Download View Full Report

FMCG
May 21, 2015
India Research
Jubilant FoodWorks
INITIATION REPORT
Bloomberg: JUBI IN
Reuters: JUBI.BO
BUY
Huge appetite – growth to continue
Recommendation
Exhibit 1: Key Financials
Y/E March (Rs mn)
FY13
FY14
FY15P
FY16E
FY17E
Revenue
14,076
17,235
20,745
26,240
34,209
EBITDA
2,465
2,559
2,655
3,455
4,921
EBITDA margin (%)
17.5
14.8
12.8
13.2
14.4
1,367
1,262
1,260
1,750
2,675
EPS (Rs)
20.9
19.3
19.2
26.7
40.8
RoE (%)
31.3
22.4
20.4
23.3
28.1
RoCE (%)
45.6
33.4
28.3
33.0
40.7
P/E (x)
83.9
91.2
91.5
65.9
43.1
Adj. Net profit
Source: Karvy Stock Broking
CMP:
Rs1,761
Target Price:
Rs2,040
Upside (%)
16%
Stock Information
Market Cap. (Rs bn / US$ mn)
52-week High/Low (Rs)
115/1,813
1,790/1,105
3m ADV (Rs mn /US$ mn)
514/8.1
Beta
1.0
Sensex/ Nifty
27,837/8,423
Share outstanding (mn)
66
Stock Performance (%)
Absolute
1M
22.8
3M
8.8
12M
55.4
YTD
27.8
Rel. to Sensex
22.1
14.3
35.7
26.3
Performance
35,000
30,000
25,000
20,000
15,000
10,000
5,000
1,850
1,650
1,450
1,250
1,050
850
May-14
Jun-14
Aug-14
Sep-14
Oct-14
Dec-14
Jan-15
Feb-15
Apr-15
May-15
JFL being a dominant player in the domestic QSR industry is likely to
benefit from the economic upgrade in urban markets. We believe that the
change in business conditions and uptick in the general domestic markets
especially in the urban economy would support JFL to record increase in
SSS (Same Store Sales) growth. With positive SSS growth we believe that
the operating efficiency would improve going ahead. We expect A&P
spends, manufacturing expenses, Employee expenses and other operating
costs to reduce over our investment horizon and operating margins to
expand by 370 bps over FY15-18E. At CMP of Rs1761/Share JFL is trading at
65.9 FY16E and 43.1x FY17E earnings. We value JFL at 50x FY17E PER to
arrive at a price target of Rs2040/Share.
High growth opportunities for QSR and JFL
High contribution of unorganized sector and lower penetration of QSR
(Quick Service Restaurants) especially of the Pizza delivery players presents
high growth opportunity for JFL. In addition, favorable demographic mix,
increasing population of women work force and changing consumer habits is
likely to accelerate revenue traction for QSR industry going ahead. JFL being
a leader in pizza and pasta industry, is likely to benefit from these factors.
Operating margins to expand 370 bps with SSS growth back on track
With improving business conditions and favorable base, JFL is likely to
report positive SSS growth in the near term. We believe that the domestic
market has huge appetite which would help increase the SSS growth over a
longer period for JFL. With improvement in SSS growth we expect
manufacturing, A&P and employee costs to decline (as % of revenue).
Consequently we see 370 bps expansion in operating margin over FY15-18E.
Initiate JFL with a BUY and price target of Rs2040/Share
Considering positive SSS growth and continuous store additions, we expect
JFL to report EPS of Rs26.7/Share and Rs40.8/Share in FY16E and FY17E
respectively. Historically JFL has traded at 1-Yr forward PER of 50.6x and
~50-60% premium to consumer companies. During FY10-13 the company was
re-rated from a PER of 35x to 60x. Considering this we have valued JFL at a
PER of 50x which translates in to a price target of Rs2040/Share and potential
upside of 16%. We initiate coverage with BUY.
Sensex (LHS)
Source: Bloomberg
Analysts Contact
Sachin Bobade
022 6184 4313
[email protected]
Jubilant Foodworks (RHS)
May 21, 2015
Jubilant FoodWorks
Company Financial Snapshot
Profit & loss
Rsmn
FY14 FY15P FY16E FY17E
Net sales
17,235 20,745 26,240 34,209
EBIDTA
2,559
Depreciation
2,655
3,455
4,921
982
1,050
1,124
767
Interest Expense
-
-
-
-
PBT
1,881
1,748
2,479
3,871
Tax
619
488
729
1,197
Adj. PAT
1,262
1,260
1,750
2,675
EPS (Rs)
19.3
19.2
26.7
40.8
DPS (Rs)
0.0
2.5
3.0
3.5
EBIDTA Margin %
14.8
12.8
13.2
14.4
Adj Net Margin %
7.3
6.1
6.7
7.8
P/E (X)
91.2
91.5
65.9
43.1
EV/EBIDTA (X)
43.4
42.1
32.2
22.2
Company Background
Jubilant FoodWorks Limited is a food services company
based in Noida, Uttar Pradesh which holds the master
franchise for Domino's Pizza in India, Nepal, Sri Lanka and
Bangladesh, and also for Dunkin' Donuts in India. Its
Dunkin’ Donuts restaurants offer donuts, drip coffee,
cappuccino and latte, milkshakes, smoothies, and iced teas,
as well as a range of burgers, wraps, sandwiches, and sidebites. In addition, the company sells its products online. As
of May 14, 2015, it operates 887 Domino’s Pizza restaurants
in 199 cities; and 56 Dunkin’ Donuts restaurants in 20 cities
in India.
Profit and Loss Ratios
Valuation Multiples
Balance Sheet
Cash Flow
Rsmn
FY14
FY15P
FY16E
FY17E
Rsmn
FY14
FY15P
FY16E
FY17E
Total Assets
8,350
10,053
12,438
16,036
PBT
1,877
1,748
2,479
3,871
Net Fixed Assets
5,471
7,140
7,565
8,119
Depreciation
767
982
1,050
1,124
(427)
(488)
(729)
(1,197)
Current Assets
1,964
1,998
3,958
7,002
Tax
Investments
1,286
1,286
1,286
1,286
Change in Wkg Cap
135
675
324
520
CF from Operations
2,667
2,917
3,125
4,319
(2,409)
(2,650)
(1,476)
(1,678)
(349)
0
0
0
(2,758)
(2,650)
(1,476)
(1,678)
Deferred Tax
(371)
(371)
(371)
(371)
Total Liabilities
8,350
10,053
12,438
16,036
Networth
5,635
6,732
8,285
10,731
Debt
0
0
0
0
Minority Interest
0
0
0
0
2,715
3,320
4,153
5,305
RoE %
22.4
20.4
23.3
28.1
RoCE %
45.6
33.4
28.3
33.0
Net Debt/Equity
(0.0)
(0.0)
(0.2)
(0.4)
0.7
0.7
0.7
0.7
20.4
17.1
13.9
10.7
Current Liabilities
Balance Sheet Ratios
Equity/Total Assets
P/BV (X)
Capex
Investments
CF from Investing
Change in Equity
15
1
-
-
Change in Debt
0
0
0
0
Int/Dividends & others
0
(164)
(197)
(229)
15
(163)
(197)
(229)
(76)
104
1,452
2,411
CF from Financing
Change in Cash
Opening Cash
304
228
332
1,784
Closing Cash
228
332
1,784
4,195
2
May 21, 2015
Jubilant FoodWorks
Investment Rationales
JFL to retrace FY10 Margins – a taste of good health
With favorable business condition, JFL had reported significant improvement in
same store sales (SSS) growth during FY09-13 period. Better GDP growth,
favorable economic, micro and macro conditions and growth in urbanization
helped the overall QSR industry during that phase. However, the SSS de-grew
during FY14 and 1HFY15 due to slowdown in overall economy. We believe that
the change in economic scenario would act as a strong catalyst for SSS growth. We
see current business conditions as perfect ‘ingredients’ for better ‘recipe’ for the
future growth. We believe that change in economy and business environment
would augment growth momentum of overall QSR industry and especially JFL. In
addition, with the increase in SSS growth, operational expenses would decline
considerably as higher SSS growth augments revenue growth which outpaces the
operating costs.
SSS growth is back
JFL being a dominant player in the domestic QSR industry is likely to benefit from
the economic upgrade in urban markets. We believe that the change in business
conditions and uptick in the general domestic markets especially in the urban
economy would support JFL to record increase in SSS growth. We also believe that
the company would report double digit SSS growth in the coming couple of years
and strong sales growth over the same period. We have forecasted 8%, 12% and
15% SSS growth and 27%, 30% and 32% sales growth for FY16E, FY17E and FY18E
respectively.
0%
0%
10%
20%
20%
40%
30%
60%
Exhibit 2: Revenue growth to remain high going ahead
40%
Exhibit 1: SSS growth for JFL to turn positive
FY07
FY09
FY11
Source: Karvy Stock Broking ,Company
FY13
FY15
FY17E
FY07
FY09
FY11
FY13
FY15
FY17E
Source: Karvy Stock Broking ,Company
Cost reduction to add flavors to better SSS growth
Decline in SSS growth is history now. After four consecutive quarters of negative
SSS growth, JFL’s efforts to increase SSS revenues are paying dividends. During
Q3FY15, the company recorded positive SSS growth after 12 months. With positive
SSS growth we believe that the operating efficiency would improve going ahead.
We expect A&P spends, manufacturing expenses, employee expenses and other
operating costs to reduce over our investment horizon. In all, revenue growth
3
May 21, 2015
Jubilant FoodWorks
during the period would outpace the increase in operating expenses to give rise to
370 bps expansion in operating margins over FY15-18E. Our estimates build in 160
bps decrease in manufacturing and rent expenses, 90 bps reduction in employee
cost and 110 bps decline in A&P spends over FY15-18E.
JFL recorded highest margins – 15.8% - 18.7% during FY10-13 period. We believe
that stable SSS growth and growth in revenues would help JFL to retrace FY10
operating margins in FY18E. We expect operating margins to expand from 12.6%
in FY15E to 16.5% in FY18E – representing 370 bps expansion.
Exhibit 4: Efficiency to contribute in OPM expansion
17%
17%
Exhibit 3: 370 bps expansion in OPM over FY15-18E
3.7%
Employee
cost saving
1.6%
8%
11%
13%
0.4%
RM cost
saving
Manf &
A&P cost Rent cost
saving
saving
0%
0%
4%
6%
16.5%
FY15
FY16E
Source: Karvy Stock Broking ,Company
FY17E
FY18E
FY18E
FY15
Margin
FY18E
Margin
Source: Karvy Stock Broking ,Company
4
May 21, 2015
Jubilant FoodWorks
Strong business model for healthy future growth
Jubilant FoodWorks Ltd (JFL) is the master franchisee for 'Domino's' brand in
India, Nepal, Bangladesh and Sri Lanka. Also it is working on and developing
donut business with Dunkin’s franchise in the domestic market. JFL till March
2015 operated 838 Domino stores across 185 cities in India. During Q4FY15, the
company added 38 more stores in 11 cities to take the store count to 876 and reach
to 196 cities. As Donut business in India is very young, pizza continues to remain a
key driver for the company. JFL is a market leader with +60% share of the
domestic organized pizza delivery market. JFL has reported strong traction over
FY10-14 period with (1) revenues growing at 42% CAGR from Rs4.2 bn in FY10 to
Rs17.2 bn in FY14, (2) EBIDTA growing at 40% CAGR from Rs669 mn in FY10 to
Rs2.6 bn in FY14 and (3) APAT growth of 39% CAGR from Rs337 mn in FY10 to
Rs1.3 bn in FY14. The traction in revenues and profitability is attributed to robust
same stores sales growth, expansion of store network and operating leverage in
the business.
FY10
Revenue
FY11
FY12
FY13
93%
31%
62%
In Rs Mn
1300
1950
0%
FY07
FY14
FY08
Growth
FY09
FY10
FY11
EBITDA
FY12
FY13
FY14
Growth
Exhibit 7: EBITDA margin – highest during FY11-13
Exhibit 8: Net profit grew at 39% CAGR over FY10-14
223%
96%
0
0%
5%
10%
In Rs mn
460
920
15%
1380
350%
Source: Karvy Stock Broking ,Company
20%
Source: Karvy Stock Broking ,Company
FY07
FY08
FY09
FY10
FY11
EBITDA Margin
Source: Karvy Stock Broking ,Company
FY12
FY13
FY14
FY07
FY08
FY09
FY10
Net Profit
FY11
FY12
FY13
FY14
-31%
FY09
650
34%
20%
FY08
0
48%
18
12
In Rs Bn
6
0
FY07
2600
Exhibit 6: Ebitda grew at 40% CAGR over FY10-14
62%
Exhibit 5: Revenues grew at 42% CAGR over FY10-14
Growth
Source: Karvy Stock Broking ,Company
5
May 21, 2015
Jubilant FoodWorks
High growth opportunities for QSR industry in India
Being very young and under penetrated the QSR industry offers substantial and
multi-year growth opportunity in India. According to industry sources, the Indian
food services industry is growing at a CAGR of 11% and is expected to reach $68
bn by 2018.
At present the organized food industry is accounted by multiple services - Dining,
Bars and Lounges, Quick Service Restaurants (QSRs), Food Courts, Cafes and
Kiosks. However, the QSR contribution to the overall food industry is miniscule
which presents huge opportunity for growth going ahead. According to industry
reports, total expenditure on pizza and pasta category is approximately 2% of the
overall expenditure on outside food – either dine-in or delivery based. Hence,
there is ample growth opportunity in the Indian QSR space in general and pizza
and pasta categories in particular. The QSR business is expected to grow at 20%
value CAGR on sustainable basis and expected to reach to $1.1bn by 2018. The
pizzas and pasta product category is expected to outpace the overall growth of
QSR industry.
Exhibit 9: Growth opportunity for organized market
Organized
Market, 30%
Exhibit 10: QSR key contributor in organized food market
Fine Dining
and Frozen
Deserts, 10%
Cafes, 8%
Pubs, Bars,
Clubs, and
Lounges,
12%
Casual
Dining and
QSR, 70%
Unorganized
Market, 70%
Source: Karvy Stock Broking, Industry
Exhibit 11: QSR to remain dominant in licensed players
Exhibit 12: Domestic markets- QSR at high growth
508
254
In Rs Bn
112
56
0
0
In Rs Bn
168
762
Source: Karvy Stock Broking, Industry
Café
QSR
Frozen
desert
2013
Source: Karvy Stock Broking ,Industry
Casual
Dine
2018
Fine Dine Pub, Bar,
Club &
Lounge
Café
QSR
Frozen
Casual
desert
Dine
2013
2018
Fine Dine Pub, Bar,
Club &
Lounge
Source: Karvy Stock Broking, Industry
6
Diners, drive-ins, and dives:
Standalone joints serving
affordable Indian foods and
beverages to the mass market
along streets (e.g., at bus stops)
Roadside hawkers/vendors:
Located usually at street corners,
footpaths, selling street foods,
juices, lassi, ice cream, snacks, and
cater to low income groups.
Food carts and trolleys:
Standalone units selling street
food and snacks such as grilled
corn, boiled or roasted peanuts,
chaat, paubhaji, idlis, fruit juices,
and samosas.
Halwais: Confectioners and
sweet-makers selling sweets
like laddus and burfi; savoury
snacks like samosas and
pakoras
Dhabas: Roadside restaurants
located at truck stops,
highways. Items sold include
Indian food and snacks, lassi,
chai etc.
Unorganised Sector (84%)
Organised Sector (16%)
Exclusively sell fresh bottled fruit and vegetable juices,
smoothies, and juice blends. Eg: HAS Juice Bar, Tropical
Smoothies, Amoretto
Standalone structures offering quick snacks and drinks like
wraps, Indian snacks, sugarcane, Chinese food etc. Eg:
Salad Chef, Big Mos' Rolls and Wraps, Yo China
Situated in shopping malls, airports, hospitals, offices,
with several quick service brands serving food at
designated stalls. Eg: Kailash Parbat, Comesum, Spoon,
Kiosks
Food Courts
Exclusively sell ice cream, gelato, sundaes, shakes, sorbet,
and frozen yogurt. Eg: Amul, Natural Ice creams, Kwality
Ice Cream and
Frozen Yogurt
Parlors
Juice Bars
Casual or upscale establishments serving alcoholic
beverages and food. Eg: Mai Tai, Shiro, Aer, Aurus, Dome,
Serves different range of coffee, hot and cold drinks;
quick bites such as pastries and sandwiches, etc. Eg:
Café Coffee Day, Barista, Costa Café, Starbucks,
Fast food restaurants characterized by its low-priced fast
food cuisine and minimal table service. Menu items
include burgers, pizza, milkshakes, etc. Eg: McDonald’s,
Domino’s, Pizza Hut, Haldirams
Casual: Offer moderately priced food, casual
atmosphere, quick table service. Eg: Hard Rock Cafés,
T.G.I. Friday's
Bars and
Lounges
Cafes, Coffee/Tea
Bars, Bakery-Cafes
Quick Service
Restaurants
Full Service
Restaurants
Fine Dining: Offers the finest in food, service,
ambience; high priced meals with highly trained staff;
usually located in luxury hotels in metropolitan cities. Eg:
Taj Hotels, The Leela Hotels
May 21, 2015
Jubilant FoodWorks
Exhibit 13: Indian Food industry structure – unorganized sector dominates; growth potential for organized
Source: Karvy Stock Broking
7
May 21, 2015
Jubilant FoodWorks
Exhibit 14: Chained restaurants – Pizza is noticeable
Indian Fast
Food (Key
Players), 6%
Ice Creams,
10%
International
fast Food
(non-pizzas),
15%
Pizzas, 24%
Source: Karvy Stock Broking, Company
Confectionar
ies, 2%
Exhibit 15: Cafes have highest outlets; pizza at second spot
Cafes
Pizzas
Cafes, 44%
Intl. fast Food
Ice Creams
Indian Fast Food
Confectionaries
0
600
1200
No. of Outlets
1800
2400
3000
Source: Karvy Stock Broking, Company
8
May 21, 2015
Jubilant FoodWorks
Factors present in India's QSR industry are ‘Food for
Growth’
We believe that the current macro factor presents stupendous and sustainable
growth opportunity for the food processing industry. The necessary triggers like (1) income levels – propensity to spend (2) urbanization - rising awareness (3)
Rising woman work force and (4) young population - better acceptance - are longterm growth drivers for the QSR business.
Rising income levels- implies better propensity to spend - Rise in income
levels would naturally result in higher expenditure on discretionary spends i.e.
entertainment, QSR, etc. This in turn will attract growth in the business.
Furniture,
Appliances,
6%
Personal
Care, 5%
Food &
Beverages,
30%
1200
Exhibit 17: Per capita GDP on increasing trend
400
Others, 17%
Recretion &
Education,
3%
800
Exhibit 16: Food spends have huge scope for growth
Clothing &
Footware,
8%
Rent, Fuel &
Power, 9%
Source: Industry
Transport &
Communicat
ion, 17%
0
Health, 5%
FY2006
FY2008
FY2010
FY2012
FY2014
GDP per capita in USD
Source: MOSPI
Growth in woman work force - Working women population in India has
increased from 14% to 20% (as a % of urban working population) during years
2000 to 2013. Since cooking is a woman centric job in Indian families, rise in
working woman population will create additional growth opportunity for QSR
business.
9
May 21, 2015
Jubilant FoodWorks
Exhibit 19: Indian women work force increasing
World
developed Less dev
FY1980
FY1985
Africa
FY1990
Asia
FY2000
LatAm
0%
0%
9%
20%
40%
18%
60%
27%
80%
Exhibit 18: Women work force growing all over the world
FY2010
Source: MOSPI
1981
1991
2001
2011
Source: MOSPI
Growth in young population - better acceptance - It is observed that the
QSR business is positively benefited by younger population- owing to higher
acceptance of food formats like QSR, Dining, Bar, Lounge, Café, etc. India has
more than 50% of its population below the age of 25 and more than 65% below the
age of 35. It is expected that, in 2020, the average age of an Indian will be 29 years,
compared to 37 for China and 48 for Japan. This presents significant growth
opportunity for QSR industry
Exhibit 20: India has demographic dividend
Above 40
Years, 11%
Exhibit 21: Rural Youth contribution in outside food
18-20 Years,
18%
60–79, 7.5%
40–59, 18.1%
Below 10,
19.8%
80 and
above, 0.7%
31-40 Years,
31%
10–19, 21.7%
21-30 Years,
40%
Source: MOSPI
20–39, 32.4%
Source: MOSPI
10
May 21, 2015
Jubilant FoodWorks
Exhibit 22: Urban Youth contribution in outside food
60–79, 7%
Exhibit 23: Indian Youth contribution in outside food
Below 10,
17%
0-4, 10%
60+, 8%
5-9, 9%
80 and
above, 1%
40–59, 21%
10-14, 11%
10–19, 18%
15-59, 63%
20–39, 36%
Source: MOSPI
Source: MOSPI
Rising urbanization - QSR business is more prevalent in Class A or Tier I
towns- owing to acceptance of concept of Dining, QSR, Lounges, Cafes, etc. Thus,
rising awareness in Tier 2 & 3 cities and higher urbanization of Indian population
will create new growth opportunities for the QSR business in the ensuing years.
Exhibit 25: Tier 1 and tier 2 towns growth continues
1901 1911 1921 1931 1941 1951 1961 1971 1981 1991 2001 2011
Urban
Rural
0
0
20
202
40
60
404
80
100
606
Exhibit 24: Urban rural contribution in population
1951
Ratio
1961
1971
1,00,000 and above
1981
1991
Source: MOSPI
Exhibit 26: Spending in Tier 1 to continue
Exhibit 27: Spending in Tier 2&3 to continue
2011
0
0
6200
7000
12400
14000
18600
21000
Source: MOSPI
2010
2013
Spending per Household in tier 1
Source: GOI Data
2001
50,000 to 99,999
2018E
2010
2013
2018E
Spending per Household in tier 2&3
Source: GOI Data
11
May 21, 2015
Jubilant FoodWorks
Urban growth to remain strong
Urban markets in India are expected to grow faster compared to rural at least in
the short run. Multiple factors such as government spend, industrial progress,
urban development and employment creation would accelerate urban growth in
the coming years. History suggests that the current government regime is always
in favor of urban development compared to rural. Food industry has major
footprints in the urban geographies than rural and as most of its growth is
attributed from urban upswing, incremental focus on urban progress would
augment food industry’s prospects. JFL, being a formidable player in the QSR
industry is expected to reap significant gains and benefit from the growth
opportunity
With urban slowdown in past 6 quarters, the company was unable to post positive
SSS growth. Nevertheless, economic scenario has reversed since last quarter and
urban uptake is accelerating the pace of SSS growth. Consequently the company
was able to post positive SSS growth in Q3FY15. We believe that the trend would
continue and the SSS growth would remain positive over our investment horizon
in stable economic conditions.
Also, JFL is likely to explore the growth potential of neighboring markets. We
expect JFL to add 150, 155 and 160 outlets in FY16E, FY17E and FY18E. We believe
that the company will explore new distribution channels like Airports, Railways,
Office Complexes and Malls to augment the overall growth.
Exhibit 29: Store additions to remain high
-10%
Q310
Q311
Q312
Source: Karvy Stock Broking, Company
Q313
Q314
Q315 FY2018E
120
60
0
Q309
0
4%
350
18%
700
32%
1050
180
1400
46%
Exhibit 28: SSS growth to be back in coming years
FY07
FY09
FY11
FY13
Number of stores
FY15
FY17E
Store additions
Source: Karvy Stock Broking ,Company
12
May 21, 2015
Jubilant FoodWorks
JFL is the master chef of QSR business
We believe that JFL has already mastered the QSR business - through expansion of
the Domino's franchisee in India. The company has very well leveraged the early
mover advantage in the pizza delivery business and continues to improve on own
capabilities and market capacities. Over the period the company was able to
maintain the growth momentum and acquire new customer base for itself and the
overall pizza category. Stable growth in its same store sales signifies that the
company was able to retain its old customers and increase the turnover frequency
over the same period.
Delivery based model - comfort for the customer and the company
JFL business is focused on the delivery and takeaway oriented model. This
presents its customers 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. This is a
comfort zone for JFL as well since this helps the company to save the rentals of
extra space and management expenses (dine-in cost)
Impressive mappings of areas
The order delivery system is based on a detailed mapping of the areas in which
pizza stores are located. Each pizza store is allocated a distinct area for delivery.
The delivery area of each pizza store is restricted to an area within a 9-10 minute
travel time from the pizza store - during peak hours. The method and the time
mapping are done in such a manner that the process of receiving the order,
cooking the pizza and delivering it to the customer does not take more than 30
mins. Consequently, though the company offers ‘delivery in 30 mins or free’
scheme total losses due to delivery error for JFL are minuscule.
Exhibit 30: Impressive delivery system for JFL
Source: Karvy Stock Broking, Company
13
May 21, 2015
Jubilant FoodWorks
Leveraging four pillars for growth
JFL has perfectly implemented the 4 main pillars of QSR business i.e. Supply
Chain, Site Selection, People Management and Sales & Marketing.
Strong supply chain - JFL has successfully implemented centralized
distribution systems to supply key raw materials like Pizza Breads, Cheese,
Vegetables and Packaging Boxes to various outlets. This helps in standardizing
food quality and service levels - key to successful branding in QSR business.
Site selection - With +15 years in business, JFL has gathered expertise in site
selection -as QSR is a mix of smart site selection and culinary tricks. We believe
that outlet selection drives both business volumes and profitability. Till December
2015, JFL has 838 company owned outlets with presence across 184 cities in India.
Exhibit 31: Store addition process – taking account of each aspect
Source: Company
People management - QSR is a service-intensive business and hence people's
business in all respects. JFL has a high employee base of +25,000 spread across
commissaries, outlets and head office functions. JFL has perfectly executed people
management - reflected from its decisions – increase in sales force only during
festive seasons. Considering high employee base and service-nature of the
business - we believe that the company has achieved huge success in employee
management.
Exhibit 33: Employee addition would depend on stores
0
0
10
14000
Per Store
20
28000
30
40
42000
Exhibit 32: Employee addition to remain high
FY09
FY11
FY13
Source: Karvy Stock Broking ,Company
FY15
FY17E
FY10
FY12
FY14
FY16E
FY18E
Source: Karvy Stock Broking ,Company
14
May 21, 2015
Jubilant FoodWorks
Sales & Marketing - QSR is an extremely competitive industry where success
depends on sales & marketing strategies due to lack of product differentiation. JFL
has always implemented winning strategies and successful campaigns. The
company's advertising campaigns like - "Hungry Kya?", "30 minutes or free",
"Khushiyon Ki Home Delivery" and “Yeh hai rishton ka time” has geared the
business to achieve multi-fold expansion. We believe that, JFL is ahead of
competition on its ability to connect with the consumers on regular basis.
Exhibit 34: New initiatives in last few quarters
Quarter
New Initiative
Q1FY11
Introduced Mexican Wrap and Pasta Italiano
Q2FY11
Introduced Pasta Italiano and Mexican wrap
Q3FY11
Double Burst Pizza
Q4FY11
JFL has rolled out one single no. 68886888 at national level for pizza ordering, Dunkin’ Donuts
Q1FY12
Launch of innovative side order such as Chicken Kickers
Q2FY12
Cold treat 'Butterscotch Mousse Cake'
Q3FY12
Launched 3 new Cheese Pizza and innovative side order Nutty Choco Lava Cake
Q4FY12
Launch of 3 new exotic pizzas - 5 Peppers Veg, Zesty Chicken and Chicken Fiesta
Launched 3 new pizzas with toppings, 5 peppers in veg, zesty chicken, chicken fiesta in non veg; Re-launch pizza mania; new topping
combination golden corn, chunky chicken, zesty chicken
Q1FY13
Q2FY13
Q3FY13
Launch of Cheesy Boloroni Pizza; Launch of Taco Indiana; Launch of Online ordering
Q4FY13
Q1FY14
Spicy baked chicken, Lebanese rolls - veg and non-veg
Q2FY14
Introduced Calzone Pockets
Launched the new indulgent Fresh Pan Pizzas – freshly made pan-baked pizza with a deliciously soft, buttery, extra cheesy and crunchy
bite; New Restaurant Design -“Pizza Theatre Launched in Ahmedabad, Bangalore, Dehradoon, Dharamshala, Ghaziabad, Gurgaon,
Haridwar, Hoshiarpur, Meerut, Mumbai, New Delhi, Noida, Pune, Rangpo, Thane
Launch of Dominos Pizza Junior JoyBox, Juniors JoyBox is a complete kids meal and consists of a cheesy pizza slice, two yummy
breadsticks with oregano seasoning, a delicious rainbow sprinkled custard dessert, a fruit based beverage and a toy
Launch of 10 new Pizzas § The new refreshed menu includes 10 new pizzas with a variety of new offerings in both the vegetarian and
non-vegetarian segments. The pizzas introduced in the vegetarian category are Veg Hawaiian Delight, Spicy Triple Tango, Veggie
Paradise, Cloud 9 and Chef’s Veg Wonder. The nonvegetarian varieties include Chicken Salami Special, Chicken Hawaiian Twist, Chef’s
Chicken Choice, Seventh Heaven and the Chicken Dominator; Launch of South India Pizzas
Taco Mexicana - A crispy flaky wrap filled with Mexican Arancini Bean Patty/ Hot & Smoky Chicken Patty rolled over exotic creamy
Harissa sauce § Subwich - A freshly baked, butter flavoured bread with a delicious chili jalapeno, three bean Veg Patty or juicy American
style herbed Chicken Patty smeared on both sides with the creamy and spicy smoked pepper relish and a layer of exotic bell peppers
Subwich- A delicious chili jalapeno three bean Veg Patty or juicy American style herbed Chicken Patty smeared on both sides with the
creamy & spicy smoked pepper relish and a layer of exotic bell peppers packed between two freshly baked buttery crusts § Crispy
chicken strips - Soft, juicy & crispy boneless chicken strips with Oriental flavour § Cheesy Wonder Pizza Crust - Cheesy combination of
creamy chilli cheese spread and liquid cheese filled inside a buttery crust Jubilant FoodWorks Limited, 3 § Cheese Burst Pizza Crust Crust filled with liquid cheese inside. This was launched in the regular size based on popular demand and feedback from consumers
Zingy Parcel – An anytime anywhere snack with delicious Paneer/BBQ Chicken topping rolled over a layer of exotic Harissa Sauce inside
a yummy Buttery Crust topped with Basil n Parsley Seasoning; Fresh Pan Pizza in Regular size; AHA Value Festival- launched for the
following products/offerings meant for different occasions Zingy Parcel for Snacking time – Rs.29 Pizza Mania for Get Together – Rs.49
Kids Meal for Kids Delight – Rs.109 A Value Meal Combo@349/- for Family – starting @ Rs.349
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Source: Company
15
May 21, 2015
Jubilant FoodWorks
Multiple growth avenues – recipe for long term growth
Given the conducive growth environment for companies in the QSR segment, we
expect JFL to fully capitalize its stronghold on the pizza and pasta sub-segment.
There are ample growth avenues available to JFL to further consolidate its position
in the pizza segment and also grow the segment itself. Alongside growth in new
geographies, we expect the following growth avenues to help Domino's cash in on
the immense growth potential of the pizza segment.
Huge scope for penetration in existing markets - Though, present in
196 cities with 876 outlets, we believe that there is immense potential left in the
business to expand in existing geographies. Considering 20% share of Domino’s in
overall organized and recognized QSR market and mere 3% of total food
expenditure is on pizza category and non-home dining - just 7-times a month in
urban households, the company can continue to setup new stores in existing
markets without having any adverse impact on current sales.
Exhibit 35: Out of home dinning - scope for growth
Not gone out
to eat, 20%
Exhibit 36: Per month off take huge scope for growth
More than 12
times, 13%
10 to 12
times, 14%
Have gone
out to eat,
80%
Source: Karvy Stock Broking ,Company
Once, 10%
2 to 3 times,
25%
7 to 9 times,
11%
4 to 6 times,
28%
Source: Karvy Stock Broking
Expansion in to new cities - Domino's brand has largely expanded into Tier
1 and Class A towns at this stage. There is tremendous growth opportunity in Tier
2 and Tier 3 cities in ensuing years- on rising awareness and higher urbanization.
Explore new distribution channels - Domino's can explore new
distribution formats like Railways, Airports, Petrol Pumps, Malls, etc to augment
growth in the business. Annual budget 2015 has facilitated the railway passengers
to order food delivery, which could become a revenue driver for companies in the
QSR business.
Enter new geographies - JFL has licensed the Domino's brand for India,
Nepal, Sri Lanka and Bangladesh. The company currently has operations in India
and Sri Lanka. Considering robust growth in demand for JFL’s brands in India and
Sri Lanka, we believe that JFL can also expand its business in Nepal and
Bangladesh. At present JFL has 11 stores in Sri Lanka market. The management is
scouting opportunities in the Bangladesh markets and planning to launch its first
store in the coming quarters.
16
May 21, 2015
Jubilant FoodWorks
Exhibit 37: Geographical distribution of JFL stores
States/Union Territory
Cities
Restaurants
Maharashtra
19
179
Karnataka
12
104
New Delhi
1
76
Tamil Nadu
11
61
Gujarat
16
60
Uttar Pradesh
19
59
Telangana
2
47
West Bengal
9
46
Haryana
15
45
Punjab
17
35
Madhya Pradesh
10
30
Rajasthan
8
16
Chhatisgarh
6
14
Uttranchal
9
14
Kerala
5
12
Seemandhra
7
11
Goa
1
10
Orissa
6
10
Bihar
3
9
Assam
2
8
Chandigarh
1
7
Jharkhand
3
7
Himachal Pradesh
6
6
Jammu & Kashmir
2
4
Sikkim
2
2
Puducherry
1
1
Daman
1
1
Meghalaya
1
1
Dadra And Nagar Haveli
1
1
196
876
Grand Total
Source: Company
17
May 21, 2015
Jubilant FoodWorks
Enhancing revenue from existing outlets - JFL can sweat the existing
outlets i.e. increasing the food offerings, increasing the bill per customer and
attracting more customers. There is tremendous scope to increase the current
revenue per outlet of ~Rs26 mn. Thus, considering the above drivers, we believe
that JFL would clock revenue CAGR of 27.1% over FY14-18E. We expect net
revenues for JFL to increase from Rs17.2 bn in FY14 to Rs45.0 bn in FY18E.
Exhibit 39: Approx revenue contribution for JFL
0
0%
25%
13
50%
In Rs Mn
26
75%
39
100%
Exhibit 38: Approximate revenue trend for Old stores
FY07
FY09
FY11
Revenue Per Old Store
Source: Karvy Stock Broking ,Company
FY13
FY15
FY17E
Revenue Per Avg Store
FY08
FY10
FY12
Old Store Contribution
FY14
FY16E
FY18E
New Store Contribution
Source: Karvy Stock Broking ,Company
18
May 21, 2015
Jubilant FoodWorks
Expect continued expansion of store network
Currently, JFL has a network of 876 outlets spread across 196 cities in India. JFL
has opened 111 outlets in FY13, 150 outlets in FY14 and 150 outlets in FY15 implying that incrementally 411 outlets have been set-up in the last three years.
The aggressive expansion in this period has been undertaken after achieving
stabilization in operations and confidence to record profitable growth in the
business. However, stable SSS growth run rate of 20-22% declined to 16% and 1.6%
in FY13 and FY14 due to adverse economic conditions. The company recorded
worst performance during Q3FY14-Q2FY15 – reported negative SSS growth
during this period. Nevertheless change in SSS growth trend in 2HFY15 was
encouraging. We believe that the positive SSS growth would augment
management confidence and it would continue to execute its aggressive expansion
over next 3 years. Considering the tremendous expansion opportunities available
in the domestic market we believe that it would be a strong growth driver for the
company.
Our analysis – huge expansion opportunity yet to tap
Store per population in Gurgaon, Haryana is amongst the lowest (with more than
10 outlets in a city). The city has 20 stores and population per store is 41,754. If we
consider this as a benchmark for other big cities (though dynamics in all cities are
different), we believe that there is huge scope for further addition of stores in
existing cities. We believe that the company can further add minimum 3617 stores
in the existing cities. In top 10 cities alone, the company has scope to add 952
stores. Considering this, we believe that the companies store expansion would
continue going ahead.
19
May 21, 2015
Jubilant FoodWorks
Exhibit 40: Huge opportunity for growth in existing geographies
Pop (In
'000)
8,426
Pop Per
Store (In
'000)
100
Max
exp
202
City
Bangalore
Stores
84
Area
Km Sq.
741
New Delhi
76
1,484
11,008
145
Mumbai
75
603
12,478
Chennai
48
426
4,681
Hyderabad
44
650
Pune
42
Kolkata
Ahmedabad
Scope
for exp
Stores
3
Area
Km
Sq.
682
Pop (In
'000)
1,730
Pop Per
Store (In
'000)
577
Max
exp
41
Scope
for
exp
38
118
City
Vizag
264
188
Zirakpur
2
0
96
48
2
0
166
299
224
Panchkula
2
816
210
105
5
3
98
112
64
Haridwar
2
12
225
113
5
3
6,810
155
163
119
Durg
2
182
269
134
6
4
700
3,115
74
75
33
Karnal
2
2,520
287
143
7
5
33
185
4,487
136
107
74
Satara
2
22
327
163
8
6
24
464
5,571
232
133
109
Bilaspur
2
146
331
166
8
6
Gurgaon
21
739
877
42
21
0
Patiala
2
210
446
223
11
9
Thane
21
4,214
1,819
87
44
23
Bareilly
2
235
898
449
22
20
Noida
13
203
642
49
15
2
Bhilai
2
120
1,064
532
25
23
Navi
Mumbai
Surat
12
344
1,119
93
27
15
Ranchi
2
175
1,073
537
26
24
11
327
4,462
406
107
96
Allahabad
2
63
1,117
559
27
25
Vadodara
11
149
1,667
152
40
29
Dhanbad
2
2,052
1,195
598
29
27
Indore
11
530
1,961
178
47
36
Rajkot
2
170
1,280
640
31
29
Nagpur
10
218
2,405
241
58
48
Kota
2
318
1,951
976
47
45
Goa
10
3,702
1,458
146
35
25
Howrah
2
1,467
4,842
2,421
116
114
Ghaziabad
9
1,933
1,636
182
39
30
Sonipat
2
2,260
293
147
7
5
Bhopal
9
697
1,796
200
43
34
Varanasi
2
3,131
1,202
601
29
27
Faridabad
8
2,151
1,405
176
34
26
Asansol
2
127
1,543
772
37
35
Jaipur
8
112
3,073
384
74
66
Kharar
1
411
60
60
1
0
Lucknow
8
561
2,816
352
67
59
Kullu
1
5,503
18
18
1
0
Chandigarh
7
114
961
137
23
16
1
30
19
19
1
0
Guwahati
7
216
963
138
23
16
Dharamshal
aManesar
1
15
23
23
1
0
Patna
7
3,202
1,683
240
40
33
Mussoorie
1
8,856
26
26
1
0
Mysore
6
128
887
148
21
15
Manipal
1
26
34
34
1
0
Raipur
6
226
1,010
168
24
18
Shirdi
1
13
36
36
1
0
Ludhiana
6
310
1,614
269
39
33
Baramati
1
23
54
54
1
0
Cochin
6
95
612
102
15
9
Lonavala
1
38
56
56
1
0
Dehradun
5
3,088
578
116
14
9
Ooty
1
36
88
88
2
1
Amritsar
5
2,683
1,133
227
27
22
Sangrur
1
3,685
101
101
2
1
Bhubaneshw
ar
Mangalore
5
135
838
168
20
15
Solan
1
33
102
102
2
1
5
132
485
97
12
7
Rishikesh
1
12
102
102
2
1
Jalandhar
5
3,401
862
172
21
16
Bhiwadi
1
3,347
105
105
3
2
Mohali
4
1,093
176
44
4
0
Valsad
1
5,244
115
115
3
2
Siliguri
4
690
510
127
12
8
Bijnor
1
4,049
115
115
3
2
Kanpur
4
3,029
2,767
692
66
62
Hosur
1
5,000
117
117
3
2
Agra
4
188
1,746
437
42
38
Phagwara
1
1,633
118
118
3
2
Coimbatore
4
247
1,051
263
25
21
Neemuch
1
40
128
128
3
2
Jammu
3
167
504
168
12
9
Darjeeling
1
11
132
132
3
2
Greater
Noida
Secunderaba
3
203
108
36
3
0
Ankleshwar
1
16
141
141
3
2
3
259
214
71
5
2
Shillong
1
64
143
143
3
2
d
Jabalpur
3
367
1,054
351
25
22
Rewari
1
483
143
143
3
2
Aurangabad
3
123
1,171
390
28
25
Abohar
1
187
145
145
3
2
Meerut
3
142
1,309
436
31
28
Pathankot
1
11
149
149
4
3
Jamshedpur
3
150
1,337
446
32
29
Erode
1
5,692
157
157
4
3
Trivandrum
3
250
1,687
562
40
37
Navsari
1
2,211
163
163
4
3
Nasik
3
478
3,787
1,262
91
88
1
8,070
163
163
4
3
Vijaywada
3
62
1,048
349
25
22
Rajnandgao
n
Vapi
1
425
164
164
4
3
Source: Karvy Stock Broking, Company
20
May 21, 2015
Jubilant FoodWorks
Exhibit 41: Continued….
City
Kanchipuram
Stores
1
Area
Km Sq.
4432
Pop (In
'000)
164
Pop Per
Store (In
'000)
164
Max
exp
4
Scope
for exp
3
City
Durgapur
Stores
1
Area
KmSq.
154
Pop (In
'000)
567
Pop Per
Store (In
'000)
567
Max
exp
14
Scope
for
exp
13
Hoshiarpur
1
480
169
169
4
3
Korba
1
6598
583
583
14
13
Bharuch
1
6509
169
169
4
3
Udaipur
1
64
599
599
14
13
Shimla
1
25
172
172
4
3
Cuttack
1
44
606
606
15
14
Daman
1
72
191
191
5
4
Belgaum
1
94
610
610
15
14
Khandwa
1
526
201
201
5
4
Gangtok
1
35
99
99
2
1
Puri
1
3051
201
201
5
4
Nawanshahr
1
1266
612
612
15
14
Dharwad
1
200
204
204
5
4
Anand
1
2940
634
634
15
14
Yamuna
Nagar
Katni
1
1756
217
217
5
4
Bhav Nagar
1
138
650
650
16
15
1
350
222
222
5
4
Guntur
1
46
651
651
16
15
Gandhidham
1
1023
248
248
6
5
Saharanpur
1
3860
705
705
17
16
Sambalpur
1
6702
270
270
6
5
Salem
1
124
829
829
20
19
Rourkela
1
200
273
273
7
6
Moradabad
1
3493
890
890
21
20
Ratlam
1
4861
274
274
7
6
Kaithal
1
2317
946
946
23
22
Bhatinda
1
3344
286
286
7
6
Solapur
1
14845
951
951
23
22
Tirupati
1
24
287
287
7
6
Kurukshetra
1
1530
965
965
23
22
Dewas
1
7020
289
289
7
6
Mandi
1
23
1000
1000
24
23
Roorkee
1
1382
289
289
7
6
Aligarh
1
3747
1210
1210
29
28
Shahjahanpu
rHissar
1
4388
298
298
7
6
Rudrapur
1
2908
1236
1236
30
29
1
3983
301
301
7
6
Hubli
1
202
1350
1350
32
31
Tumkur
1
10597
302
302
7
6
Madurai
1
247
1466
1466
35
34
Kakinada
1
31
312
312
7
6
Bhiwani
1
5099
1634
1634
39
38
Alwar
1
8380
315
315
8
7
Gwalior
1
780
1902
1902
46
45
Junagadh
1
59
320
320
8
7
Gorakhpur
1
5484
4441
4441
106
105
Rajahmundry
1
228
344
344
8
7
Haldia
1
22
201
201
5
4
Burdwan
1
56
347
347
8
7
Nadiad
1
45
225
225
5
4
Kollam
1
58
349
349
8
7
Karad
1
52
74
74
2
1
Ahmad Nagar
1
39
351
351
8
7
Katra
1
45110
9
9
1
0
Muzzafarpur
1
3172
352
352
8
7
Limbdi
1
888
43
43
1
0
Berhampur
1
87
356
356
9
8
Rangpo
1
35
4
4
1
0
Bhilwara
1
10480
359
359
9
8
Amravati
1
270
647
647
15
14
Sri
Ganganagar
Latur
1
225
371
371
9
8
Silvassa
1
491
22
22
1
0
1
118
383
383
9
8
Puducherry
1
492
1244
1244
30
29
Muzaffar
Nagar
Ambala
1
2958
392
392
9
8
Kodaikanal
1
21
37
37
1
0
1
1569
407
407
10
9
Bhagalpur
1
110
623
623
15
14
Calicut
1
128
432
432
10
9
Moga
1
2230
150
150
4
3
Davangere
1
77
435
435
10
9
Khanna
1
28
128
128
3
2
Mathura
1
3800
442
442
11
10
Rewa
1
6240
2365
2365
57
56
Tirupur
1
160
444
444
11
10
Nainital
1
3860
87
87
2
1
Panipat
1
64
445
445
11
10
Thrissur
1
101
316
316
8
7
Haldwani
1
1800
452
452
11
10
Rohtak
1
115
373
373
9
8
Jalgaon
1
68
460
460
11
10
Rajpura
1
76
92
92
2
1
Vellore
1
87915
485
485
12
11
Kharagpur
1
127
372
372
9
8
Nellore
1
150
506
506
12
11
Silchar
1
16
229
229
5
4
Jhansi
1
5028
507
507
12
11
Bijapur
1
10541
327
327
8
7
Sangli
1
119
514
514
12
11
Ramnagar
1
3556
79
79
2
1
Jamnagar
1
53
529
529
13
12
Kashipur
1
5
122
122
3
2
Ajmer
1
8481
543
543
13
12
Baddi
1
15
23
23
1
0
Gulbarga
1
64
543
543
13
12
Total
876
4493
3617
Source: Karvy Stock Broking, Company
21
May 21, 2015
Jubilant FoodWorks
Dunkin Donuts is an extra topping
JFL’s agreement with Dunkin Donuts has created extra lever for the company’s
growth. The donut category in India is very young and its industry position is very
similar to pizza and pasta category in the early years of 2000’s. Over the period JFL
took the initiative for the growth of pizza and pasta category in the domestic
market and expanded the overall market size of the category. We believe that with
the presence of all favorable business conditions, donut category would
continuously growth in the coming decade. This would also reduce the company’s
dependency on pizza and pasta business and allow it multi product offerings. JFL
currently has 56 Dunkin stores across India
Impressive free cash flow – sweetener in the value drink
JFL has reported sustained growth in cash flows, alongside the expansion in stores
network. The company generated operating cash flow of Rs1.0 bn, Rs2.0 bn, Rs2.2
bn and Rs2.7 bn in FY11, FY12, FY13 and FY14 respectively. The store network also
expanded from 241 to 876 over FY09-FY15 respectively. We like this cash
generating ability of its business model - operating cash flow of Rs3.6 mn per
outlet on annual basis against capital expenditure of Rs9.8 mn per outlet - which
indicates a payback period of less than 3 years. Considering this, we believe that
JFL would continue to meet its cash flow requirements for store expansion plans.
We expect JFL to generate operating cash flow of Rs3.3 bn, Rs3.9 bn and Rs4.8 bn
in FY16E, FY17E and FY18E respectively.
3.2
1.6
0.0
0.0
2.1
In Rs Mn
In Rs Mn
4.2
4.8
Exhibit 43: Per store operating cash flow to improve
6.3
Exhibit 42: Operating cash flow to remain high
FY07
FY09
Source: Karvy Stock Broking
FY11
FY13
FY15
FY17E
FY07
FY09
FY11
FY13
FY15
FY17E
Source: Karvy Stock Broking
22
May 21, 2015
Jubilant FoodWorks
Headroom for operating margin expansion
We like the QSR business model in general owing to its ability to generate
operating leverage alongside sustained growth in business volumes. An even
closer scrutiny of Domino's model offers tremendous scope for operating leverage
- with improvement in operating margins and return ratios in the long run. JFL’s
EBITDA margins shrunk in FY14 and FY15 to 14.8% and 12.8% compared to 17.5%
in FY13. We attribute this increase to pressure on same store sales growth which
resulted in operating margin contraction of 490 bps.
Decline in SSS growth is history now. During H2FY15, the company recorded
positive SSS growth after 12 months. With positive SSS growth we believe that the
operating efficiency would improve going ahead. We expect A&P spends,
manufacturing expenses, Employee expenses and other operating costs to reduce
over our investment horizon. In all, revenue growth during the period would
outpace the increase in operating expenses to give rise to 370 bps expansion in
operating margins over FY15-18E. Our estimates build in 160 bps decrease in
manufacturing and rent expenses, 90 bps reduction in employee cost and 110 bps
decline in A&P spends over FY15-18E.
JFL recorded highest margins – 15.8% - 17.5% during FY10-13 period. We believe
that stable SSS growth and growth in revenues would help JFL to retrace FY10
operating margins in FY18E. We expect operating margins to expand from 12.8%
in FY15 to 16.5% in FY18E – representing 370 bps expansion.
23
May 21, 2015
Jubilant FoodWorks
Risks to our investment rationales
Further slowdown in the domestic economy
Monsoon failure in last year has led to slowdown in the overall consumption.
Monsoon this year is expected to remain better. This is likely to boost overall
economy. Failure of monsoon could impact both urban and rural economy which
in turn would hamper JFL’s performance
QSR industry is very competitive
The QSR industry is very competitive, owing to little-or-no product differentiation.
In India, strong players like Pizza Hut, Papa John's, Smokin Joe's and Pizza
Corner, as well as other quick service restaurant chains such as McDonald's and
Subway, compete in the business. We believe that, success in the QSR industry
depends on getting 4 key things in place i.e. (1) supply chain (2) site selection (3)
people management and (4) marketing strategies - mastering these areas is a key
challenge.
Cost control is very difficult
Raw material costs and labor costs are difficult to manage in the QSR business. The
continuous inflation in the raw material and labor costs is a key challenge for the
QSR players. Further, employee attrition is biggest risk to the business- it
destabilizes the business for the short-medium term.
24
May 21, 2015
Jubilant FoodWorks
Financials
Revenue to increase to Rs45.1 bn in FY18E
Net revenues have grown at a CAGR of 42% in FY10-14 period from Rs4.2 bn in
FY10 to Rs17.2 bn in FY14. This growth was triggered by expansion of store
network and addition of new product categories. JFL has expanded its store
network from 306 outlets in FY10 to 726 outlets in FY14. JFL has added another 150
stores in FY15, resulting in a total store count of 876. JFL earns healthy revenue of
~Rs26 mn/outlet, depending on the location of the outlet.
Considering the under penetration of QSR formats and pizza category in
particular, there is ample opportunity to report sustainable growth in ensuing
years. The growth will come from expansion of store network and sweating of
existing outlets. We expect 150, 155 and 160 store additions in FY16E, FY17E and
FY18E respectively, taking the total store count to 1341 in FY18E. We expect
revenues to increase in line with their store expansion. We believe that JFL would
achieve revenues of Rs26.2 bn, Rs34.2 bn and Rs45.1 bn in FY16E, FY17E and
FY18E - representing growth of 26.5%, 30.4% and 31.6% YoY respectively.
0
20%
16
34%
In Rs Bn
32
48%
48
62%
Exhibit 44: Revenues to grow at Rs45.1 bn in 18E
FY07
FY09
FY11
Revenue
FY13
FY15
FY17E
Growth
Source: Karvy Stock Broking, Company
Good traction in operating performance- scope for
further improvement
Operating profit has grown at a 40% CAGR in FY10-14 period, driven by robust
growth in net revenues and partial benefits of operating leverage. The operating
margins jumped by 170bps from 15.8% in FY10 to 17.5% in FY13. However,
Slowdown in SSS pressurized the operating performance in past 6 quarters –
resulted in contraction in operating margin over FY14 to 14.8% in FY14 and 12.8%
in FY15. Going ahead we believe that with SSS growth again back in the system,
the operating margin would expand hereon. There is scope to improve operating
performance in ensuing years, considering the operating leverage in the business especially in marketing spends, commissaries costs and fixed costs per store which do not move in tandem with revenue growth. Thus, JFL is likely to gain
from fall in fixed costs as % of revenues in ensuing years and thereby show much
faster traction at operating levels. We expect JFL's operating profit to grow at a
CAGR of 41% to Rs7.4 bn during FY15-18E - ahead of revenue growth.
Consequently, the operating margins are likely to expand by 370 bps from 12.8%
in FY15 to 16.5% in FY18E.
25
May 21, 2015
Jubilant FoodWorks
93%
19%
Exhibit 46: EBITDA margin to reach 16.5% in FY18E
0%
6%
31%
13%
62%
5000
2500
0
FY07
FY09
FY11
FY13
FY15
EBITDA
Growth
FY17E
0%
In Rs Mn
7500
Exhibit 45: EBITDA to grow at 41% CAGR over FY15-18E
FY7
Source: Karvy Stock Broking ,Company
FY9
FY11
FY13
FY15
FY17E
Source: Karvy Stock Broking ,Company
APAT to grow at 50% CAGR over FY15-18E
APAT growth was also higher at 39% CAGR in FY10-14 period from Rs337 mn in
FY10 to Rs1367 mn in FY13 - benefiting from strong operational performance and
comparatively lower growth in depreciation and interest charges. However, the
momentum was lost during past six quarters and the APAT growth declined by to
Rs1260 mn in FY15. Considering better SSS growth, higher revenue growth and
improved operating margins we believe that JFL would re-enter into higher APAT
growth trajectory. We expect earnings of Rs26.7/Share, Rs40.8/Share and
Rs64.9/Share for FY16E, FY17E and FY18E respectively.
Exhibit 48: Expect Rs64.9/Share EPS in FY18E
FY11
Net Profit
Source: Karvy Stock Broking ,Company
FY13
FY15
Growth
FY17E
66
44
22
0
223%
FY09
-31%
96%
In Rs Mn
1430
2860
0
FY07
Rs/Share
4290
350%
Exhibit 47: APAT to grow at 50% CAGR over FY15-18E
FY07
FY09
FY11
FY13
FY15
FY17E
Source: Karvy Stock Broking ,Company
Give thumbs up to cash generating ability of business
The company generated operating cash flow of Rs2.0 bn, Rs2.2 bn and Rs2.7 bn in
FY12, FY13 and FY14. We give thumbs up to the cash generating ability of its
business model - operating cash flow of Rs3.6 mn per outlet on annual basis
against capital expenditure of Rs9.8 mn per outlet - which indicates payback
period of less than 3 years. Expansion of store network and sweating of existing
outlets promises strong cash flow generation in ensuing years. Going ahead, we
believe that JFL would generate operating cash flow of Rs3.1 bn, Rs4.3 bn and
Rs6.1 bn in FY16E, FY17E and FY18E respectively.
26
May 21, 2015
Jubilant FoodWorks
Valuation
Expect sustainable growth in earnings
JFL is expected to gain traction in operational performance based on (1) favorable
business environment (2) changing socio-economic factors (3) high acceptance of
its products and (4) reduction in fixed costs (as % of revenues) with growth in
revenues. With improvement in operational performance, we expect the company
to report high earning growth in the coming years. We expect earnings of
Rs26.7/Share, Rs40.8/Share and Rs64.9/Share for FY16E, FY17E and FY18E
respectively - representing YoY growths of 39%, 53% and 59% during the same
periods.
Very expensive on preliminary analysis
At the current price of Rs1770/Share, JFL looks expensive on preliminary screening
- at 66.3X FY16E and 43.3X FY17E earnings – very rich compared to consumer
companies. Nevertheless, considering the nature of the business and growth
opportunity ahead, we believe that the company should be valued at a high steep
premium to consumer companies.
Nevertheless, scarcity premium would remain
We are encouraged by JFL’s strong business model and its ability to earn cash. We
believe that the company’s strategy to add more stores and penetrate the untapped
opportunities would help the growth of overall industry,. With dominant market
share and robust cash flows the company is incomparable to other listed players in
the space. Consequently, we expect a scarcity premium to remain with the stock just as it happened since its listing. We value JFL at 50x - ~50% premium to
consumer companies – in line with its historical valuations
Initiate 'BUY' with price target of Rs2040/Share
Historically JFL has traded at 1-Yr forward PER of 50.6x and ~50-60% premium to
consumer companies. During FY10-13 the company was re-rated from a PER of
35x to 60x. Considering this we have valued JFL at a PER of 50x which translates in
to a price target of Rs2040/Share and potential upside of 16%. We initiate coverage
with BUY.
Exhibit 50: Price performance for JFL
1700
71
Exhibit 49: 1 Yr Fwd PER valuation chart
JFL-1yr Fwd PE (x)
60x
JFL-P/E band
54
1200
50x
40x
20
200
37
700
30x
Mar-10
Mar-11
Mar-12
Source: Karvy Stock Broking, Bloomberg
Mar-13
Mar-14
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Source: Karvy Stock Broking, Bloomberg
27
May 21, 2015
Jubilant FoodWorks
Exhibit 51: Profit & Loss Statement
Y/E Mar (Rs mn)
FY14
FY15P
FY16E
FY17E
FY18E
Revenue
17,235
20,745
26,240
34,209
45,009
% growth
22.4
20.4
26.5
30.4
31.6
Operating expenditure
14,676
18,089
22,785
29,288
37,589
EBITDA
2,559
2,655
3,455
4,921
7,420
% growth
3.8
3.8
30.1
42.4
50.8
Depreciation
767
982
1,050
1,124
1,202
Other income
88
74
74
74
74
1,881
1,748
2,479
3,871
6,292
0
0
0
0
0
EBIT
Interest
Exceptional items
4
0
0
0
0
PBT
1,881
1,748
2,479
3,871
6,292
Tax
619
488
729
1,197
2,039
1,262
1,260
1,750
2,675
4,253
(8)
(0)
39
53
59
Adjusted PAT
% growth
Source: Karvy Stock Broking ,Company
Exhibit 52: Balance Sheet
Y/E Mar (Rs mn)
Cash & cash equivalents
Trade receivables
FY14
FY15P
FY16E
FY17E
FY18E
228
332
1,784
4,195
8,106
90
109
155
202
266
Inventories
324
390
557
726
955
Loans & advances
258
156
183
210
239
Other assets
1,063
1,011
1,279
1,667
2,194
Investments
1,286
1,286
1,286
1,286
1,286
Fixed Assets
5,471
7,140
7,565
8,119
8,822
Deferred tax assets (liabilities)
(371)
(371)
(371)
(371)
(371)
Total assets
8,350
10,053
12,438
16,036
21,498
Current liabilities & provisions
2,715
3,320
4,153
5,305
6,777
Other liabilities
0
0
0
0
0
Debt
0
0
0
0
0
2,715
3,320
4,153
5,305
6,777
Total liabilities
Shareholders' equity
654
656
656
656
656
Reserves & surpluses
4,980
6,077
7,630
10,075
14,065
Shareholders' funds
5,635
6,732
8,285
10,731
14,721
Total Equity and Liabilities
8,350
10,053
12,438
16,036
21,498
Source: Karvy Stock Broking ,Company
28
May 21, 2015
Jubilant FoodWorks
Exhibit 53: Cash Flow Statement
Y/E Mar (Rs mn)
FY14
FY15P
FY16E
FY17E
FY18E
PBT
1,877
1,748
2,479
3,871
6,292
767
982
1,050
1,124
1,202
Depreciation
Other non-cash adjustments
Tax paid
Chgange in working capital
Cash flow from operating activities
(Incr) / decr in capital expenditure
(Incr) / decr in investments
Cash flow from investing activities
Incr / (decr) in borrowings
Issuance of equity
314
0
0
0
0
(427)
(488)
(729)
(1,197)
(2,039)
135
675
324
520
623
2,667
2,917
3,125
4,319
6,078
(2,409)
(2,650)
(1,476)
(1,678)
(1,905)
(349)
0
0
0
0
(2,758)
(2,650)
(1,476)
(1,678)
(1,905)
0
0
0
0
0
15
1
-
-
-
Dividend paid
0
(164)
(197)
(229)
(262)
Others
-
-
-
-
-
15
(163)
(197)
(229)
(262)
Net change in cash
(76)
104
1,452
2,411
3,911
Opening Cash
304
228
332
1,784
4,195
Closing Cash
228
332
1,784
4,195
8,106
Cash flow from financing activities
Source: Karvy Stock Broking ,Company
Exhibit 54: Key Ratios
Y/E Mar (%)
FY14
FY15P
FY16E
FY17E
FY18E
EBITDA margin
14.8
12.8
13.2
14.4
16.5
EBIT margin
10.9
8.4
9.4
11.3
14.0
Net profit margin
7.3
6.1
6.7
7.8
9.4
Dividend payout ratio
0.0
13.0
11.2
8.6
6.2
(4.0)
(4.9)
(21.5)
(39.1)
(55.1)
0.0
0.0
0.0
0.0
0.0
RoCE
33.4
28.3
33.0
40.7
49.4
RoE
22.4
20.4
23.3
28.1
33.4
Y/E Mar
FY14
FY15P
FY16E
FY17E
FY18E
EPS (Rs)
19.3
19.2
26.7
40.8
64.9
DPS (Rs)
0.0
2.5
3.0
3.5
4.0
Book value per share (Rs)
86.1
102.7
126.4
163.7
224.5
P/E (x)
91.2
91.5
65.9
43.1
27.1
P/BV (x)
20.4
17.1
13.9
10.7
7.8
EV/EBITDA (x)
43.4
42.1
32.2
22.2
14.3
6.7
5.5
4.3
3.2
2.4
Net debt: equity
Interest/EBIT
Source: Karvy Stock Broking ,Company
Exhibit 55: Valuation Parameters
EV/Sales (x)
Source: Karvy Stock Broking ,Company
29
May 21, 2015
Jubilant FoodWorks
Stock Ratings
Buy
Hold
Sell
:
:
:
Absolute Returns
> 15%
5-15%
< 5%
For further enquiries please contact:
[email protected]
Tel: +91-22-6184 4300
Disclosures Appendix
Analyst certification
The following analyst(s), who is (are) primarily responsible for this report and whose name(s) is/ are mentioned
therein, certify (ies) that the views expressed herein accurately reflect his (their) personal view(s) about the subject
security (ies) and issuer(s) and that no part of his (their) compensation was, is or will be directly or indirectly related
to the specific recommendation(s) or views contained in this research report.
Disclaimer
Karvy Stock Broking Limited [KSBL] is a SEBI registered Stock Broker, Depository Participant and Portfolio Manager
and also distributes financial products. Subsidiaries and group companies of KSBL [associates] provide services as
Registrar and Share Transfer Agent, Commodity Broker, Currency and forex broker, merchant banker and
underwriter, Investment Advisory services, insurance repository services, consultancy and advisory services, realty
services, data processing, profiling and related services. Therefore associates of KSBL are likely to have business
relations with most of the companies whose securities are traded on the exchange platform. The information and
views presented in this report are prepared by Karvy Stock Broking Limited and are subject to change without any
notice. This report is based on information obtained from public sources and sources believed to be reliable, but no
independent verification has been made nor is its accuracy or completeness guaranteed. The report and information
contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way,
transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any
form, without prior written consent of KSBL. While we would endeavor to update the information herein on a
reasonable basis, KSBL is under no obligation to update or keep the information current. Also, there may be
regulatory, compliance or other reasons that may prevent KSBL from doing so. The value and return on investment
may vary because of changes in interest rates, foreign exchange rates or any other reason. This report and
information herein is solely for informational purpose and shall not be used or considered as an offer document or
solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all
the customers simultaneously, not all customers may receive this report at the same time. KSBL will not treat
recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal,
accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your
specific circumstances. This material is for personal information and we are not responsible for any loss incurred
based upon it. The investments discussed or recommended in this report may not be suitable for all investors.
Investors must make their own investment decisions based on their specific investment objectives and financial
position and using such independent advice, as they believe necessary. While acting upon any information or
analysis mentioned in this report, investors may please note that neither KSBL nor any associate companies of KSBL
accepts any liability arising from the use of information and views mentioned in this report. Investors are advised to
see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Past
performance is not necessarily a guide to future performance. Forward-looking statements are not predictions and
may be subject to change without notice. Actual results may differ materially from those set forth in projections.
Associates of KSBL might have managed or co-managed public offering of securities for the subject company or
might have been mandated by the subject company for any other assignment in the past twelve months.
30
May 21, 2015
Jubilant FoodWorks
Associates of KSBL might have received compensation from the subject company mentioned in the report during the
period preceding twelve months from the date of this report for investment banking or merchant banking or
brokerage services from the subject company in the past twelve months or for services rendered as Registrar and
Share Transfer Agent, Commodity Broker, Currency and forex broker, merchant banker and underwriter, Investment
Advisory services, insurance repository services, consultancy and advisory services, realty services, data processing,
profiling and related services or in any other capacity. KSBL encourages independence in research report preparation
and strives to minimize conflict in preparation of research report. Compensation of KSBL’s Research Analysts is not
based on any specific merchant banking, investment banking or brokerage service transactions. KSBL generally
prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the
securities or derivatives of any companies that the analysts cover. KSBL or its subsidiaries collectively or Research
Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of
the month preceding the publication of the research report. KSBL or its analysts did not receive any compensation or
other benefits from the companies mentioned in the report or third party in connection with preparation of the
research report and have no financial interest in the subject company mentioned in this report. Accordingly, neither
KSBL nor Research Analysts have any material conflict of interest at the time of publication of this report. It is
confirmed that KSBL and Research Analysts primarily responsible for this report and whose name(s) is/ are
mentioned therein of this report have not received any compensation from the subject company mentioned in the
report in the preceding twelve months. Since associates of KSBL are engaged in various financial service businesses,
they might have financial interests or beneficial ownership in various companies including the subject
company/companies mentioned in this report.
Karvy Stock Broking Limited
Office No. 701, 7thFloor, Hallmark Business Plaza, Opp.-Gurunanak Hospital, Mumbai 400 051
RegdOff : 46, Road No 4, Street No 1, Banjara Hills, Hyderabad – 500 034.
Karvy Stock Broking Research is also available on: Bloomberg - KRVY <GO>, Thomson Publisher & Reuters.
31