RR jubilant foodworks

WAY2WEALTH Securities Pvt. Ltd., 15/A Chander Mukhi, Nariman Point, Mumbai - 400 021. Tel: +91 22 4019 2900

email: [email protected] website: www.way2wealth.com

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Initiating Coverage

Theme

Initiate coverage with a Hold rating Jubilant FoodWorks Limited (JFL) manufactures and sell Pizza & side dishes and is also engaged in trading of beverages & desserts from its outlets. JFL with presence across 339 stores pan India operates its stores pursuant to a Master Franchise Agreement with Domino’s Pizza International. It is the market leader in the organized pizza market with a 50% overall market share and 65% share in the home delivery segment in India. We consider JFL a play on India’s growing Quick Service Restaurant (QSR) industry. We forecast 35% CAGR growth in revenues for FY10-FY13E period with total number of stores growing from 306 to 511 with increased penetration in Tier II and Tier III cities.

Indian QSRs- An Irresistible opportunity The Indian pizza market, estimated at Rs 7 bn (in FY09), is expected to grow at 35-40% over the next two years to ~Rs 17.2 bn in FY12E (Source: Food Franchising Report 2009). The Indian QSR industry is growing rapidly with a 4X increase in the number of outlets between 2003 and 2009 with several important demographic and socio-economic changes are driving the QSR market. JFL is well positioned to benefit from these opportunities.

Key triggers Potential triggers to the share price include: 1) Significant benefits of operating leverage setting in with rise in total number of stores. JFL is expected to see significant improvement in its EBIDTA margins from the current 15.7% in FY10 to 20% in FY13E. 2) Higher same store sales with introduction of new products. 3) Potential tie-up with international food brands.

Downside risks to our call Competitive activity taking off faster than expected, higher-than-expected commodity cost pressure, growing health consciousness among consumers and excessive reliance on the Master Franchise Agreement with Domino’s International remains key risks.

Valuation: Target price of Rs 627 based on 19x FY13E EV/EBIDTA JFL remains a difficult stock to value. At 33x FY13E EPS, the stock looks richly valued. On EV/EBIDTA basis, JFL is trading at 17.9x FY13E. Share price has more than doubled in the last six months, triggered by higher than expected results and improved same store sales. The valuations seem to be expensive at these levels; we thus have a HOLD rating on the stock. News flow regarding tie-ups with any international brands may provide further thrust to the stock price, which may induce us to re-consider our rating.

Key Financials Year to March (Rs mn) FY10 FY11E FY12E FY13E Sales 4239 6018 8177 10520 Growth (%) 51.1 41.9 35.9 28.7 EBITDA 666 1114 1551 2102 Growth (%) 98.4 67.3 39.2 35.5 PAT 330 662 807 1137 Growth (%) 357.5 98.1 21.9 41.0 EPS (Rs) 5.25 10.29 12.54 17.68 PE (x) 111.0 56.7 46.5 33.0 Market cap/sales 8.8 6.2 4.6 3.6 EV/EBITDA 56.3 33.7 24.2 17.9 RoCE (%) 36.7 53.4 54.6 55.0 RoE (%) 28.5 36.1 31.4 31.6

November 25, 2010

Jubilant FoodWorks

HOLD

Key Take Away Recommended Price 583 Target Price 627 Potential Upside 7.5%

Market Data

BSE Code 533155 NSE Code JUBLFOOD Reuters Code JUBI.BO Bloomberg Code JUBI IN Sensex 19,460 Nifty 5,866 52 week range (Rs) 636.3/160 Market Cap, mn 37,512

Shareholding Pattern (%)

As on September 2010 Promoters 61.4 MFs, FIs & Banks 7.4 FIIs 20.9 Other Bodies corporate 4.6 Public and others 5.8

Price Performance

(%) 3M 6M YTD Price (Rs) 545.6 278.7 229.0 Absolute 10.0 54.0 62.2 Rel to Nifty 1.6 32.1 36.0

Comparative Price Movement

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300JFL Nifty BSE FM CG

Analyst : Nisha Harchekar Email: [email protected]

Contact: 022 – 40192900

Proxy play to the mounting Indian QRSs…



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Contents Page

Investment Rationale ……………………………………………………………………………… 3 - Key catalyst ………………………………………………………………………………………… 3 - Competitive Analysis …………………………………………………………………………. 8 - Porter’s Five Forces Model ………………………………………………………………… 10 - Key Risks ……………………………………………………………………………………………. 10 Financial Analysis …………………………………………………………………………………… 11 - Revenue Model …………………………………………………………………………………… 11 - Raw Material Analysis ………………………………………………………………………… 12 - Margin Analysis ………………………………………………………………………………….. 13 - Cash Flow Analysis ……………………………………………………………………………. 13 - Latest Quarter Update ………………………………………………………………………. 14 Valuation …………………………………………………………………………………………………. 15 W2W Ratings ……………………………………………………………………………………………. 16 Company Overview ………………………………………………………………………………… 17 Food Service Industry ……………………………………………………………………………… 20 Financial Summary …………………………………………………………………………………. 24



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Investment Rationale

Competitive positioning- sustainability of competitive advantage The Dominos brand enjoys a competitive advantage due to its differentiated positioning which we believe is sustainable for years to come. The Domino's brand created a brand pull due its strong marketing which the management intends to leverage to its advantage by expansion across Tier II and Tier III cities. (Discussed in the following pages in detail)

Scalable business model

We forecast 35.4% CAGR growth in revenues for FY10-FY13E period with total number of stores growing from 306 to 511 with increased penetration in Tier II and Tier III cities. A centralized sourcing and distribution system in four centers across the country, combined with back-end facilities in smaller cities, has largely aided operating margins and ensures scalability of the model. Operating margins have been at ~12.5% in FY07-FY09 period which further improved to 15.7% in FY10 on account of controls in manufacturing costs. Further, it is expected to expand to 18.5% in FY11E, 19% in FY12E and 20% in FY13E. Thus, the supply chain model has enabled the company to control cost and result in high operational efficiencies.

Operational excellence with “30 minute or Free” proposition

JFL has been able to ensure that the average delivery time for an order is only 22.50 minutes. This has enabled its operations to be ranked no. 1 in the Domino’s global operations among the countries with 100 or more stores in 2006 and 2007 and amongst the top three in 2008, with a cumulative OER score of 89.30%, 92.40% and 85.00% for 2006, 2007 and 2008, respectively.

Travel toCustomerAddress

Receive Customer Order onphone

Deliver pizza and collect bill amount

Wait Line

Slap Pizza andAdd pizza

ingredients

Load Pizza intoOven

Unload Pizzafrom Oven

Cut, pack andReady fordelivery

Address Mapping

00:00:00.0 00:30:00.0 Delivery Time (Less than)

Source: Company, W2W Research

Efficient supply chain management JFL employs the hub-and-spoke model. It has four regional supply chain centers/commissaries located in Noida (Delhi NCR), Mumbai, Bangalore and Kolkata. These commissaries primarily manufacture “dough” (base of the pizza) and act as warehouse for most of other ingredients. The primary raw materials used in the preparation of pizzas such as cheese, vegetables and meat, are



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sourced and supplied to the stores by these commissaries which helps to ensure consistent quality and ensure timely delivery of raw materials to the stores. The sourcing, warehousing and distribution of the raw materials are centralized which reduces the storage space enabling to minimize its store operating costs.

A centralized sourcing and distribution system in four centers across the country, combined with back-end facilities in smaller cities, has largely aided operating margins. Dedicated transport fleet and cold-chain systems allow efficient distribution; inventory turnover period is less than a week. Operating margin has been at 12.5% in FY07-FY09, it further improved to 15.7% in FY10 on account of controls in manufacturing costs. Thus, the supply chain model has enabled the company to control cost and result in high operational efficiencies.

Key features: - Purchase function centralized which allows us to maximize leverage and negotiate better prices with suppliers - Centralization of key function enables to minimize store operating cost - Follows multi-vendor policy to minimize reliance on a single vendor - Have a dedicated fleet of hired trucks at our disposal to ensure timely

delivery of raw materials to its stores

Operating leverage JFL is expected to see significant improvement in its EBIDTA margins from the current 15.7% in FY10 to 20% in FY13E. The Company has been able to effectively maintain its Gross Margin levels at 74-75% levels historically Inspite of increase in raw material cost and falling pizza prices over the years. So with increase in volumes, operating leverage will come into play as fixed cost is spread over more stores and higher volumes. We expect EBITDA to grow by 47% CAGR over FY10-13E period and margins to expand by 429 bps over the three year period. The company's return ratios are quite attractive and are expected to improve going forward. The ROCE is expected to increase from 36.7% in FY10 to 55% in FY13E, while the RONW is expected to be 37% in FY13E.

Expansion plans The foremost driver for growth is the expansion of the network of stores. The expansion strategy is three pronged namely to penetrate further into existing cities, expand by entering new cities and expand using new distribution channels. A good portion of new stores are slated for smaller towns and cities where demand is beginning to take off as income levels and spending habits pick up. According to Technopak Report 2009 estimates, only 2% of the monthly expenditure on food bought from outside or ordered-in by households in India is spent on pizzas and pastas on a monthly basis. Penetrating the number of pizza stores in existing cities as well as entering new cities augurs well for JFL to take advantage of this opportunity.



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Store expansion plans

Rs in million FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Gross Sales 3139 4706 6011 7887 10143 12570 15319 18494 22055 25979 30176 34804 Sales growth (%) 33.0 49.9 27.7 31.2 28.6 23.9% 21.9% 20.7% 19.3% 17.8% 16.2% 15.3% Total Stores (no.) 241 306 376 446 511 571 631 686 741 791 841 891 Same store (no.) 130 181 241 306 376 446 511 571 631 686 741 791 Addition (no.) 60 65 70 70 65 60 60 55 55 50 50 50 Average store (no.) 211 274 341 411 479 541 601 659 714 766 816 866 Total Stores growth (%) 33 27 23 19 15 12 11 9 8 7 6 6 Same store growth (%) 24 39 33 27 23 19 15 12 11 9 8 7 Same store as % of total stores 54 59 64 69 74 78 81 83 85 87 88 89 New store as % of avg. store 28 24 21 17 14 11 10 8 8 7 6 6 Sales/store (Rs mn) 13.0 15.4 16.0 17.7 19.8 22.0 24.3 27.0 29.8 32.8 35.9 39.1 Average revenue/store (Rs mn) 14.9 17.2 17.6 19.2 21.2 23.2 25.5 28.1 30.9 33.9 37.0 40.2

Source: W2W Research

The operational history for Dominos dates back to 1996, when pizza eating culture had just began. However, it was only after the Indian palate adjusted to pizza and similar cuisine, significant expansion for the Company was possible. The Company opened 25 new stores in FY07, 52 stores in FY08 and 60 & 65 stores respectively in FY09 and FY10. So, practically the Company added 58% of its total store count till FY10 (306) during the last three years of its operation. This means that the Company began to feel confident of the industry growth prospects only after 2007-2008. JFL opened 60 stores in FY09 of which 44 stores were opened in existing cities. During FY10, it opened 65 new stores. It also plans to expand its presence by entering into new cities and towns where they currently have no operations. We fell that the future growth would be driven by new stores in Tier 2 and Tier 3 towns. Domino’s Pizza Inc. International Store Projection

Top 10 Markets YE 2009 Stores Delivery Market Position Potential Store Count

Mexico 589 1 700

United Kingdom 562 1 900

Australia 411 1 550

South Korea 329 2 400

Canada 319 3 400

India 296 1 700

Japan 179 3 700

France 154 1 700

Turkey 132 1 400

Taiwan 120 2 150

TOTAL 3,091 5,600 Source: Domino’s Pizza Inc., May 2010 investor presentation

Domino’s Pizza Inc. in its May 2010 investor presentation has indicated that the potential store count for India is 700 stores over the next few years, thus highlighting India as a high growth market. We have assumed 700 stores till 2017 in our estimates and feel that considering the huge untapped opportunity



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of organised pizza in India will lead to higher growth rates than the overall QSR industry. We expect 60-70 stores to be opened each year for the next five years as we feel that the coming years are very crucial for the players in the QSR industry to make their presence felt. Additionally, we feel that most of the new Domino's outlets will come up in tier II and tier III cities where lies huge untapped potential and most of these is expected to come with dine in space. Tier II and tier III cities have better operational efficiencies on account of lower costs (like staff and rentals) as compared to major cities. This is likely to further augment the operating margins of the Company in coming years. We expect margins to expand by 429 bps over the three year period. The Company is also expected to explore new distribution channels like Airports, Railways, Office Complexes and Malls in its overall growth strategy. Airport model is a pure footfall driven model. Its first airport store is the first franchisee store for JFL. The management expects few more airport stores coming up in the next two to three years. The opportunity is huge considering that there are 30-40 airports are getting upgraded all over the country.

High Same store sales growth- a healthy indicator The Company registered same store sales growth of 37% in Q1FY11 and 43.8% in Q2FY11. With the introduction of Pasta, Choco Lava cake, Cheese burst pizza and Pizza mania along with the latest addition of Mexican Wrap and Pasta Italiano, the menu is slowing getting diversified and opportunity exists to continue this strategy further. This strategy is a key driver for expansion of same store sales revenues. The launch of these new products can increase the average bill size or can offer new items as a value proposition. On an average, over the last 5 years, the same store sales growth has been in the range of 18-19% CAGR with FY10 registering 22% growth in same store sales. Same store sales growth outlook for the rest of the financial year remains bright as we are yet to see the peak season of October-January reflected in the financials. Sales during this period are normally high compared to other months due to Diwali, Christmas and New Year celebration. However, we feel that same store growth rates of 37% and 43.8% witnessed for the first 2 quarters mainly on account of low base effect and introduction of new products. Overall, for FY11, we expect same store sales in the range of 30-35%.

Activity in QSR space heating up- eg. RJ Corp, CCD etc In the 90s, several global fast food firms placed their bets on India, hoping that the Indian consumer will get found of Western food and capture the share of the QSR opportunity in India. Indeed, the Indian QSR industry is growing rapidly with a 4x increase in the number of outlets between 2003 and 2009 with the industry size currently estimated at Rs 7 bn in FY09 and is expected to grow at 35-40% over the next two years to ~Rs 17.2 bn in FY12E (Source: Food Franchising Report 2009). Foreseeing a mammoth opportunity in this space chains like Dunkin' Donuts, Popeye’s Chicken, Pizza & Co, Swensen's and Burger King are reportedly in talks with local partners to enter India. McDonald's, which had 20 outlets in India till 2002, has more than 192 today. It plans to open 200 more over five years with an investment of Rs 500 cr. Yum! Restaurant owner of the KFC and Pizza Hut brands plans to further augment its



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presence. Nirula's is looking to add 120 new points of presence, Sagar Ratna may add 35 new outlets by December 2010 and Delhi-based Bikanervala and Haldiram's plans four-five new outlets every year. Even traditional entities like the Bangalore-based MTR Restaurant and the Chennai-based Murugan Idli Shop (MIS) are looking at Delhi and Mumbai. Renowned coffee chain, Café Coffee Day has recently raised over $200 mn (Rs 920 cr) from three private equity players to fund its aggressive expansion plans in India and abroad. With this, we believe that the QSR space in India has taken off in a big way and is expected to catch the attention of investors. Jubilant FoodWorks being the only listed player is expected to act as a proxy to the mounting opportunity in the QSR space in India.

Huge opportunity – comparison with developed markets

U.S. has the oldest history for pizza eating culture in the world. Pizza is a staple for everyday Americans. According to Domino’s Pizza Inc. May 2010 investor presentation, the size of its domestic food industry is $1 tn, of which the retail food industry comprise $544 bn. The QSR space forms $230 bn, which is 42% of the organised retail food industry. The pizza market forms 14% or $33 bn of which carry-out is $14 bn and delivery is $10 bn. Domino’s pizza is the No.1 pizza delivery company in the U.S and takes away 18% share of the QSR pizza delivery market. The Indian landscape is still nascent, however holding huge untapped potential. According to a Technopak 2009 report, India’s food service industry stood at $13 bn in 2007 with organised food service valued at $2 bn. The Indian pizza market, estimated at Rs7bn (in FY09), is expected to grow at 35-40% over the next two years to ~Rs 17.2 bn in FY12E. Presented below is the life cycle of Domino’s Pizza in India and the U.S. The same store sales growth of Domino’s Inc in U.S has been on a declining trend for FY08 and FY09 at -2.3% and -0.9%. As the economy recovered, the same store sales growth has seen a positive trend during FY10. In sharp contrast to this, JFL has witnessed a CAGR of 18-19% over the last five years, clearly showing the tremendous potential of Domino’s Pizza in India.



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Competitive Analysis Competitive positioning "The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage" - Warren Buffet. We found it of utmost importance to discuss here the competitive advantage and differentiation strategy of JFL and its rivals as a lot depends on the marketing and positioning strategies adopted by these company. Competitive advantage means that the Company is performing better than its rivals by doing different activities or performing similar activities in different ways. Few companies are able to compete successfully for long if they are doing the same things as their competitors. The Dominos model In our case, Domino’s mainly focuses on a home delivery and takeaway oriented model. The model is on belief that the customers will have the convenience of eating in the comfort of their own homes and workspaces, with minimal interruption to their schedules and activities, without having to go to a dine-in restaurant and wait for their orders. In contrast, its competitors follow a dine-in model where focus is given on the ambience and has more seating space to facilitate more footfalls. The following table sets forth the competitive positioning of Jubilant FoodWorks as against its competitors. Obliviously, Domino’s has a larger presence in various cities as it follows home delivery and takeaway oriented model which requires more number of stores to serve the customers in time within their delivery range. The Domino’s brand enjoys a high brand recall as it relies on extensive advertisement and promotion methods. The TV commercials “Hungry Kya?”, “30 minutes or free” and “Khusiyon Ki Home Delivery” enjoy high brand recall and have been contributed significantly to its sales growth. Brand No. of stores Cities Format

Dominos 306 69 Own stores

Pizza Hut 140 34 Franchisee

Smokin’ Joe’s 42 23 Franchisee

Garcia’s Pizza 20 1 Own+Franchisee

Source: Websites, W2W Research Determining the Competitive advantage In determining competitive advantage of Jubilant FoodWorks, one need to ask the following questions- Is the strategy different from other companies in the market? Does the company's strategic position deliver superior profits? Is the strategy defensible? A little bit of history Pizza Hut entered India in 1996 and introduced pizzas to the Indian customers. But it was not a smooth sail for the international giant. Its large dine-ins, high prices



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and positioning of pizza as a meal turned down the customers. Meanwhile, Dominos Pizza that entered India in the same year was able to gain ground by positioning Pizza as a snack and supporting it with its efficient home delivery system. So to say, Domino's main competitive advantage over Pizza Hut is their price which is generally lower than Pizza Hut. Also, its promotional deal of delivering a pizza within 30 minutes was a grand success. “Pizza Differentiation” strategy adopted by Pizza Hut and Dominos Dominos Pizza Hut

Differentiation Strategy Delivery Innovation

Competitive advantage Favorable Pricing- value for money Focused on quality

Store location Located near target market Located at up markets

Format Delivery and take-away 'sit & dine'

Tag line “Hungry Kya?”, “30 minutes or free” and “Khusiyon Ki Home Delivery”

"Good times starts with great pizzas"

Price Range Rs 39-265 Rs 75-350 Source: W2W Research The differentiation drives were pan pizza and guaranteed 30-minute free delivery. However, soon all the pizza chains offered Pizza Hut-style pan pizza, virtually every pizza company was delivering. So, it may be seen that individual competitive advantages are pretty much everyone's competitive advantages. So where is a question of sustainable competitive advantage? But then why is Dominos the first thing to come to our minds when you want a home delivery? It’s the perception that the Company is been able to build in the minds of consumers about its efficient delivery mechanism and add to it the affordability of pizzas. So coming back to our original question on determining competitive advantage of Jubilant FoodWorks- Is the strategy different from other companies in the market? The answer is a big YES as Dominos tag lines very strongly explains its delivery efficiency. Does the company's strategic position deliver superior profits? Yes, it’s pricing strategy where a pizza starts from as low as Rs 39 provides more affordability. Its home delivery model assures lesser fixed costs in terms of rentals and so on as compared to a dine-in format where the rental cost and other fixed operating cost will be higher. Is the strategy defensible? Yes again, its “Hungry Kya?”, “30 minutes or free” and “Khusiyon Ki Home Delivery” are irreplaceable and enjoys highest brand recall. We find the ‘home delivery’ model irreplaceable as over a period of time, Dominos has been able to set up huge network of ‘delivery stores’ in close proximity to the target areas. Also, the strong brand image of guaranteed delivery on time is something strongly associated with the Dominos brand. To sum up, we believe, the Dominos brand does posses a competitive advantage due to its differentiated positioning which we also believe is sustainable for years to come.



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Assessment of industry attractiveness Porter’s Five Competitive Forces

Force Intensity Comments

Degree of Rivalry High Dominos Pizza has high competition from other pizza brands like Pizza Hut, Smokin Joe, Gracia etc. However, it has created a unique position of “guaranteed delivery in 30 minutes” which helps to wither the competition to some extend. It commands a market share of 65% in the delivery market in which it was the first mover and enjoys sizable brand recall. Also, it has positioned itself on the affordability platform which the lowest pizza priced at Rs 39. The competitive intensity still stands high.

Threat of Entry High There are not many barriers to entry apart from introducing products that suits the Indian palate. KFC was the first MNC brand to enter India in 1995 which was followed by influx of other QSR brands such as Domino's and McDonald's (which entered only after researching the market since 1990).

Threat of Substitutes

High Right from road size eateries to sophisticated dine-ins and other national lower-priced fast-food chains such as McDonalds, KFC all pose as strong substitutes for pizzas.

Buyer Power Medium Bargaining power of buyers is medium to low in case of pizzas.

Supplier Power Low JFL centrally sources all its raw material requirements, thus commanding significant bargaining power over its suppliers. Economies of scale come into play as bulk orders are placed with various suppliers.


Key Risks

Dominos Pizza faces tough competition from dine-in eateries, other national lower-priced fast-food chains such as McDonalds, KFC and so on, besides small, local eateries.

Junk Food Tag: The junk food tag for the foodstuffs it sells could prove costly in

the long term given the new trend in the western market of viewing the junk food industry in the same light as the life threatening tobacco industry.

Excessive reliance on the Master Franchise Agreement with Domino’s

International.

Factors such as recession, inflation, deflation would significantly alter our revenue projections and thus remain a key risk.

Higher-than-expected commodity cost pressure



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Financial Analysis We expect a 35% revenue CAGR over FY10-FY13E Over FY05-10, net sales have grown at CAGR of 42% and operating margins have grown by 52%. This growth was triggered by expansion of store network along with introduction of new product categories. Number of stores has expanded from 130 in FY07 to 306 in FY10. We have assumed addition of 70 stores each in FY11, FY12 and further 65 stores in FY13 in our estimates taking the total store count to 511 stores by FY13. We forecast 35.4% CAGR growth in revenues for FY10-FY13E period, EBIDTA is expected to expand by 47% CAGR while PAT is expected to grow by 51% CAGR over the 3-year period.

Revenue model FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20

No. of Pizzas sold (mn) 21.74 31.81 39.61 50.13 61.28 72.4 84.05 96.7 110 123.4 136.74 150.2Pizzas sold (mn) (incl add ons)/mth 1.81 2.65 3.30 4.18 5.11 6.03 7.00 8.06 9.17 10.29 11.39 12.52Avg pizza sold/store/month (nos) 8586 8800 9680 10164 10672 11152 11654 12237 12849 13427 13964 14453% chg. In pizza sold/mth 2.6 2.5 10.0 5.0 5.0 4.5 4.5 5.0 5.0 4.5 4.0 3.5Price/pizza (Rs) 139 142 145 150 158 166 174 183 192 202 212 222Pizza sales (Rs mn) 3018 4517 5744 7519 9682 12011 14641 17686 21128 24888 28952 33392

No. of beverages sold (mn) 4.17 5.58 7.65 9.68 11.52 13.29 15.06 16.83 18.54 20.21 21.85 23.53Beverage sold (mn) (incl add ons)/mth 0.35 0.46 0.64 0.81 0.96 1.11 1.25 1.40 1.55 1.68 1.82 1.96Avg sold/store/month (nos) 1645 1700 1870 1964 2007 2047 2088 2130 2166 2198 2231 2265% chg. In beverage sold/mth -22.9 3.3 10.0 5.0 2.2 2.0 2.0 2.0 1.7 1.5 1.5 1.5Price/beverage (Rs) 29 34 35 38 40 42 45 48 50 54 56 60Beverage sales (Rs mn) 121 188 268 368 461 558 678 808 927 1091 1223 1412

Side dishes (Rs mn) 50 750 1300 1678 2799 3453 4223 5054 6099 7013 8028

Total Sales (Rs mn) 3139 4706 6761 9187 11821 15368 18772 22717 27109 32078 37189 42832 Source: W2W Research

New stores added as % of average stores coming down

0

150

300

450

600

750

900

FY08 FY09 FY10 FY11E FY12E FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E

No.

0

5

10

15

20

25

30

35

%

Total Stores (no.) Average store (no.) New stores as % of Avg. store


As can be seen from the chart above, the number of store added formed a larger proportion (33.4% in FY08) of the average stores. Going forward, as the Company achieves scale; this ratio is expected to come down gradually (from 23.8% in FY10 to 13.6% in FY13E) with same store sales growth expected to increase and is expected to contribute even more robustly to overall sales as the number of stores



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increases. Overall, this will lead to better operating leverage as higher number of stores mature with higher incremental profitability. Pizza and beverage sales and price trend During FY07-09, the company witnessed 52.4% CAGR in pizza volumes. This significant growth could be achieved only after the Company came out with attractive offers and introduced pizzas at lower price points bringing the average price per pizza significantly down from Rs 165 levels to Rs 139 levels in FY09. We feel that the pizza prices have touched its lowest point in FY09 after hitting a peak in FY06. The Company increased the pizza prices marginally in FY10 and we expect the prices to increase to up to Rs 158/pizza by FY13E. Sharp contrast to pizza trend, beverages have seen a steady trend in the volumes till FY09 and average price per beverage has seen an uptrend.

Pizzas and beverage sold

Pizza sales

0

12

24

36

48

60

FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E

in m

n (n

os)

120

130

140

150

160

170

in R

s

No. of Pizza (incl add-ons) Per unit price (Rs)

Source: W2W Research Raw Material analysis The key raw material namely Cheese and Chicken comprise ~50% of the total raw material cost of the Company. The prices of Cheese and Chicken are on steady uptrend for the past few years. Inspite of this, the Company has been able to maintain its raw material cost as % of sales at 22-23% since last six years. This is seemingly due to lower per unit consumption of these raw materials over the years after sale of pizza mania picked up significantly thereby enabling the Company to improve in its overall margins. The figures below shows that the quantity of cheese and chicken used per pizza

0

2040

60

80100

120


in g

ms

0

5

10

15

20

25

%

Cheese/pizza Chicken/pizza Raw Mat cost as % of sales


Beverage sales

02468

101214


in m

n (n

os)

0

10

20

30

40

50

in R

s

Units of Beverages Per unit price (Rs)

130

145

160

175

190

205

FY05 FY06 FY07 FY08 FY09 FY10

Rs /

kg.

Cheese (Rs/kg.) Chicken (Rs/kg.)



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Margin analysis Despite of increase in cheese and chicken cost and falling pizza prices over the few years, the Company has been able to effectively maintain its Gross Margin levels at 74-75% levels historically. So with increase in volumes, operating leverage will comes into play as fixed cost is spread over more stores and higher volumes. We expect EBITDA to grow by 47% CAGR over FY10-13E period and margins to expand by 429 bps over the three year period. The figures below show increasing margin trend due to higher operating leverage and fall in fixed cost with rise in revenue

73.474.0 74.3

74.874.4

75.1

78.1

77.0

76.4

12.013.0 12.7

11.911.0

20.0

19.018.5

15.6

717273747576777879

FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E10

12

14

16

18

20

22

Gross Margin (%) Operating margin (%)


Negative cash conversion cycle Typically most food chains operating in this segment have negative cash conversion cycle as the debtors days are low (1.8 days in FY10) on account of prompt payment for purchases by customers and on account of higher credit period by vendors (57.4 days in FY10) due to higher bargaining power. The inventory churn rate is also higher thereby resulting in lower inventory days (21.9 days in FY10). The Company historically has been operating on negative working capital as they have minimal receivables and inventory turn rates are faster than the normal payment terms on the current liabilities. The working capital requirements are limited as the sales are not typically seasonal in nature. These factors, coupled with ongoing cash flows from operations, which are primarily used to service the debt obligations and invest in business, fulfill its working capital requirements. Impressive Free cash flow and return ratios As can be seen from the chart below, JFL has been generating impressive FCF over the years. The Company relied on debt to fund its store expansion plans earlier. With its public issue money, the debt has been repaid and we expect the Company to turn completely debt free by FY11E. Its ability to generate operating cash flows will ensure that its funding requirements for store expansion are taken care of. In fact, historically, its cash flow from operations has been higher than its net income. The operating cash flow per store is Rs 2.4 mn in FY10 and the average payback period is around 4 years. Additionally, 99% stores are profitable from day one itself. We expect JFL to generate operating cash flow of Rs 900.4 mn, Rs 1.2 bn and Rs 1.6 bn in FY11E, FY12E and FY13E.

0

10

20

30

40

50

FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E%

of

net

sale

s

Manufacturing & other exps Employee cost Raw Material



Page 14 of 26


0

300

600

900

1200

1500


Rs m

n

Cash flow from operations

36.5

19.5

36.936.7

44.0

47.355.054.653.4

36.7

0

10

20

30

40

50

60

FY09 FY10 FY11E FY12E FY13E

RONW(%) ROCE(%)


The company's return ratios are quite attractive and are expected to improve going forward. The ROCE is expected to increase from 36.2%% in FY10 to 55% in FY13E, while the RONW is expected to be 37% in FY13E. Latest Quarter Update In Rs mns Q2FY11 Q2FY10 % Chg. H1FY11 H1FY10 % Chg. Net Sales 1633 978 67.1 2988 1827 63.5 Other operational Income 1 1 0 Total Operating Income(TOI) 1634 978 67.1 2989 1827 63.6 Raw Materials Cons. 347 212 63.4 616 392 57.4

% to TOI 21.2 21.7 20.6 21.4 Stock adj.(-)Inc/(+)Dec -1 0 110.4 -2 0 288.9

% to TOI 0.0 0.0 -0.1 0.0 Net Raw Mat adj. for stock 346 212 63.4 615 391 57.2

% to TOI 21.2 21.7 20.6 21.4 Purchase of traded goods 59 29 100.8 123 57 115.5

% to TOI 3.6 3.0 4.1 3.1 Rent 127 104 22.5 247 184 33.8

% to TOI 7.8 10.6 8.3 10.1 Other expenses 480 294 63.3 881 576 53.0

% to TOI 29.4 30.1 29.5 31.5 Contribution 622 339 83.6 1125 620 81.5

% to TOI 38.1 34.7 37.6 33.9 Personnel 325 187 74.1 576 344 67.5

% to TOI 19.9 19.1 19.3 18.8 Total expenditure 1337 825 62.0 2441 1552 57.3 Operating Profit 297 152 95.3 549 276 99.0

OPM (%) 18.2 15.6 18.4 15.1 Non-Operating Income 3 0 760.7 4 1 564.7 Interest 1 19 -95.1 3 52 -93.7 Gross Profit 299 134 123.6 549 224 145.1

GPM (%) 18.3 13.7 18.4 12.3 Depreciation 69 58 19.0 132 112 18.4 PBT 229 75 204.6 417 112 271.7

PBT (%) 14.1 7.7 13.9 6.1 Prov. for Tax- Cur 45 -2 79 0

Tax/PBT (%) 19.7 -3.1 19.1 0.1 Profit after Tax 184 78 137.3 337 112 201.2

PAT (%) 11.3 7.9 11.3 6.1 EPS (Rs.) 2.9 1.2 137.3 5.2 1.7 201.2 CEPS (Rs.) 3.9 2.1 86.5 7.3 3.5 109.8



Page 15 of 26


JFL reported excellent results for Q2FY11 with net sales growing by 67.1% to Rs 1634 mn and PAT growing by 137.3% to Rs 184 mn. The growth momentum was driven by increase in number of stores which ultimately resulted in higher volumes, increased same-store sales and new introductions to Domino's product portfolio. The EBITDA margins expanded by 263 bps to 18.2% versus 15.6% registered in Q2FY10. The growth in margins was driven by improved store sales witnessed during the quarter. It’s a clear case of operating leverage setting in with key head of expenses forming a lower percentage of net sales. Interest expenses witnessed a decline in Q2FY11 and stood at Rs 0.93 mn (Rs 19 mn in Q2FY10) on account of repayment of all the term loans. The Company opened 19 new stores during the quarter and a total of 33 stores during H1FY11 taking the store count to 339 at the end of Q2FY11. Number of cities covered as on September 2010 stood at 79 with enhanced focus on Tier II and Tier III cities. JFL has 2 franchisee stores opened during H1FY11 at Delhi and Mumbai airport. Same store sales growth maintained its healthy trend and grew by a handsome 43.8% in Q2FY11. Continued acceptance of new product launches such as Pasta Italiano, the Mexican Wrap etc. helped same store sales grow by a healthy number so far in this financial year. In Q1FY11, it had recorded 37% same store sales growth. Last quarter, it introduced online ordering facility covering 26 top cities in India and is currently in pilot phase. Dominos is the first chain who will be trying this mode of delivery. The management is of the view that despite Infrastructural challenges in India; online mode holds lot of potential. Besides online ordering, it has also initiated the concept of mobile marketing, whereby the customers can avail personalized target coupons via the mobile platform.

Valuation Jubilant FoodWorks remains a difficult stock to value. At 33x FY13E EPS, the stock looks richly priced. As there are no comparable listed companies in India, it will be apt to compare it with global listed players which are trading at FY10 P/E in the range of 11-20x. On EV/EBIDTA basis, JFL is trading at 17.9x FY13E while its global counterparts are valued between 6-10x. We value JFL on EV/EBIDTA of 19x its FY13E to arrive at a target price of Rs 627. The pricing of JFL may seem expensive when compared to its global peers. However, considering that India provides tremendous opportunity for growth in the organised food service industry and Quick Service restaurants (pizza parlors in particular) due to various factors such as rising income levels, burgeoning middle class and younger population, the premium seems to be justified. Share price has more than doubled in the last six months, triggered by higher than expected results and improved same store sales. The valuations seem to be expensive at these levels and we therefore have a HOLD rating on the stock. Any news flow regarding tie-ups with any international brands may provide further thrust to the stock price, which may induce us to re-consider our rating.



Page 16 of 26


W2W Ratings (Long-term) W2W Ratings Weightage (%) ScorecardManagement quality/Promoter background 15 12

Business Model 10 8

Soft factors (corporate governance, certification/awards, corporate

social responsibility, employee benefits etc)

5 4

Macro Factors 10 7 Competitive Advantage Industry Attractiveness Event Risk Product - Markets position 10 8 Brands/ Market Share Technology/Capacity Distribution Reach Exports Quality of earnings 20 16 Sales Growth Margin Growth PBT Growth EPS Growth Financial Health 20 16 Balance Sheet Strength Liquidity/Resources ROCE ROE Investor Perception 5 2 P/E Relative to Sensex P/E Relative to Sector Stock liquidity FII fancy Future Prospects 5 4

TOTAL 100 77

W2W Cut Off Criteria Action 1 >80% Strong Buy 2 65-79% Buy 3 50-64% Hold 4 <49% Reduce

W2W Recommendation: BUY (long-term view) * Disclaimer: The above analysis is highly subjective in nature, as the analyst has used his/her judgment in exercising ratings. Readers and users are cautioned to verify the information before using it for any personal or business purpose



Page 17 of 26


Company Overview Jubilant FoodWorks Limited (JFL) (formerly Domino’s Pizza India Limited) was incorporated in the year 1995 and opened the first Domino’s pizza store in January 1996. JFL operates its stores pursuant to a Master Franchise Agreement with Domino’s Pizza International, which provides it with the exclusive right to develop and operate Domino’s Pizza delivery stores and the associated trademarks in the operation of stores in India, Nepal, Bangladesh and Sri Lanka. The Company manufactures and sells Pizza & side dishes and is also engaged in trading of beverages & desserts from its outlets. The company caters to a wide section of the population (the target audience ranges from the lower middle class to upper class), with a range of products at multiple price points (lowest price point at Rs 39). At a growth rate of nearly 42% for the last five years, the company's India operations are its fastest in the world. The Company is the market leader in the organized pizza market with a 50% overall market share and 65% share in the home delivery segment in India. JFL focuses on a home delivery and takeaway oriented business model, which offers its customers the convenience of eating in the comfort of their own homes and workspaces. The following table indicates its current market presence in India, as on March 31, 2010:

Source: Company, W2W Research

It is the largest pizza chain in the country and the fastest-growing multinational fast-food chain during FY07 and FY09 in terms of number of outlets, according to the India Retail Report, 2009. The Food Franchising Report 2009 has estimated that JFL was one of the largest and fastest growing international food brands in South



Page 18 of 26


Asia and the market leader in the organised pizza home delivery segment in India with over 65% market share. It is accredited with no. 1 rank in the Domino’s Pizza Inc’s global operations amongst the countries with 100 or more stores. At present JFL is one of the largest food service companies in India with a network of 320 stores (as of 30 June, 2010) pan India. JFL to take forward their plans to enter the Sri Lankan market through company owned stores which are a preferred mode of operation. The Company plans to set up a subsidiary for this purpose. The 5 stores in Sri Lanka, under a sub-franchise agreement, cease to operate as of date.

Key Managerial Personnel

Name Name Profile Mr. Shyam Bhartia Chairman and Founder Director Mr. Shyam S. Bhartia, aged 57 years, is the Chairman and founder director, holds a

bachelor’s degree in commerce and is the fellow member of the ICWAI. He has over 22 years of experience in the pharmaceuticals and specialty chemicals, food, oil and gas, aerospace and IT sectors.

Mr. Hari Bhartia Co-chairman and Founder Director Mr. Hari S. Bhartia, aged 53 years, is the co-Chairman and founder director, holds a bachelor’s degree in chemical engineering from IIT, Delhi. He has over 20 years of experience in the pharmaceuticals, food, oil and gas, aerospace and information technology sectors.

Mr. Ajay Kaul CEO & Whole time director Mr. Ajay Kaul, aged 46 years, is the CEO and whole time director and holds a bachelor’s degree in technology from IIT, Delhi and an MBA from XLRI, Jamshedpur. He has over 20 years experience in industries such as financial services, airlines, express distribution and logistics and food retail. Past experience includes stint with TNT Express, Modiluft and American Express TRS.

Mr. Ravi Gupta Sr VP – Finance Mr. Ravi S. Gupta, aged 42, holds a bachelor’s degree in commerce and is also a fellow member of the ICAI and is an associate member of the ICWA and ICSI. He joined the company on April 15, 2002 and heads the accounts and finance, legal and secretarial and information technology department. He has over 18 years of experience in corporate finance, strategy and accounting.

Source: Company, W2W Research Shareholding Trend As of September 2010, promoter holding stands at 61.38% and FII holding at 20.82%. Mutual Funds holding have come down from 10.67% in June 2010 to 7.41% in September 2010. Detailed trend since March 2010 is specified below: % Mar-10 Jun-10 Sep-10Promoter 62.07 61.75 61.38Indian 54.47 54.18 53.86Foreign 7.60 7.56 7.52

PublicInstitutions 29.85 28.13 28.23FIIs 21.09 17.39 20.82Mutual Funds 8.68 10.67 7.41Non-institutions 8.05 10.06 10.34Public 4.48 5.88 5.78Corporate holding 3.57 4.18 4.56

Total 100 100 100 Source: BSE website Innovative product offerings Dominos has been constantly innovative new products. It’s “Pizza Mania” which is the entry level pizza priced at Rs 39 is showing good demand and progress. This innovative product has been able to grow the size of pizza consumption segment. It’s Wheat based thin crust pizza has been well received by diet conscious customers. This product was launched keeping in mind the preference of whole



Page 19 of 26


grains in India. Other products namely “Pasta” and ‘Choco-lava” has witnessed excellent success. It has recently brought in more excitement in its menu by introducing Mexican Wrap and Pasta Italiano, to offer greater variety to its consumers. The New Mexican Wrap is a unique offering with a refreshingly different layered wrap filled with fillings (Veg and Non Veg), Mexican seasoning, flavored cheese and tangy sauce. The new Pasta Italiano has penne pasta tossed with extra virgin olive oil, new exotic herbs, select toppings and a generous helping of new flavored sauces (White or Red). The new Pasta offering promises a richer and flavorful pasta experience.



Page 20 of 26


Food Service Industry The food service industry has two distinct sectors – the organised segment and the unorganized segment, each with its own unique operational characteristics. According to the Food Franchising Report 2009, the food services industry in India was estimated to be worth Rs 58,000 cr in 2008, out of which Rs 8,000 cr, or 7.24%, was accounted for by the organised sector. The Report estimates that the consumer food services value sales grew by 20% in 2008 over 2007. Dhabas and roadside eateries form the unorganized format which comprises of street stalls are the most common forms of restaurants and have traditionally addressed eating out requirements of Indians. The organised food establishments can be explained as below:

Source: RHP, W2W Research According to a Technopak 2009 report, India’s food service industry stood at $13 billion in 2007 with organised food service valued at $2 billion. The organized food service is growing at an annual rate of 20% with quick service restaurants (QSRs) are the fastest growing. Among the various formats, QSRs and cafes have had the maximum growth over the last few years. The food services industry in India is in the growth phase and offers opportunities across a variety of cuisines such as fast food restaurants, multi-cuisine food courts and home delivery. The trend towards home delivery is fast gaining popularity with value sales increasing significantly over the last couple of years. (Source: India Retail Report, 2009). The growth of middleclass and rising income levels has increased the frequency of eating out. Approximately 80% of the population eats out at least once a month. Approximately 38% of the population (who eat out at least once in a month) has eaten out at least 7-9 times in a month, whereas almost 28% has eaten out 4-6 times in a month. This has led to higher demand in the food services industry. The Technopak Report 2009 estimates that only 2% of the monthly expenditure on food bought from outside or ordered-in by households in India is spent on pizzas and pastas on a monthly basis. The Indian pizza market, estimated at Rs7bn (in

Organised Formats

Dining

Fine Dining Full service restaurants with fine décor

Casual Dining Restaurant serving moderately priced food. Comprises a market segment between fast food establishments and fine dining restaurants

Quick Service Restaurants (QSRs) Food Courts

Fast food outlets Take Away, Home Delivery. Eg. McDonald’s, Pizza Hut, Dominos

A relatively nascent phenomenon and being popularized by mall developers

Cafes

Comprises coffee bars and parlors. Eg. Café Coffee Day, Barista

Bars & Lounges

Kiosks

F-Bar and lounges



Page 21 of 26


FY09), is expected to grow at 35-40% over the next two years to ~Rs17.2bn in FY12E (Source: Food Franchising Report 2009). Changing food habits and eating out culture Increased individual incomes and growth in middle class has impacted greater demand for convenience foods. Eating out or ordering in meals for consummation at home has become a popular trend. According to the Technopak Report 2009, ordering in or bringing in meals from restaurants is a fairly common practice, with two out of three households in India having done so in one month. In fact, most who have ordered in or brought food from outside have done it multiple times. No. of times food ordered-in on a monthly basis

1 to 2 times

3 to 4 times

5 to 6 times

7 to 8 times

9 to 10 times

11 + times

2220

11

5 4 5

Average no. times ordered-in = 5

Source: Technopak Report 2009, W2W Research

With the growth in Indian middle class and rising income levels has increased the frequency of eating out. As can be seen from the chart below, approximately 80% of the population eats out at least once a month. Approximately 38% of the population (who eat out at least once in a month) has eaten out at least 7-9 times in a month, whereas almost 28% has eaten out 4-6 times in a month. This has led to higher demand in the food services industry. Set forth below are percentage break-up of the frequency of eating out in India in a month. Percentage of ordered-in food on a monthly basis

Yes, 67%

No, 33%


The proportion of households ordering in from outside and spending more than an average of Rs. 600 is higher in Tier 1 towns. Also, the usual monthly spend on



Page 22 of 26


ordered in food increases with affluence levels and is more in larger cities. Spends on ordering-in are, however, lower in Tier 3 towns and towns as the average monthly spends are almost half of that in Tier 1 and Tier 2 towns.

Incidence of eating out on a monthly basis Not gone out to eat

20.0%

Have gone out to eat

80.0%

Source: W2W Research, RHP Quick Service Restaurants (QSRs) Consumers’ growing penchant for eating out and taking quick meals in between long working hours has spawned a boom in the Indian QSR industry. Unlike fine dining restaurants, QSRs largely operate through smaller self-service outlets that provide value-for-money food that can also be consumed while on the go. It is estimated to be worth about Rs 2,500 cr and is growing at 30-40% annually.

Monthly spends on food bought from outside or ordered in Population Strata Monthly Spends Tier 1(Towns with 3 Tier 2 (Towns with 1-3 Tier 3 (Towns with <1 million+ population) million population) million population) Avg (in Rs.) 670.6 691 351.3 Up to 50 13 13 20 51-100 12 13 17 101-200 19 17 22 201-300 12 11 13 301-600 18 23 14

601+ 26 23 14 Source: Technopak Report 2009, W2W Research

QSRs typically have order taking and cooking platforms designed specifically to order, prepare and serve menu items with speed and efficiency. They are typically located in places that are easily accessed and convenient to customers’ homes, places of work and commuter routes. The menus at most quick service restaurants have a limited number of standardized items. Typically, customers order at a counter or drive through and pick up food that then is taken to a seating area or consumed off the restaurant premises. The average check amounts are generally lower than other major segments of the restaurant industry. This segment operates on a high volume-low margin business model.

Frequency of eating out on a monthly basis

10

25

28

11

14

13

Once 2 to 3 times4 to 6 times 7 to 9 times10 to 12 times More than 12 times

Average number of times = 7



Page 23 of 26


Currently the Food Service Industry in India is in growth phase and offers opportunities across a variety of cuisines in various formats including QSR sector. Following are the key growth drivers Changing demographic profile and rising income levels

The changing demographic profile of India has led to the growth of the food services industry. The food services industry not only serves as a meal option, but it has also become a lifestyle choice. Growing income levels and increase in purchasing power has led to a higher spending capacity which provides a huge opportunity for penetration for the food services sector.

Burgeoning middleclass

India has the presence of a strong 300 mn middleclass population. (Source: Technopak Report 2009) As the middleclass has been the largest consumer of the food services industry, the increase in the middleclass would lead to higher growth in the food services industry.

Growth in youth population

The growth of the QSR industry is also influenced by the higher younger population. Based on the Technopak Report 2009, over 65% of India’s population is below 35 years of age, which provides for a greater penetration opportunity. Further, the 21 to 40 year olds constitute the majority among those who eat out regularly.

Age group profile of those who eat out

18 to 20 yrs18%

21 to 30 yrs40%

31 to 40 yrs31%

Above 40 yrs11%


Rising urbanization

Ordering in or eating out is more prevalent in the cities and towns than in the rural areas. The average spends on ordering in the Tier 1 or Tier 2 towns is double the average spends in the Tier 3 towns.

Increase in number of working women force

Participation of urban Indian woman in the workforce increased from 14% to 17% between 2000 and 2005. (Source: Technopak Report 2009).



Page 24 of 26


Financial Summary (Rs in mn)

INCOME STATEMENT


Revenues 2806 4239 6018 8177 10520 Total Expenditure 2470 3573 4903 6625 8418 Operating Profit 336 666 1114 1551 2102 Dep. & Amortisations 169 243 287 347 404 EBIT 166 423 827 1204 1698 Interest 89 91 0 0 0 EBT 77 331 827 1204 1698 Other Income 4 4 0 0 0 PBT 81 335 827 1204 1698 Tax 8 1 165 397 560 PAT 73 334 662 807 1137 Revenue Growth % 32.9 51.1 41.9 35.9 28.7 Op. Profit Growth % 25.3 98.4 67.3 39.2 35.5 PAT Growth % -5.9 357.5 98.1 21.9 41.0


Equity Share Capital 582 636 643 643 643Reserves & Surplus -342 526 1188 1922 2951Networth 240 1174 1831 2566 3594Total debt 824 86 0 0 0Capital Employed 1064 1260 1836 2571 3600

Gross Fixed Assets 1710 2276 2871 3473 4045Net Fixed Assets 1065 1403 1711 1966 2133CWIP 87 25 27 61 97Investments 0 0 0 0 0Current Assets 336 533 830 1579 2721Current Liabilities 399 663 693 962 1243Net Current Assets -91 -169 98 544 1369Total Assets 1064 1260 1836 2571 3600

BALANCE SHEET

RATIOS FY09 FY10 FY11E FY12E FY13EGearing (%) 3.4 0.6 0.0 0.0 0.0Current Ratio 0.8 0.8 1.2 1.6 2.2Inventory turnover 59.6 67.4 78.7 84.9 88.5Debtors (sale days) 1.6 1.8 1.8 1.5 1.4Asset Turnover 2.5 2.8 2.8 2.7 6.0RONW(%) 36.5 47.3 44.0 36.7 36.9ROCE(%) 19.5 36.7 53.4 54.6 55.0OPM (%) 12.0 15.7 18.5 19.0 20.0NPM(%) 2.6 7.9 11.0 9.9 10.8

Eff. Tax Rate 9.9 0.2 20.0 33.0 33.0

VALUATION PARAMETERS


EPS (Rs) 1.3 5.3 10.3 12.5 17.7 P/E Ratio 111.0 56.7 46.5 33.0 Book Value 4.1 18.5 28.5 39.9 55.9 P/BV 31.6 20.5 14.6 10.4 CEPS (Rs) 4.2 9.1 14.7 17.9 24.0 Mcap/Sales 8.8 6.2 4.6 3.6 EV/EBITDA 56.3 33.7 24.2 17.9 Dividend 0.0 0.0 0.0 10.0 15.0 DPS 0.0 0.0 0.0 1.0 1.5 Dividend Yield 0.0 0.0 0.2 0.3

CASH FLOW FY09 FY10 FY11E FY12E FY13EOperating cash earning 83 344 827 1204 1698Depreciation 169 243 287 347 404Interest 86 91 0 0 0Change in WC -10 157 -49 70 87Tax paid 8 42 165 397 560CFO 321 794 900 1224 1628

Net Capex 541 521 595 602 572Net Borrowings 315 -719 -86 0 0

Net Chg. in cash 7 37 219 550 948FCFE 95 -446 219 622 1056

KEY OPERATING PARAMETERS

(% of sales) FY09 FY10 FY11E FY12E FY13E

Material cost 22.9 21.1 19.0 20.1 20.7 SGA 8.1 7.3 7.2 7.0 6.8 Rent 9.5 9.3 9.2 9.1 8.9 Personnel cost 19.8 19.0 19.8 19.0 18.5



Page 25 of 26


RESEARCH TEAM

K.N.Rahaman Deputy Research Head Equities & Commodities [email protected]

Jigisha Jaini Sr. Research Analyst Capital Goods & Engineering [email protected]

Nisha Harchekar

Sr. Research Analyst

FMCG, Hotels, Media, Others

[email protected]

Sejal Jhunjhunwala Sr. Research Analyst Auto, Shipping & Metals [email protected]

Abhishek Kothari Research Analyst Banking, NBFC & Financial Services [email protected]

Krishna Reddy Research Analyst Commodities, Economic Update [email protected]

MSR Prasad Research Analyst Commodities [email protected]

Prateek Jain Sr. Research Analyst Mutual Funds & Economic update [email protected]

Ritu Gupta Research Analyst Mutual Funds [email protected]

Aditya Agarwal Sr. Derivative Analyst Derivative Strategist & Technicals [email protected]

Amrut Deshmukh Sr. Technical Analyst Technical Analysis [email protected]

Arun Kumar Technical Analyst Technical Analysis - Commodities arun.kumar @way2wealth.com

Rupali Prabhu Research Assistant Database Management [email protected]

Contact

022-40192900



Page 26 of 26


DISCLAIMER Analyst Certification: I, Nisha Harchekar, the research analyst and author of this report, hereby certify that the views expressed in this research report accurately reflect our personal views about the subject securities, issuers, products, sectors or industries. It is also certified that no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The analyst(s), principally responsible for the preparation of this research report, receives compensation based on overall revenues of the company (Way2Wealth Brokers Private Limited, hereinafter referred to as Way2Wealth) and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations.

Disclaimer This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. Way2Wealth is not soliciting any action based upon it. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any such transaction. The contents of this material are general and are neither comprehensive nor appropriate for every individual and are solely for the informational purposes of the readers. This material does not take into account the specific objectives, financial situation or needs of an individual/s or a Corporate/s or any entity/s. This research has been prepared for the general use of the clients of the Way2Wealth and must not be copied, either in whole or in part, or distributed or redistributed to any other person in any form. If you are not the intended recipient you must not use or disclose the information in this research in any way. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. Way2Wealth will not treat recipients as customers by virtue of their receiving this report. Neither this document nor any copy of it may be taken or transmitted into the United States (to US Persons), Canada or Japan or distributed, directly or indirectly, in the United States or Canada or distributed, or redistributed in Japan to any residents thereof. The distribution of this document in other jurisdictions may be restricted by the law applicable in the relevant jurisdictions and persons into whose possession this document comes should inform themselves about, and observe any such restrictions.

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This material contains statements that are forward-looking; such statements are based upon the current beliefs and expectations and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. These uncertainties include but are not limited to: the risk of adverse movements or volatility in the securities markets or in interest or foreign exchange rates or indices; adverse impact from an economic slowdown; downturn in domestic or foreign securities and trading conditions or markets; increased competition; unfavorable political and diplomatic developments; change in the governmental or regulatory policies; failure of a corporate event and such others. This is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular trading strategy. No part of this material may be copied or duplicated in any form by any means or redistributed without the written consent of Way2Wealth. In no event shall any reader publish, retransmit, redistribute or otherwise reproduce any information provided by Way2Wealth in any format to anyone. Way2Wealth and its affiliates, officers, directors and employees including persons involved in the preparation or issuance of this report may from time to time have interest in securities / positions, financial or otherwise in the securities related to the information contained in this report.

To enhance transparency, Way2Wealth has incorporated a Disclosure of Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report.

Disclosure of Interest Statement in Jubilant FoodWorks as on 25th November 2010 1. Name of the analyst : Nisha Harchekar

3. Analysts’ ownership of any stock related to the information contained : NIL

4. Way2Wealth ownership of any stock related to the information contained : NIL

5. Broking relationship with company covered : NO

6. Investment Banking relationship with company covered : NO

This information is subject to change without any prior notice. Way2Wealth reserves at its absolute discretion the right to make or refrain from making modifications and alterations to this statement from time to time. Nevertheless, Way2Wealth is committed to providing independent and transparent recommendations to its clients, and would be happy to provide information in response to specific client queries.

Before making an investment decision on the basis of this research or any information contained in this material, the reader needs to consider, with or without the assistance of an adviser or a qualified professional, whether the advice is appropriate in light of their particular investment needs, objectives and financial circumstances. All investments involve risk and past performance does not guarantee future results. Investigate before you invest. Readers are strongly cautioned to verify any information before using it for any personal or business purpose. The price of securities can and does fluctuate, and an individual security may even become valueless. International investors are reminded of the additional risks inherent in international investments, such as currency fluctuations and international stock market or economic conditions, which may adversely affect the value of the investment. Opinions expressed are subject to change without any notice. Neither the company nor the director or the employee of Way2Wealth accepts any liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research.

Copyright in this document vests exclusively with Way2Wealth Brokers Private Limited.

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