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:
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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Hi Bhavikk, it was nice to read about Dominos even though I am not a fan of pizzas. I can see your hard work behind the information you shared with us. Thank you! TC! Keep smiling :)
ReplyDeleteNice article about Dominos
ReplyDelete