaviGupta: Consumer is experiencing this inflation across all categories. Income isalsoprobablyrisinghigherthaninflationrightnowbecauseinrealtermstheincomeis

also increasing for theconsumer.Foraconsumer, themoment thedisposal income

rises,thefirstcategorywhichgetsimpactedisalwaysfood.Sohetendstospendmore

on food. Our belief is so long as the income keeps on rising, inflation should not

impacthisspendingonthefood.

UmeshGupta:OnyourEBITDAmargins,Idon'tknowwhetheryousaiditclearlythatyou expect a little growth in EBITDAmargins going forward. Since your tax rate is

goingtoworksignificantlyfromthisyeartonextyear,sountilandunlessthereisnotadramaticimprovementinEBITDAmarginbutyouneedasignificantimprovementin

EBITDAmargintomitigatetheimpactofthetaxrateonthebottomline.Soonecould

saythatsinceyouareearlierinthelossesandtheyhavebeenaccumulatedandnow

sinceyouarecomingintoprofit.Soforthefirstfewyearswhichwehavealreadyseen

inthe lasttwobuttillthetimeyoumove intothefulltaxrateyourmarginsshould

keeponimprovingcontinuouslyatleastmyopinionisabout200300basispointsnext

year foryou tomitigate that risk.Sodoyousee thatscenariogoing forwardornot

thatmuch?

RaviGupta:Asfarasnextyear isconcernedwewillcomewithathoughtprocessattheendoftheyearbecauseweare inthemidstofthepreparingplans forthenext

year.

UmeshGupta:Thatstruebutasfarastaxrate isconcernedyouarefairlyawareofthesame.


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19

RaviGupta:Lastyearalsowehadasimilarquestionsayingthenextyearyouwillstartpayingtax,yourmarginwillget impactedbutstillweareaheadrightnow.Soatthis

pointof time Iwillnothazardaguess forthenextyearsincewearealready in the

exerciseofbusinessplanningfornextyear.Probablywhenwearethroughwiththat

exercise

we

have

some

better

thoughts

at

that

point

of

time.

UmeshGupta:Okayonyoursamestoregrowthandthesystemwisegrowth.Isthereanysignificantdifferenceintermsoftheveryoldstoresgrowthandthegrowthinthe

maybetheoneyearoldbetweenandthethreeyearoldkindofgrowthnumbers?

RaviGupta:OnlyonethingIcansaythere,thereisnosignificantdifference.Whenwesay39%growthistherefortheninemonths.Definitelytheolderstoresarecoupleof

percentagepoint lowerandthenewerstoresarecoupleofpercentagehigher.But I

willsaythatnosignificantdifferencebetweenthegrowthrate.Theolderstoresare

alsogrowingataveryfantasticrateexceptforcaseswedecidetosplitthem.

UmeshGupta:Okayandoutofthetotalstoreswhatisthebreakupintermsoftop10cities,howmanystoresyouhaveandtheremaining?

RaviGupta:Top10citieswewillhaveabout65%stores.UmeshGupta:Okaythankyou.Moderator: Thankyou.Anextquestion is from the lineofKalpeshMakwana fromQuantCapital. Pleasegoahead.

KalpeshMakwana:WhenweconsiderthestaffcostlastquarterwasaroundRs.32.5crore. Ithas sequentiallygrownbyonly18%. Frankly Iwasexpecting it togrowat

muchhigherrateconsideringtheflightthatyouhadtaken18%to20%wagehike in

thatquarterandadditionallyyouhave increased theworkforcebyaround16% this

quarter.SowasthereanynonrecurringnumberinthelastquarterthatIshouldtake

offtocomeatarecurringnumber?

RaviGupta: Kalpesh only thing that I can add here is increasewas done effectiveSeptember.

KalpeshMakwana:Correctsothatwasforonemonth?RaviGupta: Yesonemonthwasthere inQ2andsoastosayadditionaltwomonthscameinthisquarterincomparison.Andwereportthetotalnumberofemployeesat

theendofthequarter.Sotheymaynotbeemployedforthewholeofthequarter.So

thisDecembermonthisagreatmonthforus.WestartrecruitingbyendofNovember

or so. So that will get tilted in terms of numbers, so exactly working will not be

possibleforyoutoworkoutthingslikethese.


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20

KalpeshMakwana:Was there any oneoff number in Q2 staff cost which is notrecurring?

RaviGupta:Notatall.KalpeshMakwana:Andoutofthese25newstoresthisquarterhowmanyweredoneinthelastmonthofthequarter?

AjayKaul:ThelastmonthofthequarterwhichmeansDecember?KalpeshMakwana:Yes.RaviGupta: About8to10storeswerethere.Ajay Kaul: Probably around 8 to 10 stores, maybe onethird number would be inDecember.

KalpeshMakwana:Okaythankyou.Moderator: Thankyou.Anextquestion is from the lineofPrachiKodikal fromBayCapital.Pleasegoahead.

Prachi Kodikal: How much of your same store sales growth comes from newproducts?

RaviGupta: Wedon'tdifferentiatebetweenwhichproductsare contributing to thesamestoresgrowth.Whathappens iswekeepaddingnewproductstotheportfolio

andalsodiscontinuingsomeproducts.Becausewehavetokeepourmake linevery

simple,sothat itfacilitatesthe30minutesdelivery.So inordertokeepthatsimple,

wheneverweintroducenewproductsthereisapressureforustotakeouroneofthe

oldproductsfromthekitchen.Sointhatcontext,wedon'tdifferentiatebetweenwhat

isthecontributionofthenewproduct,olderproductbecausethatisourdecision,to

introduceaproductortodiscontinueaproduct.Ihopethatclarifies

Prachi Kodikal: Okay, out of the total 364 stores how many would have dineinfacility?

RaviGupta: AsofnowmaybeasignificantmajorityIcansayhavesomekindofdinein;nowtheextentofdiningcanvaryanditisnotafinediningwhereyoucanhavea

cutleryandallwedon'toffer inacutleryanywhere. It isakindoffunctionaldinein

wherethereisselfservice;peoplehavetotakeandeatoutofthebox.Sosignificant

majorityofthestorestherearesometableandchairsthere,wecallthemcover.

PrachiKodikal:Okaythankyou.


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21

Moderator: Thankyou.AnextquestionisfromthelineofNishaHarchekarfromWay2wealth.Pleasegoahead.

NishaHarchekar:Whatisyourfranchiseefeeperstore?RaviGupta:Nishawedon'twanttodisclosethatfranchiseefee.YoumeanwhatwerecoverfromthefranchiseeorwhatwepaytotheDomino'sInternational?

NishaHarchekar:WhatyoupaytoDomino'sinternational?RaviGupta: Wepay3%ofallthesalestoDomino'sInternational.NishaHarchekar:Alrightthanks.Moderator:Thankyou.Ournextquestion isfromthe lineofBrijeshVedfromEnamAssetManagement.Pleasegoahead.

BrijeshVed:Iwouldjustliketobroadlyunderstandthemanagementphilosophy;youhavementionedaboutonemorebrandcominginatsomepointintime,probablyin4

to6monthstime.Justwhenyouprobablygetintoabusinesswhichwillbeasimilar

businesslikethiswhereyourequiredtodoalittlebitofinvestment,whatwillbeyour

philosophyoncapitaldilution?Alsotheoverallcapitalemployedinbusinessrightnow

shouldbearoundRs.150to200crore,sowherewouldthatgointermsofwhenyou

aregettingintonextphaseofbusinessgrowth?

AjayKaul:ThecapitalemployedisclosetoaboutRs.150croreorso.Thatiswhathasbeenalreadydeployed inthebusiness.Thephilosophy issimplethathavingcreated

the leveragable strength let us say the Domino's brand under the JFL umbrella of

people,ofsupplychainefficiencies,ofsharedserviceswhichcouldbeintheareasof

legal, finance,HRand soon.Webelieve thatwhatever thenewbrand isand itwill

definitely require some capital expenditure and I do agree there but therewill be

leveragablenoncapitalexpenditure/servicesorcall it leveragablefeatureswhichare

goingtobringinprofitabilityfasterthanwhatprobablywasseenintheDomino'scase

yearsago.SohowitisgoingtounfoldintermsofexactP&Lsandsoonovera5year

period or 10 year period is something which we can't hazard a guess right now

because thebrand isnot finalized.But the intent isobviously all thesebrandsput

together will be delivering enough return on investment, and return on capital

employedandas importantlyEBITDAandPAT, to thebottom lineof the combined

entity.

BrijeshVed:Sure and of course right now you are not leveraged at all and yourbusinessdoesn't requirecapitalas such forgrowth.Butwhatareyour thoughtson

capitaldilutionsincaseifitisrequiredforanextbrandorforfurtherexpansion,what

isthethoughtprocessofthemanagement?


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AjayKaul:IthinkweareopentothatandthereareenoughexamplesevenwithinourownsystemwhereoutsideofIndia,weremultiplebrandswehavebeenbroughtand

theyhavemadeverysuccessfulbusinessesoutofthem.Soweareabsolutelyopento

that.

BrijeshVed:Okay.Thankyou.Moderator: Thank you. A next question is from the line of Sangam Iyer from ALFAccurateAdvisors.Pleasegoahead.

SangamIyer:Wouldyousharetheaveragesqftperstorethatyouhave,isthereanyballparkfigureforthat?

RaviGupta:Actuallywedon'tmeasureandkeeptrackof itbuttypicallywecansayourstoresize isonanaverage1200sq ft.Butwedon't track thisas.This isnotan

insightfulparameterofourbusiness.

SangamIyer:Okayandintermsofotherexpenditurethatweseewhichisaround26%ofthetotalrevenues,couldyougiveabreakupintermsofstoreslevelandcorporate

expenseinthat?

RaviGupta:Our SG&A are spread over across the heads. It is not a part of otherexpensesaloneanditisspreadoverthestaffcostalso,itisspreadovertherentand

otherexpensesalso.

SangamIyer:Sowhatwouldbethebreakupforotherexpenses?RaviGupta:Other expenses consist of our advertising publicity, the franchisee feepayable,powerandfuel,repairandmaintenanceandallsortofothermiscellaneous

expenses.

SangamIyer:Andfinallyonamaturestoreslevelbasis,howshouldonebelookingattheaveragemarginsfortheCompany,woulditbefairtoassumethatonthemature

basisforthelastthreeyears,maturestoresareproducingaround20%kindofEBITDA

levelor22%,ifyoucouldgivesomefigureonthatfront?

Ravi Gupta: Normally we do not share these figures. As the store matures themarginskeepongrowingandwehavenotseeingthegrowthcomingtohaltasofnowinnormal circulstances.When the storesaregrowing rightnowwhenwe saw39%

growthinthefirstninemonths,allcategoriesofstoresaregrowingandwhenstores

keepongrowing themarginskeepon improving.Soverydifficulttopinpointsaying

thatokaythisisapeakpointthestorecanreach.

SangamIyer:Okaythanks.


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Moderator: Thankyou.Thenextquestion isfromthe lineofSumitDusejafromSPASecurities.Pleasegoahead.

SumitDuseja: Canyoupleaseprovidemethebreakupofrevenuesthatcomesfromdeliveryversusfromdiningatthestore,someroughideaonthat?

AjayKaul:I'mafraid,wewillnotbeabletobecausewebelievedeliveryissomethingwhich is a key part of our business which differentiates us. And this is some

information thatwewouldnot like to talkprobablybecause itmaybe giving some

insightstoourcompetitiononwhatweareupto.

RaviGupta:But toaddwhatAjaysaid, ifyou talkabout totalPizzamarketorPizzadeliverymarketwebelieveourshareissomewherebetween67%to70%.Thisisour

ownnumber;youcanchallengethisnumberbycoupleofpercentagepointhereand

there.

Sumit Duseja: So I can take that the significant majority would be coming fromdeliveryasaroughestimate.

AjayKaul:Asaqualitativeanswertothatquestion,theanswertothatquestionisno.Whenyousaidsignificantmajority,theanswertothatquestionwillbeno.

SumitDuseja:Okayfineandhowmanystoresareownedandhowmanyarerental?Ibelievetheymostlyareonrentalbasis.

RaviGupta:Allstoresareon100%rental.SumitDuseja:WhatisthefranchiseeperiodfromDomino'sInternational?RaviGupta:Theperiodof the franchisingwas15years,starting fromApril1st2010andendingonDecember2025. It is renewable furtheratouroption foranother10

yearsafterthat.

SumitDuseja:Okayfine.Moderator:Thankyou.Ournextquestion is from the lineofRajMohanwho isanindividualinvestor.Pleasegoahead.

Raj Mohan: What I was trying to understand was, with the two major costcomponentsofstaffandmaterialsgivingpersistentpressuretoyourfinancials.Doyou

stillfeelyouhavethesameleverstokeeponimprovingyouroperatingmarginswith

your higher scale orhas that dynamic undergone some kindof a changewith this

persistenceofinflationandstaffcost?


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AjayKaul:Staffcostandfoodinflation,aswehavealwaysmaintained,theywillthrowupchallengesforyouandthisisnothingnewinthisquarter,ithasbeenallthrough.

Howdowemanagethem,howdoyoustillmakesurethatwebeingabestemployer,

being the fastestgrowing companywemanagebench strength,we stillhave salary

levels

which

makers

competitive

enough

to

retain

people.

So

it

is

a

part

and

parcel

of

gamesothat isgoingtocontinue, it isnothingnew forus.Food inflation inthe last

coupleofmonthsisprobablyabitmorethanwehaveseeninthepastbutweagain

believewhileourlastresortalwaysistopassonapartofittothecustomertokindof

coverupforit,thatisourlastresort.Byworkingcloselywiththiskindofgrowthrate

of50%to60%alongwithourvendorsandbusinesspartnerswe'reabletodiffuselot

ofthisimpactbecauseofthat.Butthesechallengesarethereandtheywillcontinue.If

youseethelastthreeyearswhiletheoperatingmarginsmayhaveincreasedforother

reasonsalsowehaveincreasedourEBITDAmarginsfrom around12%toaround17%

to18%rightnowandinflationarypressuresaswellas peoplepressurehavebeenkind

ofthereinthelastcoupleofyears.

RajMohan:Iwasessentiallyinsistentonthisquestionbecauseoverthelastcoupleofmonths or 3 months we have been talking in the global arena about inflation

persistingforaseriouslylongerperiodoftime,withfoodshortagesacrosstheglobe,

Australia everywhere andmost of the basic commodity prices showing an upward

trend.SothatiswhyIwasmoreworriedwhetherthatwillhavesomematerialimpact

onalongertermbasis.

AjayKaul:Iwouldreckonno,thepressurewillbethereandwewillhavetoworkwiththesechallengesaroundthat.

RajMohan:Andagainbasedonyourscalebasedmaterialacquisitionandtheiractualsourcinghappeningrightnow,haveyoumovedheadofthepressurecurvebecause

you said you have 2 to 3 months lag before you negotiate prices with material

suppliers.Haveyoucurrentlymovedaheadofthatpressurecurve?

RaviGupta:Normallywhathappens is from the time theprice increasehappensoftheingredients,ittakesthecoupleofmonthsforustopassontotheconsumers,that

is, ifwedecidetopassontotheconsumers. iftheprice increasehappenswemay

absorbitformorethan1or2quartersbeforewepassontotheconsumers.Thatwas

theconceptwehavenormallyuse.

RajMohan:Becauseyoualsomentionedthatyourevisepricesonlytwiceayear?RaviGupta:Typicallyweincreaseonlytwiceayearyouareright.RajMohan:Okaybut then if there isabnormalmaterialcost increase thenyouwillhavetodoyourpriceincreasemorethantwiceayearright?


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RaviGupta:Yes.AjayKaul:Infactthreeyearsbackwedidincreasepricethreetimesinayearandthequantum of increase can also vary. Right now we believe at 2% and 2.5% at the

customerlevelwedonotseeanydropsbecauseofinelasticity.Buttimewillsaywhat

thedecisionwillgettakenatthatparticulartime.

RajMohan:Okaynextforthetopline,thoughtheperformancehasbeenrobustonthe topline front. Do you think the absolute growth numbers are a shade lower

becauseinthesecondquarterofthisfinancialyearyoudidincrementalsalesofabout

Rs.28croreoverthe firstquarterwhile inthisquarteroverthesecondquarteryou

havedoneincrementalsalesofaboutRs.22croreandthisquarterissupposedtobe

thebestquarterintheyearandyouhavealsoaddedarecordnumberofstores.Sois

there isthereadisconnectorhas it largelygottodowithslightly lowersamestores

sales?

AjayKaul:Indeed,thereisacertainbitofseasonality.Soifyouweretocompareonequarterversusanother, thenhewillalsohave togo intotheprevioussalesnumber

andmakesomecomparisonsbuthavingsaidthatthereisonekeythingwhichIwant

toleavewithyou,itwassomewhereinDecemberof2009thenoursamestoressales

startedclimbingfromlessthan20%pointsinto30%plus.Andthenevenwentto40

progressively,soDecember2009andgoingintoFebruary,March,Aprilandallthatup

to2010and then thisyearstartedandwekept seeingsome reallyhigh same store

growth numbers, unprecedented numbers. Aswe hit December of 2010,wewere

comparingDecember 2010withDecemberof 2009whichwas also a 35%of same

store

growth.

So

same

store

growth

in

December

has

clearly

fallen

a

little

bit

comparedtosomeoftheothermonthsandImustsayherethatexpectingsamestore

growthof35%forrestofthisyearwillnotberight.Iwillnotpledgeanumbertothat

butmywordofcautionisthatitwillnotoperateinthe35%to40%zoneforsure.

RaviGupta:ThereasonbeingthatQ4lastyearwas38%samestoregrowth,thebaseisprettyhighfromQ4lastyear.

RajMohan:OkayIwasessentiallywonderingbecauseinthepreviousquarter,whenIsaidpreviousquarter Imeant the secondquarterof this fiscalwherein youhadan

incremental sales of Rs. 28 crore while this quarter December end you had

incrementalsalesofRs/22crore.So Iwaswondering inspiteofwithbeingthebest

quarterwhyfoodintakeexceededRs.28croreincrementally.

RaviGupta:Quartertoquarterwhenwelookatthesamestoregrowthnumbersalso,thefirstquarternumberwas37%,secondquarterwas44%andnowthirdquarter is

36%.So indeed it is8%downthentheQ2andwhenyou lookatquartertoquarter


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26

growthandnotpreviousyears,Q2washighergrowththanQ3.Sothatmayfluctuate

slightlyhereandthere.

RajMohan:Okaythenyoudidmentionnegotiationswithmorethanonebrandtobeconsummatedwithin6months.Has itgottodowithyoucoveringyourownrisksof

negotiatingsolelywithonebrandandthedealfallingflatorareallthebrandsequally

appealingforyoutostartanegotiatingwiththemrightfromthebeginning?

Ajay Kaul: All the brands, I will not say equally appealing but all of them have adefiniteappealoftheirown.Theycanneverbeequallyappealingandgiventhechoice

wecouldgointoamarriagewithanyoneofthem.Allwe'retryingtocheckoutis,ifwe

havethelibertyofoneagainsttheotherandalsoonthestandalonebasishowmuch

do they gel with the way we have built an infrastructure, our strength and their

strengthwillsoon.Soweareinafairlyadvancedstageofdiscussionwithmorethan

one.

RajMohan:Andisthereapossibilityofconsummatingmorethanone?AjayKaul: Idon't think so. Itwillnotbe right forus toput somuch strainonourbusinessbecausetheleveragablestrengthwhichwehavetalkedaboutinthelasthalf

anhourorso,willgetoverstretchedwhetheritisoursupplychain,system,whetherit

isourpeoplebase,qualitypoolof talent. I think ifwe launch simultaneouslymore

than one brand it will definitely put more strain and that is not advisable most

certainly.

RajMohan:InthepreviouscallyouhavementionedabsorptioncapacityoftheIndianQSRmarket tobeabout1000odd restaurantsor1000outlets.Has thatundergone

some kind of a changewith the rapid urbanization happening in India or has that

figurenotbeenrevisedassuch?

AjayKaul:Nowecan'trecallwhenthisnumberhasbeenquotedbyus.Wasitinthepreviousconferencecallortodaywehavedefinitelynottalkedaboutit.

RajMohan:Nottodaybutpreviously,inoneononeinteractionIhavegatheredthatabout 1000 oddQSR potential lies in India, has thatundergone a changewith the

urbanization issomethingwhich Iwantedtounderstandonthatbroad figurewhich

youwillgobyeventoday?

AjayKaul:Nowe firstlycannotrelatetothatnumberof1000thatwewillsay1000QSR,weprobablycouldhavesaidanumberofDomino'sbecausewhatweoftensayis

thataswespeaktherecanbeasmanyas750Domino'sstoresinIndia.Butwecan't

commentaboutQSRbutIcantellyouonethingwithoutevenbattingmyeyelidsthat

whatevermaybethenumberquotedbyanybody,coupleofyearsbackthepotential


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27

todaywould have grown significantly. That is the pace atwhich theQSR space is

growing.I'mnottalkingaboutthisPizzaalonehereandIamtalkingofQSRspace.

RajMohan:Okaythanks.Moderator: Thank you.Ournextquestion is from the lineofAbhijeetKundu fromAntiqueStockBroking.Pleasegoahead.

AbhijeetKundu:Couldcategorizethetop10citiesandtierII,tierIIIcitiesverybroadlywhatwouldhavebeenthesamestoregrowth?

RaviGupta:Coupleofpercentagepointshereandtherekeepsonmovingbecausewesplitthestore.Sothereisnosignificantvariation.

AbhijeetKundu:Okayand in termsofcontribution from theTier2andTier3cities,howhasitchangedoverthelastthreeyearsinaway?

RaviGupta:WehavebeenopeningquitealotofstoresinTier2,Tier3citieswhereasearlier saythreeyearsbackwehadonly47citiesandtodaywehaveabout87cities.

So40newcitieswehaveentered into.Soearlierourconcentrationwasthemetros

andstatecapitalsandallthat.Sogoingforwardweareputtingabout50%ofstores

arecominginTier2,Tier3citiesandTier4citiesbutstillaproportionoftop10cities

intheoverallnumberremainaround65% . It issignificantnumberrightnow; itwill

continuetosignificantifyoudoanyarithmeticandkeeponaddingeven50%storesin

theTier2,Tier3stores.

Abhijeet Kundu: I'm saying in the top 10 cities, the per store revenue would besubstantiallyhigherthantheTier2cities?

RaviGupta:Whathappens istherevenueperstore is linkedtotheageofthestorealso.Wearepresentinthetop10citiesearliercomparedtothecities likewhichwe

haveenteredrecently,sodefinitelyitistrue.Asthestorematuresthesalekeepson

risingbecausepenetrationandfrequencykeepsongrowing.Peopleshabitstowards

Pizzaeatingkeepsonchanging.

AbhijeetKundu:NowhatIwaspointingatwasifyoulookatastoreinatop10city,anew store as compared to a new store in the Tier2, Tier3 city so obviously the

spendinghabitsintop10citieswouldbefarhigherright?

Ravi Gupta: We dont look at the business that way; we look at what is thecontributionastoremakestothebottomline.Ourtargetisthereturnoninvestment.

Becausepointis,ifsupposeametrostorehas fourtimestherentalsascomparedto

nonmetrostores,thenitwilldefinitelydesirehighersalessothenitiscontributesthe

sameamountofmargintous.Sopointisitisadifferentwayoflookingatit.


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AbhijeetKundu:Okaythankyousir.Moderator:Thankyou.AnextquestionisfromthelineofAnikhetThakkarfromKarvyStockBroking.Pleasegoahead.

AnikhetThakkar:Couldyou share some statistics relating tobillsper customerperyear, maybe you have these WOW clubs so any unique customer and average

numberofbillsfromthoseones?

AjayKaul:Sorrywewillnotbeabletosharethisspecializedinformationwithyou.AnikhetThakkar:Okayyoujustmentionedthatyouhavea lotofoutletopeningsattheTier2,Tier3 levelofcitiesalsoandyouhavementionedpreviouslythatthere is

beenthisrequestfrompublicasintorelaunchthePizzamaniaandallsothatsimply

formsanopinionthatfortheTier2,Tier3 levelofcustomersPizza is likethesimply

vegPizza andPizzamanias and all aremore famous.As theirwallet cannot afford

thoseones,soanyplanstolaunchanysimplelevelPizzasinfuture?

Ajay Kaul: See we are constantly evaluating options that we can offer to ourconsumers.ThereareentrylevelPizzasinsmallercitiesormaincitieswhereweenter,

thereisabitmorefocusonPizzaManiaasanentrylevelPizzabuthavingsaidthatwe

areconstantlyevaluatingourportfolioormixofproductsanddependingonwhatthe

customerwantsattheendofthedayiswhatwewillkeeplaunching.

AnikhetThakkar:Okaythanksalot.Modertaor:Thankyou.Ladiesandgentlementhatwasthelastquestion.IwouldnowliketohandthefloorovertoMr.AjayKaulforclosingcomments.

AjayKaul:Thankyouverymuchforjoiningustodayeverybody.Itwasreallynicewehadanencouragingninemonthsperiodandweareoptimisticaboutourgrowthgoing

ahead.Shouldyouhaveanymorequeries,questionspleasedoget in touchwithus

andwewouldbehappytoaddressthem.Thankyouverymuch frommyandRavis

side.

RaviGupta Thankyou.Moderator Thank you. On behalf of Jubilant FoodWorks Ltd that concludes thisconferencecall.Thankyouforjoiningusandyoumaynowdisconnectyourlines.

_____________________________________________________________________Thisisatranscriptionandmaycontaintranscriptionerrors.TheCompanyorsendertakesnoresponsibilityforsucherrors,althoughanefforthasbeenmadetoensurehighlevelofaccuracy.

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Analyst Call - Feb 2011