JUBILANT FOODWORKS LTD : PARTY HAS JUST BEGUN !!!

Scrip Code: 534804 / JUBLFOOD

CMP:  Rs. 1405.00; Market Cap: Rs. 9,200.40 Cr; 52 Week High/Low: Rs. 1497.40 / Rs. 937.70

Total Shares: 6,54,83,310 shares; Promoters : 3,24,47,474 shares – 49.55 %; Total Public holding : 3,30,35,836 shares – 50.45 %; Book Value: Rs. 79.87; Face Value: Rs. 10.00; EPS: Rs. 17.59; Dividend: 0.00 %; P/E: 80.07 times; Ind P/E: 48.71; EV/EBITDA: 36.47.

Total Debt: ZERO; Enterprise Value: Rs. 9,177.22 Cr.

JUBILANT FOODWORKS LTD: The Company was founded on 16th March, 1995 and is based in Noida, India. The company was formerly known as Dominos’s Pizza India Limited and changed its name to Jubilant FoodWorks Limited in 2009. Jubilant FoodWorks Limited operates as a food services company. The company holds the rights to develop and operate Domino's pizza brand in India, Sri Lanka, Bangladesh, and Nepal and Dunkin’ Donuts brands & restaurants 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 side-bites. In addition, the company also sells its products online. The company came with an IPO of 2,26,70,447 equity shares of Rs. 10 each at Rs. 145.00 per share to the general public in January, 2010. The purpose of the issue was to achieve the benefits of listing on the exchanges and for the pre-payment of loans & other general corporate purposes. It got listed at Rs. 160.00 per share making a high of Rs. 240.90 on listing day. Domino's Pizza India has grown into a countrywide network of stores, with a team of over 6,000 people. Jubilant FoodWorks has the sole master franchisee for Domino’s Pizza & Dunkin Donuts in India. It also has, the wide range of product profile which are complementary to Domino’s and are run separately from Domino’s outlets. Dunkin’ Donuts is owned globally by Dunkin’ brands, which also owns Baskin Robbins worldwide. Dunkin’ Donuts has over 11,000 outlets worldwide in over 30 countries. As of August 6, 2014, Jubilant FoodWorks Ltd operated 772 Domino’s Pizza restaurants in approximately 158 cities; and 34 Dunkin’ Donuts restaurants in 11 cities in India. Jubilant Foodworks Ltd is locally compared with Westlife Development Ltd (who runs McDonalds in India), Speciality Restaurants, Tata Global Beverages (which runs StarBucks in India) and Globally with Sato Restaurant Systems Co., Ltd of Japan, Hiday Hidaka Corp of Japan, Faurwood Holdings Ltd of Hong Kong, Ajisen (China) Holdings Ltd of Hong Kong, Cafe` de Coral Holdings Ltd of Hong Kong, Jollibee Foods Corporation of Philippiness, Matsuya Foods Co., ltd of Japan, MOS Food Services Inc of Japan, BJ’s Restaurants Inc of California, Bob Evans Farms Inc of Ohio, Carnival Corporation Ltd of Florida, Dunkin’ Brands Group Inc of Massachusetts, The Wendy’s Company of Ohio, Domino’s Pizza Group of UK, McDonald’s Corporation of Illinios, Compass Group PLC of UK, Lowe’s Companies Inc of North Carolina, Starbucks Corporation of Washington, YUM! Brands Inc of Kentucky, Zoe’s Kitchen Inc of Texas.                                                                    

Investment Rationale:

Jubilant FoodWorks was incorporated in 1995 but started its operations in 1996. It is the sole master franchisee for both Domino’s Pizza Brand since 1996 as well as Dunkin’ Donuts Brand since 2011 in India. The company is part of the Bhartia group, which owns a 48.9 % stake in Jubilant FoodWorks Ltd. With 772 Domino’s restaurants in India, starting from the first outlet opened in 1996, Jubilant FoodWorks is in charge of the second-largest chain of restaurants for Domino’s worldwide, overtaking UK in the current year but it’s still behind the US which is Domino’s home country, headquartered in Michigan, US. In terms of number of stores as well as sales, Jubilant FoodWorks is the largest player in the Quick Service Restaurants market, which is still in nascent stage in India with about 17 % market share whereas there’s more than 60 % market share is of pizza and in excess of 70 % in pizza delivery. According to Euromonitor report, QSR in India accounts for slightly 2 % of the overall food service market in India and this is expected to grow much faster at 20 % compared to 10 % food service industry’s growth. The Indian Food Services Industry (FSI) continues to expand rapidly. The size of the Indian FSI, has scaled from Rs. 53,000 Cr in 2010 to Rs. 75,000 Cr in 2012 and is expected to reach Rs. 1,37,000 Cr by 2016, growing at a healthy Compounded Annual Growth Rate of 17 %. The Indian FSI's growth is driven by the strong consumer side drivers, the innovations and expansion from the industry players. The organised sector is continually innovating and introducing smart and new formats. The organised sector has also penetrated into Tier II and Tier III cities, with the large brands targeting several smaller cities, while the local brands are looking to increase their presence in the Tier I cities. Looking at the various emerging trends, the organised sector in FSI, which currently accounts for 30 % of the business, is expected to account for nearly 45 % of the total food service sector by 2016. Also there are many Business factors such as high turnover, low area occupied; reasonable ticket size helps the QSR sectors. In India, the biggest barrier to profitability in the restaurant as well as retail businesses in urban areas, particularly in metros, is high lease rentals. Domino’s predominantly delivery-based model in these cities enables it to circumvent this problem. While the overall proportion of delivery to dine-in is 50:50. Consequently, the store size required is much smaller at around 900-1,500sq ft compared to predominantly dine-in restaurants and other QSR (at 2,500-3,000 sq ft). In addition, the average bill size for pizza outlets like Domino’s is also higher than other QSRs like McDonalds, KFC and coffee shops like Café Coffee Day (CCD), Barista and Costa Coffee. Jubilants core business comes from Dominos Pizzas, and Pizzas are consumed during lunch and dinner and are not snacks like in the case of other outlets. A combination of delivery-based model and healthy bill size enables high sales per square feet and aids profitability. Company’s Asset-light business model boosts its high-growth story the business is remarkably asset-light as a result lease rentals are much lower which helps profitability of the store. Net working capital continues to be in excess of negative 25 days and fixed asset turnover continues to be in excess of 3 times. Even in a subdued economic environment of the past two years, there was no worsening of working capital metrics. When the growth trajectory will resume on same-store sales, its cash flow will also improve significant. It is remarkable that Jubilant FoodWorks, which runs a high-growth business like Domino’s, which expanded from 180 stores in FY08 to around 800 stores currently including 38 Dunkin’ Donuts outlets did not have the need to raise fresh equity capital or avail significant amount of debt. This is a testament to strong business model and a kind of proof about the abilities and expertise of management which also shows their understandings about their business in India. Jubilant FoodWorks Ltd. is a strong market leader in the organized pizza market with a 67 % market share in India and is focused on creating brand value, innovation, cost productivity, product quality, consumer value and loyalty for both Domino’s Pizza and Dunkin’ Donuts. Recently, on 22 oct 2014, Jubilant FoodWorks Limited announced the launch of its new Oven-baked Subwich. The new product offering has been conceptualized with the aim of making the boring lunch options more interesting and enjoyable. Domino's latest offering, the Oven-baked Subwich, is made with a Chilli Jalapeno three Bean Patty (Veg) and on the juicy American herbed Chicken patty (Non-Veg) stuffed between the soft & freshly baked buttery crusts, which is priced at just Rs. 89.00 only. The consumers have the option of buying a medium/large pizza with a Coke and get the new Oven-baked Subwich - Veg or Chicken – just for Rs. 45.00. It is available for the consumers in both dine-in and delivery. For Jubilant the most important factor is the fact that India accounts for the largest 15-34 age population cluster of 43.5 Cr people. This is equivalent to the entire population of Singapore, Hong Kong, Australia, South Africa, Nigeria, Ghana, Angola Kenya and Zambia combined. That age group tends to have willingness to try out new cuisines and especially its seen high in students and professionals. Domino’s is the market leader in the QSR space in India with around 17 % market shares. While Jubilant FoodWorks’ sales were around Rs. 1,740 Cr in YE March FY14, the room to grow is immense given the low penetration of the QSR space.

Outlook and Valuation: 

Jubilant FoodWorks Limited is India’s largest food service company. JFL & its subsidiary operate Domino’s Pizza brand with the exclusive rights for India, Sri Lanka, Bangladesh and Nepal. The company have recently launched three new products in the quarter - Spicy Baked Chicken, Lebanese rolls and Calzone Pockets; positive response received by all the three products. It has launched its Online Mobile ordering site in July, 2013 and it is seen as important platform to reach a wider audience base. Till present there are over 9 lakh downloads of the Domino’s Pizza mobile ordering app across various smart phones & the Average Online ordering contributes to 18 % of delivery sales in Q2 FY14 and Mobile Ordering sales contributes to 12 % during the quarter. There are total 22 Dunkin’ Donuts Restaurants as on 31 October, 2014 and offers a wide variety of western menu including donuts, coffee, burgers, sandwiches, snacks, and more. It is notable here that the gap between the stores of Domino’s and the rest of its peers is huge. Domino’s has 806 stores versus 307 of Pizza Hut, 350 McDonalds and 360 stores of KFC. Within the pizza market, Domino’s has a share of more than 60 %. Domino’s has consistently gained its market share from its pizza peers as well as other QSRs in the past few years. Jubilant FoodWorks’ also has plans to expand its networks adding around 150 Domino’s outlet every year and looking at the scale at which its peers plans their expansion, Jubilant looks faster and better positioned. Domino’s in India has traditionally added new stores particularly in the past five years which are anywhere between 19 %-22 % of existing stores. New stores take time to break-even and the burden on overall profitability goes on reducing as time goes forward. Innovations also are essential for any consumer business and particularly during an early stage of operations compared to overall growth potential. The average bill size of Domino’s Pizza is healthy across stores which range from Rs. 350 to Rs. 450 per head. And most of the stores also have delivery facility except stores that are located next to food courts situated at higher levels in malls and the ones that are newly set up. Delivery proportion in other stores is 20 %, which is healthy and adds another avenue of growth. Delivery portion has minimum bill size of Rs. 150 and has on an average 7 bikes to facilitate that delivery. Looking at these factors it can be easily believed that the break-even of its store could be achieved in two-three years. Jubilant FoodWorks Ltd has recently renewed their contract with master franchise controller Dominos International. The new contract is for 15 years, which gives them exclusive rights for operations in India, Nepal, Sri Lanka and Bangladesh. The growth shown by Jubilant FoodWorks Ltd is consistently based on the robust operational foundation on which it stands. In the current economic environment and slowdown in consumer spending, especially in discretionary expenditure, the company continues to pursue excellence in key areas such as cost management, restaurant selection processes, and continual re-investment in strengthening the supply chain, connecting deeply with consumers, and investing in innovations. This approach is complemented by a robust training apparatus and high operational efficiency standards that allow growing the business in line with the potential. Domino’s Pizza has made rapid strides in restaurant expansion and has 772 Domino’s Pizza restaurants. The company launched three new products in the quarter - Spicy Baked Chicken, Lebanese rolls and Calzone Pockets; in Domino’s Pizza and burgers in Dunkin’ Donuts received positive response by all the three products and Domino’s Pizza mobile ordering (Online Ordering (OLO)) remains an important platform to reach a wider audience base serving around 8 million pizzas every month. This enables to drive higher levels of optimization and supply chain systems into the hinterland, to serve tier 2 and 3 cities. On Financials Jubilant FoodWorks Ltd’s Net sales were up 14.8 % YoY at Rs. 501.2 Cr. Its Same-Store Sales Growth (SSG) declined 5.3 % YoY. 2QFY14 was the last quarter of positive SSG at 6.6 % because of a Buy One Get One’ scheme and the base going forward are not challenging. Its EBITDA declined and fell to Rs. 61.1 Cr down by 6.5 % YoY. Gross margin was up 1.50 % YoY, aided by lower proportion of special schemes in 2QFY15, EBITDA margin was down 2.80 % YoY owing to SSG decline. Ongoing expansion (including Dunkin’ Donuts) meant that staff costs and rent cost increase as a percentage of sales were unabated. Jubilant pays Domino’s around 3.2 % of sales as royalty. The management stated that in FY15, there will be a 1.50 % to 1.60 % impact on margins because of Dunkin’ Donuts rollout. Number of Dominos outlets (including Dunkin Donuts outlets) touched 797 which are spread across 167 cities at the end of September 2014 quarter and 806 at the end of October 2014. The company added 80 Domino’s stores in 1HFY15, and are on target to add 150 stores by the end of the year. Company had its new commissaries at Guwahati, Nagpur and Hyderabad these are expected to commence operations in 2HFY15. The pace at which the Jubilant FoodWorks Ltd is setting up its stores it can be easily assumed that it can easily set up 2,000 Domino’s stores in India. The management stated that it is confident of industry growth potential and the company’s own brands. Market share in the organised QSR space actually increased from 6 % to 7 % five years ago to 14 % to 15 % in FY13 and 16 % & 17 % in FY14. Jubilant FoodWorks business model, scale and ability to innovate are creating significant barriers to entry to competitors. Most important is the learning from its experience of being at the forefront of expansion in unchartered territories. As demonstrated by the improvement in Dunkin’ Donuts business after the menu makeover, the management has demonstrated its ability to innovate and think out of the box and use the learning that it has developed in the food business in India. A learning organisation will find new levers of growth. Looking forward the medium-term earnings growth and improvement of return ratios gives immense opportunity to this company will help to sustain high valuation metrics. Also its Earnings growth potential is far superior compared to peers. It is expected that with the company’s surplus scenario is likely to continue for the next three years & will keep its growth story intact for the coming quarters also. 

KEY FINANCIALS	FY14	FY15E	FY16E	FY17E
SALES (₹ Crs)	1,736.30	2,043.60	2,548.40	3,323.10
NET PROFIT (₹ Cr)	118.20	119.30	161.10	254.70
EPS (₹)	18.10	18.20	24.50	38.60
PE (x)	66.00	73.70	54.70	34.70
P/BV (x)	16.00	13.40	10.80	9.40
EV/EBITDA (x)	34.70	32.30	23.40	15.70
ROE (%)	24.10	19.80	21.90	29.10
ROCE (%)	24.10	19.80	21.90	29.10

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-------------------------------------------------------------------------------------------Disclaimer: 

This is a personal blog and presents entirely personal views on stock market. Any statement made in this blog is merely an expression of my personal opinion. These informations are sourced from publicly available data. By using/reading this blog you agree to (i) not to take any investment decision or any other important decisions based on any information, opinion, suggestion, expressions or experience mentioned or presented in this blog (ii) Any investment decisions taken if any would be his/hers sole responsibility. (iii) the author of this blog is not responsible.

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MULTI COMMODITY EXCHANGE OF INDIA LTD : COMING BACK TO LIFE - BEST ONE TO OWN !!!

Scrip Code: 534091 / MCX

CMP:  Rs. 860.20; Market Cap: Rs. 4,387.0 Cr; 52 Week High/Low: Rs. 926.80 / Rs. 457.95; Total Shares: 5,09,98,369 shares; Promoters : Not Defined – 00.00 %; Total Public holding 5 % or more : 76,49,755 shares – 15.00 %; Total Public holding: 2,62,34,571 shares – 51.44 %; Public holding : 28,77,641 shares – 9.92 %; Book Value: Rs. 268.41; Face Value: Rs. 10.00; EPS: Rs. 23.21; Dividend: 240.00 % ; P/E: 37.06 times; Ind P/E: 31.26; EV/EBITDA: 22.21.

Total Debt: ZERO; Enterprise Value: Rs.4,334.01 Cr.

MULTI COMMODITY EXCHANGE OF INDIA LTD: MCX was incorporated as a private limited company on April 19, 2002 in Mumbai, India. Multi Commodity Exchange of India Ltd (MCX) is a state-of-the-art electronic commodity futures exchange. The demutualised Exchange has permanent recognition from the Government of India to facilitate online trading, and clearing and settlement operation for commodity futures across the country.  The company came with an IPO with a sale of 64,27,378 shares by its then shareholders with an objective to achieve the benefits of listings on the Stock Exchange. The IPO was priced at Rs. 1,032.00 per share raising Rs. 663 Cr and got listed on March 09, 2012. MCX holds a market share of over 86 % as on March 31, 2012 of the Indian commodity futures market. The Exchange has more than 2,710 registered members operating through over 3,46,000 including CTCL trading terminals spread over 1,577 cities and towns across India. MCX was the third largest commodity futures exchange in the world, in terms of the number of contracts traded in CY2011. The Exchange is the world's largest exchange in Silver and Gold, second largest in Natural Gas and the third largest in Crude Oil with respect to the number of futures contract traded. MCX was the first exchange in India to initiate evening sessions to synchronise with the trading hours of global exchanges in London, New York and other major international markets. It was the first exchange in India to offer futures trading in steel, crude oil, and almond. Among international alliances, MCX have formed strategic alliances with a number of exchanges such as the London Metal Exchange, the New York Mercantile Exchange, the LIFFE Administration and Management (under renewal), the Baltic Exchange Limited, Shanghai Futures Exchange and Taiwan Futures Exchange. MCX holds 5 % in Dubai Gold and Commodity Exchange and the book value of this investment was Rs. 2.185 Cr as of December 31, 2011; 100 % in MCX Clearing Corporation Ltd; 5 % in MCX SX; 26 % in MCX-SX Clearing Corporation Ltd; 51 % in SME Exchange of India Ltd with initial investment of Rs. 5,10,000. MCXIL is compared with Bombay Stock Exchange of India Ltd, National Stock Exchange of India Ltd, United Stock Exchange of India Ltd, Calcutta Stock Exchange , National Commodity and Derivatives Exchange, National Multi-Commodity Exchange of India Ltd, Financial Technologies (India) Ltd in India and Globally compared with Ichiyoshi Securities Co Ltd of Japan, Osaka Securities Exchange also from Japan, CME group, Intercontinental Exchange Inc, Nasdaq OMX Group/THE, CBOE Holdings Inc, London Stock Exchange Group, TMX Group Inc, Deutsche Boerse AG, Bolsas Y Mercados Espanoles, ASX Ltd, Singapore Exchange Ltd, Hong Kong Exchange & Clearing House Ltd, Bursa Malaysia BHD.

Investment Rationale:

MCX is the market leader by trading turnover in the Indian commodity exchange space. Within the commodity basket, MCX focuses on non-agricultural commodities such as precious metals, base metals, and energy with the top four, gold, silver, copper, and crude oil, accounting for 90.9 % of volumes. In these four products, MCX almost defines the market. MCX also has 5 % direct stake in MCX-SX, a stock exchange and a further 32 % stake through warrants. In August 2014 Financial Technologies India Limited (FTIL) exited commodity exchange MCX by selling its entire 26 % in the bourse, it had originally promoted. Also there is no overlap between FTIL and MCX boards as Forward Market Commission had declared FTIL unfit and improper this rule of fit and proper criterion is that any shareholder who has more than 2 % stake in a commodity exchange has to prove them self-fit and proper to run the exchange. There are 1000 brokers in common to NSEL and MCX, and there is no direct cross liability and nor are any of their high volume brokers in distressed and also no distress has been reported on BSE/NSE either. MCX management soon realised that the need of the hour is to raise the corporate governance standards and to achieve this; MCX management took some major steps like making an experts & professionals as important appointments in key positions like CFO and Company Secretary. These measures were to increase transparency in operations of MCX as well as investor interactions after the NSEL Crisis. This also brought a transitioning in MCX from proprietor driven culture to a professional culture. Further, the FCRA bill which allows introduction of commodity options, commodity indices and Institutional participation in commodity exchanges is awaiting the parliament approval and looking at the MCX’s strong positioning, MCX would be benefited with most and it will enable MCX to quickly launch new product portfolio. These regulatory approvals could act as growth driver for volumes and subsequently MCX will be benefited. Recently, Commodity markets regulator Forward Markets Commission (FMC) on December 23, 2014 allowed Multi Commodity Exchange to launch Crude oil mini futures contracts for next year. The crude oil mini futures contract will have a trading unit of 10 barrel & will be quoted ex-Mumbai price. The lot size of crude is of 100 barrels (1 barrel= 159 litres) and for mini it is 10 barrel. An individual client can trade up to 4,80,000 barrels, while a member the brokerage firm collectively for all clients can trade up to 24,00,000 barrels, as per the contract specification approved by the regulator. The Current minimum trade unit in Crude oil is 100 barrels (Rs. 3.6 lakhs) now the New Crude Mini will have 10 barrels (Rs. 36,000) in lot size. Both will have the margin of 5 %. Globally options accounts for 17 % to 25 % of the total transaction volumes in commodities and introduction of options and indices at MCX could act as substantial volume booster for the exchange. This newly launched Crude mini contracts gained traction with registering a turnover of Rs. 1,488 Cr in just four days from its launch, the open interest i.e the total number of outstanding contracts that are held by market participants has also been high at 10,000 lots per day. The sudden fall in crude oil has led many small & medium  enterprises hedge their exposure on MCX platform. This mini contract attracted trading interest from small glass manufacturing, heat treatment & Plastic processing companies, these comapnies consumes large quantity of products derived from crude oil. Also the price risk associated with large number of crude oil derivatives such as bitumen, furnace oil, asphalt, naptha is in sync with the crude oil prices. Small industries which are these byproducts can use the new contract to hedge their risk effectively as done by SMEs in mini contacts. Further MCX is likely to introduce new products like Real estate indices, Rain indices etc. which could act as growth drivers. Forward Commission Regulator Act bill clearance would also allow banks, institutions and FII’s to participate in commodity trading which will further boost the turnover of the exchange turnover. MCX earns Interest Income from the Margin money of the clients and this is recurring revenue stream. MCX currently has over Rs. 600 Crs of cash and bank balances and does not have any debt on its balance sheet as on Mar 2014, and traditionally Exchange businesses are very profitable business which is very scalable with very little incremental costs thus ensuring that ROEs and ROCE in this business remains quite strong. Post the NSEL crisis the government reacted fast to ensure that the exchange working was not halted, the government appointed few dignitaries which boosted confidence and credibility levels for MCX and this helped MCX to improve its substantially. Hence the major dust is now settled down for MCX and with the triggers like introduction of new products, and the FCRA bill will help to re-rate the MCX stock, and this can be evident by the latest acquisition of MCX shares by Ace Investors like Radhakishan Damani, Rakesh Jhunjhunwala who picked up 2 % each in MCX at Rs. 660 per share & Kotak Mahindra bank picking up 15 % stake at Rs. 660 amounting to Rs. 459 Cr. On the financials side there can be real improvement in MCX’s financials going forward from FY16 onwards. Over the next 3 to 5 years, in a growing economy like India, commodity exchanges are likely to see significant growth as financial markets would see many new changes to attract local and global capital in the economy. Hence in conclusion it can be said that while profits at the net level in FY15 may remain flat, but it can be safely assumed that from FY16 onwards MCX is likely to resume its growth trajectory.

Outlook and Valuation:

Multi Commodity Exchange of India (MCX) is a state-of-the-art electronic commodity futures exchange, and enjoys nearly monopolistic market share of around 90.50 % in commodity market & enjoys triopolistic situation as MCX-SX accounts for nearly 6 % market share in total currency derivtives in India. MCX enjoys a competitive edge, and has its own Economic Moat (A competitive advantage is, that one company has over the other companies in the same industry – by Warren Buffett) and is expanding its moats which is a very strong sign of as a future Multi-bagger. Technology for the exchange industry is difficult to replicate, and this provides the MCX as a company with a competitive advantage. Recently, on 8 December 2014, SEBI granted the MCX Stock Exchange Ltd (MCX-SX) the stock exchange arm of MCX its renewal of licence to run the stock exchange and also approved its new name from MCX-SX to ‘mSXI’ Metropolitan Stock Exchange of India Ltd. This new name will build its new identity and will bring in volumes hence will help its stock exchange to be in competition with its rivals BSE & NSE. Exchanges are almost the perfect business models with limited competition, high operating leverage and robust cash flows. Stock exchanges in particular have strong correlation to underlying economic activity. In India only two exchanges accounts for nearly 99 % market share in equities trading. Across a number of macroeconomic and broad market factors the Indian capital markets are at a “multiyear to multi decade low”. Stock exchanges would benefit substantially from the anticipated improvement in overall economic activity there by leading to high earnings growth over the next few years. NSE the Unlisted and BSE also Unlisted along with the MCX-SX which is also unlisted but directly related to MCX will be one of the best investments to play the impending recovery in economy and capital markets. India is already seeing initial signs of volume recovery with last two months & cash market volumes are up 100 % YoY. At current levels the velocity is in-line with eight year average of 60 %. Moreover with a number of new products having high potential (such as Interest Rate Derivatives, Corporate Debt, Volatility Index) in their nascent stages, exchanges would have robust volume growth over the medium term. Recently, Financial Technologies India Ltd (FTIL) sold an additional 1.65 lakh shares to ace investor Rakesh Jhunjhunwala for Rs. 2,47,500 in stock exchange MCX-SX, thereby completely exiting the bourse. Earlier on November 25, 2014, FTIL signed agreements to sell its entire 5 % stake, comprising of 2.71 crore equity shares and 56,24,60,000 warrants, for Rs. 88.41 crore. The 2.71 Cr equity shares were sold only to Rakesh Jhunjhunwala, and 38.48 Cr warrants were divided between him and Edelweiss Commodities Services, Trust Investment Advisors, Viral A Parikh, Nemish S Shah, Derive Investments, Kalpraj Dharamshi, Dhanesh Sumatilal Shah, Uday Shah, Madhuri Kela, Renuka Shah, and Madhu Vadera Jayakumar. For both MCX has received the consideration and this transaction is completed and so, the Jignesh Shah-led FTIL has now completely exited MCX as well as MCX-SX making it entirely a new scam free entity. MCX-SX has total shares of 94,31,83,776 Shares of Face value of Rs. 1 each. On the financials side real improvement in MCX’s financials could be seen from FY16 onwards as the market is keenly awaiting any financial impact of the NSEL crisis on MCX’s numbers. While the chances here of such a development is very low, even if it were to happen this will be a one off but the core business model of MCX will remain strong. Over the next 3 to 5 years, in a growing economy like India, commodity exchanges are likely to see significant growth as financial markets would see many new changes which will attract local and global capital flows into the Indian economy. Future, with the FCRA Bill the potential remains exciting given that the new products will attract new participants & India has 20 lakhs client accounts as compared with 1.9 Cr – 2 CR Demat accounts so this industry has only scratched the surface with respect to potential volumes so there’s also a new road for MCX. MCX, with its new opportunities and with the policy to maintain 50 % dividend pay-out ratio will be positive for MCX valuation. The valuation of MCX’s standalone business at 25x FY15E EPS of Rs. 30.79 gives us the standalone valuation of MCX at Rs. 770 per share; the valuation of the stake in MCX-SX (incl. warrants) contributes additional Rs. 110 per share to MCX. It is expected that MCX to have volumes growth of 15 % CAGR over FY12-15 and a PAT CAGR of 13 % over this period. Also, the ROE should sustain its level in the high 20's. Even as on Mar 2014 MCX has a balance sheet size of Rs 1743 Crs with Cash position of Rs 350 crs, a networth of Rs 1316.10 Crs with no debt on the balance sheet as on date. On a rough cut basis, in FY15, Top line will see a steady rise wherein Topline is expected to touch Rs. 375 Crs in FY15E and may be Rs. 412 in FY16E. On the bottom line level the company can report a PAT of Rs. 157 Crs in FY15E and may be Rs. 171 Cr in FY16E. Thus on a conservative basis, MCX should report EPS of Rs. 30.79 for FY15E. For FY16E expectation is EPS of Rs. 33.54.

KEY FINANCIALS	FY13	FY14	FY15E	FY16E
SALES (₹ Crs)	523.96	340.66	375.00	412.50
NET PROFIT (₹ Cr)	299.00	153.16	157.00	171.00
EPS (₹)	58.67	30.04	30.79	33.54
PE (x)	7.40	15.70	22.60	22.00
P/BV (x)	1.90	1.80	1.70	1.60
EV/EBITDA (x)	10.50	15.26	19.84	19.25
ROE (%)	27.80	11.80	7.80	7.60
ROCE (%)	27.80	11.80	7.80	7.60

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Disclaimer: 

This is a personal blog and presents entirely personal views on stock market. Any statement made in this blog is merely an expression of my personal opinion. These informations are sourced from publicly available data. By using/reading this blog you agree to (i) not to take any investment decision or any other important decisions based on any information, opinion, suggestion, expressions or experience mentioned or presented in this blog (ii) Any investment decisions taken if any would be his/hers sole responsibility. (iii) the author of this blog is not responsible.

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Very Inspiring Blog Award

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RUPA & COMPANY LTD : ALL ABOUT COMFORT !!!

Scrip Code: 533552 / RUPA

CMP:  Rs. 229.10; Market Cap: Rs. 1,821.90 Cr; 52 Week High/Low: Rs. 253.75 / Rs. 192.70;

Total Shares: 7,95,24,560 shares; Promoters : 5,95,86,390 shares –74.93 %; Total Public holding : 1,99,38,170 shares – 25.07 %; Book Value: Rs. 34.30; Face Value: Rs. 1.00; EPS: Rs. 8.34; Dividend: 250 % ; P/E: 27.47 times; Ind. P/E: 12.03; EV/EBITDA: 14.40.

Total Debt: 180.77 Cr; Enterprise Value: Rs. 1,998.08 Cr.

RUPA & COMAPNY LTD: Rupa was incorporated in 1985 by the Agarwala brothers. In 1995, they took over the business of Binod Hosiery, a partnership firm incorporated in 1979. They have emerged, over the years, as the largest hosiery manufacturer in India. The company produces and markets knitted garments such as innerwear, casuals wear and also footwear. The company came with an IPO at Rs. 10 in the year 1995 and was initialy listed on Culcutta Stock Exchange & Jaipur Stock Exchange. And it got itself listed in BSE in 2010 & at Rs. 200 on NSE in 2011. The company launched Thermocot, the first branded winter wear in India. The company is also pioneered in printing of the brand name in front of the vest. This made the logo as a design element which made the product to be flaunted. RUPA is one of the earliest brands which introduced celebrity endorsement. This created huge impact and recall value. Rupa & Company Ltd has a comprehensive portfolio of product offerings in the knitted innerwear, casual wear and thermal wear segment for men, women and kids. The company offers its products principally under the Rupa, Frontline, Jon, Air, Macroman, Macroman M' Series, Euro, Kidline, Bumchums, and Thermocot brand names. Rupa & Company Limited sells its products primarily through own retail outlets, as well as through independent retailers in India and the Middle East. The company also exports its products. The Company manages more than 6000 stock keeping units (SKUs), each of them for a particular brand, segment colour and size. The Company has its two wholly owned subsidiaries- M/s Euro Fashion Inners International Private Limited which sells premium men’s innerwear products under the brand “EURO” and Imoogi Fashions Private Limited which has recently launched apparel for kids of 0-12 years of age under the brand “IMOOGI”. Rupa also operates a Wind mill for power generation. The company is locally compared with Lovable Lingerie Ltd, Page Industries Ltd, V2 Retail Ltd , Trent Ltd, Brandhouse Retail, CESC Ltd, Future Retail, Arvind Ltd, Kewal Kiran Clothing Ltd, S Kumars Nationwide Ltd, Koutons Retail Lyd, Maxwell Industries Ltd and Globally with I.T Limited of Hong Kong, Dickson Concepts (International) Limited also from Hong Kong, Industria DE Diseno of Spain, Inditex SA of Spain, Gunze Ltd of Tokyo, Levi Strauss & Co of US, Gucci Group NV of Netherlands, Tommy Hifiger BV of Netherlands, Marc Jacobs International LLC of USA Calvin Klein Inc of USA and Donna Karan International Inc. form USA.

Investment Rationale:

Rupa & Company Limited is one of the leading textile companies, operating across the country and abroad. It is into manufacturing, processing, designing and selling hosiery and fashion wear products for men, women, and kids. It provides knitted garments, including innerwear, casual wear, and footwear. Rupa & Company Limited sells its products primarily through own retail outlets, as well as through independent retailers in India and the Middle East. The company also exports its products. Rupa, a branded innerwear player & has created and nurtured over 100 brands and manages a portfolio of 6000 stock keeping units (SKUs) comprising different range for men, women and kids. The company has a product offerings catering to different sections of society covering various price points. Over the years, the company has invested in brand building and moved up the value chain from a commodity centric marketing strategy to a brand led market positioning. The company is looking to capture a higher share of the in the premium innerwear segment by introducing premium category products, which would enable it to have better margins, going ahead. The share of super-premium products in the overall mix has gone up from 4 % in FY09 to 9% in FY13. Rupa has a pan–India presence with a large distribution network consisting of three central warehouses, 19 exclusive business outlets, 20 branches, 859 sales & marketing professionals, 950 dealers and 1,10,000 retailers. The company has already set up extensive touch points with customers, which would enable it to achieve consistent growth. Rupa is looking at having a higher proportion of the customer’s wallet by introducing newer products. The company has recently launched jeans under the Euro brand and leggings under the brand “Femmora”. The company is also looking at leveraging its brand equity by entering the kids’ innerwear segment. The Indian textile industry is set for strong growth, buoyed by both rising domestic consumption as well as export demand. Abundant availability of raw materials such as cotton, wool, silk and jute and skilled workforce has made India a sourcing hub. The most significant change in the Indian textile industry has been the advent of man-made fibres (MMF). India has successfully placed its innovative range of MMF textiles in almost all the countries across the globe. Manmade fibre production recorded an increase of 2 per cent during the year 2012-13. India is the one of the world's largest producers of textiles and garments. The potential size of the Indian textile and apparel industry is expected to reach US$ 22,100 Cr by 2021, according to the reports by Technopak's Textile and Apparel Compendium. Textile industry has made a major contribution to the national economy in terms of direct and indirect employment generation and net foreign exchange earnings. This sector contributes about 14 % to industrial production, 4 % to the Gross Domestic Product, and 17 % to the country's export earnings. It also provides direct employment to over 3.5 Cr people. The textiles sector is the second largest provider of employment after agriculture in India. Thus, the growth and all round development of this industry has a direct bearing on the improvement of the economy of the nation. The hike in FDI limit in multi-brand retail will bring in more players, thereby providing more options to consumers and this will be in all very good for Textile Industry. It will also bring in greater investments along the entire value chain – from agricultural production to final manufactured goods. With consumerism and disposable income on the rise, the retail sector has experienced a rapid growth in the past decade with several international players like Marks & Spencer, Guess and Next shop having entered the Indian market. The organised apparel segment is expected to grow at a compound annual growth rate (CAGR) of more than 13 % over a 10-year period. Rupa will be surely a beneficial as it competitive advantage lies in its owned Brands which have grown over the years with a vast popular product line & with decades-long experience in successfully launching, nurturing and managing several winning brands in a pre-dominantly unorganized industry Rupa surely has its upper hand.

Outlook and Valuation:

Rupa & Company is India’s largest hosiery brand, covering the entire range of knitted garments from innerwear to casual wear & also operates a Wind mill for power generation. Due to decades-long experience in successfully launching, nurturing and managing several winning brands in a pre-dominantly unorganized industry, RUPA & Co is acclaimed by the Limca Book of Records as the largest hosiery and innerwear manufacturing and marketing company in India, for a 8 consecutive years. Rupa sells more than 12 million pieces of inner wear every month. Rupa’s competitive advantage lies in its owned Brands which have grown over the years, a product line range named $ as a brand across all categories, a formidable reputation of “Great Quality at Great Price points”, and a fact that it accepts the Buyer’s specification. Also RUPA is the first Indian company to launch bacteria-resistant briefs under its exclusive brand Euro. Rupa & Company Limited own three state-of-the-art manufacturing facilities at Delhi, Tirupur and Domjur with an overall capacity to produce 7,00,000 pieces a day. It has one of the largest distribution networks through 1 lakh retail outlets across 600 locations with a dedicated support of more than 950 dealers and distributors. Rupa had seen an accelerated revenue growth over FY07-10 with a CAGR of 21 %. Even in FY11-13, Rupa abled to maintain its double digit growth at CAGR of 13 %. Over FY09-13, the company was able to increase the share of super-premium segment from 4 % in FY09 to 9 % in FY13. Geographically, the north region contributes the highest with 48 % contribution to FY13 revenues while east contributes 26 %. Rupa is strategically focusing on increasing its share of the super-premium category. The super-premium category has grown at a CAGR of 41 % over FY09-13 while the other category has grown at a CAGR of 17 % over the same period. Among products, men’s and thermal category have grown at a CAGR of 20 % and 22 %, respectively, over FY09-13. Among other categories, women’s has grown at a CAGR of 15 % while kids (on a low base) have grown at a CAGR of 44 %. Among brands, Jon, Frontline and Macroman contributed 33 %, 26 % and 10 %, respectively. Rupa reported 9 % YoY revenue growth in FY14. Over the years, Rupa has progressed from a commodity centric marketing to brand led market positioning enabling it to register a drastic transformation in EBITDA margin. Rupa’s EBITDA margin improved from 8.2 % in FY07 to 15.2 % in FY13, which has been its peak EBITDA margin. However, in FY14, the EBITDA margin declined 80 bps YoY to 14.4%. EBITDA margin is expected to improve over the next two years driven by higher share of super-premium category and introduction of new high margin products. Driven by improvement in EBITDA margin, it is expected that its EBIDTA to grow at 10 % over FY14-16E and PAT to grow at a CAGR of 14 % over the period. It is expected that the company surplus scenario is likely to continue for the next three years which will keep its growth story in the coming quarters also.  

KEY FINANCIALS	FY13	FY14	FY15E	FY16E
SALES (₹ Crs)	829.00	904.00	973.00	1,053.00
NET PROFIT (₹ Cr)	65.00	66.00	75.00	82.00
EPS (₹)	8.10	8.30	9.40	10.20
PE (x)	28.10	27.60	24.30	22.40
P/BV (x)	7.50	6.40	5.40	4.60
EV/EBITDA (x)	16.20	15.50	14.10	12.70
ROE (%)	26.60	23.10	22.10	20.50
ROCE (%)	25.80	24.40	24.00	24.10

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