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7/28/2019 Equity Company Report 711201382408PM
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Jubilant Foodworks Limited (JFL)
Initiating Coverage - ACCUMULATE
Analyst
Nilesh Gandhi
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
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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
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JFL: Innovation in product and marketing
supported by new product and service launches with innovativepromotional campaigns
Source: Company, Destimoney Research
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
Re-launch of Pizza Mania
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
Re-launch of Pizza Mania
Spicy Twistyz, Taco Indiana
and Potato Smackers
launched
Cheesy Boloroni Pizza
launched
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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.
Source: Company, Destimoney Research
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.
Source: Company, Destimoney Research
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
Source: Company, Destimoney Research
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
Source: Company, Destimoney Research
```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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