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Jubilant FoodworksBSE SENSEX S&P CNX

18,846 5,739

Bloomberg JUBI IN

Equity Shares (m) 63.5

52-Week Range (INR) 1,397/698

1,6,12 Rel. Perf. (%) 2/15/63

M.Cap. (INR b) 86.9

M.Cap. (USD b) 1.6

CMP: INR1,368 TP: INR1,2001,054 Neutral

8 November 2012

2QFY13 Results Update | Sector: Retail

1

Investors are advised to refer through disclosures made at the end of the Research Report.

Gautam Duggad(Gautam.Duggad@MotilalOswal.com); +9122 3982 5404

Sreekanth P V S (Sreekanth.P@MotilalOswal.com); +9122 3029 5120

2QFY13 numbers below expectations: Jubilant Foodworks (JUBI) posted lower than expected numbers for

2QFY13. Net sales grew 42.3% YoY to INR3.42b (v/s our estimate of INR3.45b). Adjusted PAT grew 36.5% YoY to

INR323m (v/s our estimate of INR344m).

SSS growth lowest in 13 quarters: Same store sales (SSS) growth was 19.8% YoY (v/s our estimate of 25% YoY),

the lowest in 13 quarters. The management indicated softening on both fronts consumption and customeracquisition.

EBITDA margin contracts 100bp YoY and QoQ: Gross margin expanded 40bp YoY and 60bp QoQ to 74%, driven

by price hikes. However, EBITDA margin contracted 100bp YoY and QoQ to 17.2% (v/s our estimate of 18.2%).

Reported EBITDA margin was impacted by (1) higher employee expenses annual salary increase happens in

July for Store Managers and above, (2) higher service tax raised from 10% to 12%, and (3) Dunkin Donuts

store rollout expenses, which hit margins by 80bp.

Guides opening of 110 Dominos stores, 10 Dunkin Donuts stores in FY13: JUBI opened 26 Dominos stores in

2Q, taking the total number of stores to 514. The management also revised its guidance of new store openings

to 110 in FY13 from 100 earlier. It opened 2 Dunkin Donuts stores in 2Q and maintains its target of opening 10

stores in FY13. Stock appears fairly valued: Moderation in SSS growth from 30% in 3QFY12 to the current 20% reflects the

impact of inflation on discretionary spending. Our current EPS estimates stand at INR22.6 for FY13 and INR33.6

for FY14. We believe the stock is fairly valued at 60.4x FY13E and 40.8x FY14E EPS. Maintain Neutral.

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SSS growth lowest in 13 quarters; gross margin expands 40bp, but EBITDA

margin shrinks 100bp

Net sales grew 42.3% YoY to INR3.42b (v/s our estimate of INR3.45b); same store

sales (SSS) growth was 19.8% YoY (v/s our estimate of 25%), the lowest in 13

quarters.

Gross margin expanded 40bp YoY and 60bp QoQ to 74%, driven by price hikes.

Staff cost increased 70bp YoY to 20.5% of sales. JUBI has added 4,912 employees in

the last 12 months, taking the total headcount to 18,451 employees.

Rent increased 40bp YoY to 8% of sales; other expenditure increased 30bp YoY to

28.3% of sales.

EBITDA margin contracted 100bp YoY and QoQ to 17.2% (v/s our estimate of 18.2%).

Reported EBITDA margin was impacted by (1) higher employee expenses annual

salary increase happens in July for Store Managers and above, (2) higher service

tax raised from 10% to 12%, and (3) Dunkin Donuts store rollout expenses,

which hit margins by 80bp.

Adjusting for the above, Dominos operating margin appears to have been flat YoY.

JUBI opened 26 Dominos stores in 2Q, taking the total number of stores to 514.The management also revised its guidance of new store openings to 110 in FY13

from 100 earlier. It has increased store presence from 105 cities to 112.

Conference call highlights

Has entered two new cities Vijayawada and Bharuch; is now present in 112

cities

Upward revision in store opening guidance, driven by opportunities visible in

the market and response to stores across regions Online and mobile platform gaining traction mobile contributes 10% of total

online sales; online contributes 13% of total delivery sales

New launches Potato Smackers and Spicy Twistyz in 2QFY13; Taco Indiana

(Mexican side dish) in October

A total of three stores in Sri Lanka now

Dunkin Donuts witnessing good traction

Price increase of 3% in June; planning 3-3.5% increase in November

EBITDA margin down due to (1) higher employee expenses annual salary

increase happens in July for Store Managers and above, (2) higher service tax

raised from 10% to 12%, and (3) Dunkin Donuts store rollout expenses, whichhit margins by 80bp

Rental costs up 49% YoY: (a) Dunkin Donuts rentals higher due to presence in

high street, and (b) marginal impact from higher service tax

FY13 operating margin guidance slightly below 18% (18.7% in FY12)

Higher number of employees (up 36% YoY to 18,451) does not see this as a risk

and is confident of managing larger employee base.

Does not believe sub-franchising is a possibility due to concerns that hygiene

and service standards could get compromised

INR1.5b+ capex planned for FY13: (a) Dominos INR9m/store (110 stores), (b)

Dunkin Donuts (INR6m-12m/store, 10 stores), (c) Kolkata, Mumbai and

Chandigarh commissary

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Sales growth driven by new store openings Gross margin up 40bp YoY, EBITDA margin down 100bp YoY

Source: Company, MOSL

SSS growth dips to 19.8%, lowest in 13 quarters 26 stores opened during 2QFY13

Dunkin Donuts: Receiving good traction; maintains store opening guidance

at 10 for FY13

JUBI has opened 5 Dunkin Donuts stores as on 6 October 2012. According to the

management, the initial response to these stores has been good.

It is still experimenting with formats and intends to shortly arrive at a format that

can be replicated nationally.

It maintains its guidance of 10 store openings for FY13 and 80-100 over five years.

impacted by higher overheads on account of Dunkin Donuts and new store openings

Source: Company/MOSL

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New initiatives: Mobile and online ordering gathering pace; brand positioning

changed

Online ordering (OLO) is now contributing 13.6% of delivery sales. Mobile ordering

is gaining salience and has touched 10% of OLO.

JUBI has changed the positioning of its brand, Dominos Pizza to Yeh hai rishto katime (literal English translation: This is the time for relationships), to deepen

the emotional connect with its customers.

Valuation and view

Our current EPS estimates stand at INR22.6 for FY13 and INR33.6 for FY14.

We believe the stock is fairly valued at 60.4x FY13E and 40.8x FY14E EPS. Maintain

Neutral.

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It targets expansion in tier-II and tier-III cities;

acceptance of pizza as a food option in smaller towns

would be crucial in the companys expansion plans.

Recent developments

The company opened 26 stores during the quarter,

taking its total to 514.

It launched Potato Smackers and Spicy Twistyz in

2QFY13; Taco Indiana (Mexican side dish) in October

2012.

Valuation and view

Our current EPS estimates stand at INR22.6 for FY13

and INR33.6 for FY14. We believe the stock is fairlyvalued at 60.4x FY13E and 40.8x FY14E EPS. Maintain

Neutral.

Sector view

We are positive on the sector. We expect the sector

to clock revenue growth of 30-35% CAGR over the

next five years.

We believe Quick Service Restaurants (QSR) as a

segment hold immense potential due to the

unfolding demographic dividend (income

distribution, age mix, working women) and swift

lifestyle changes among the middle income class in

the metros, tier-I and tier-II cities.

Comparative valuations

Jubilant Shoppers Titan

Foodworks

P/E (x) FY13E 60.4 35.9 27.5

FY14E 40.8 26.3 22.2

EV/EBITDA (x) FY13E 32.6 16.0 18.2

FY14E 22.7 12.5 11.6

EV/Sales (x) FY13E 5.8 1.2 1.8

FY14E 4.0 0.9 1.5

P/BV (x) FY13E 22.3 4.1 10.2

FY14E 15.6 3.6 7.7

Shareholding pattern (%)

Sep-12 Jun-12 Sep-11

Promoter 56.7 56.8 58.0

Domestic Inst 0.1 0.2 1.3

Foreign 39.6 38.2 35.9

Others 3.6 4.9 4.9

Jubilant Foodworks: an investment profile

Stock performance (1 year)

EPS: MOST forecast v/s consensus (INR)

MOSL Consensus Variation

Forecast Forecast (%)

FY13 22.6 23.3 -2.8

FY14 33.6 33.1 1.2

Target price and recommendationCurrent Target Upside Reco.

Price (INR) Price (INR) (%)

1,368 1,200 -12.3 Neutral

Company description

Jubilant Foodworks (JUBI) is the master franchisee of

Dominos Pizza Inc in India. It is the leader in the

organized pizza market, with 50% share of the overall

market and 70% share in the home delivery segment.

JUBI focuses on home delivery and takeaways, offering

its customers the convenience of eating in the comfort

of their own homes and workspaces. The company also

holds the master franchise of Dominos in Sri Lanka,

Nepal and Bangladesh.

Key investment arguments

JUBI has been the franchisee ofDominos in India for

the last 15 years. Post the recent renewal, it wouldremain the exclusive franchisee for another 15 years

(with an option to extend for 10 more years).

The company continues to expand its product

offerings (Choco Lava Cake, Pasta, Butterscotch

Mousse Cake, etc). We believe these add-ons are

likely to increase the average bill size.

Operating margins should expand with strong same

store sales (SSS) growth, due to operating leverage

in rentals, staff cost and overheads.

Key investment risks

Food inflation in likely to increase pressure on gross

margin. JUBI may be hesitant in taking price increases

so as to continue category expansion.

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Financials and Valuation

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N O T E S

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Disclosure of Interest Statement Jubilant Foodworks

1. Analyst ownership of the stock No2. Group/Directors ownership of the stock No

3. Broking relationship with company covered No

4. Investment Banking relationship with company covered No

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