Showing posts with label DOMINOS PIZZA. Show all posts

Friday, March 3, 2017

JUBILANT FOODWORKS LTD : IT's PIZZA TIME !!!

Scrip Code: 534804 / JUBLFOOD

CMP: Rs. 1031.10; Market Cap: Rs. 6,800.00 Cr; 52 Week High/Low: Rs. 1348.75 / Rs. 760.50

Total Shares: 6,59,49,070 shares; Promoters : 2,96,52,784 shares – 44.96 %; Total Public holding : 3,62,96,286 shares – 55.04 %; Book Value: Rs. 116.49; Face Value: Rs. 10.00; EPS: Rs. 13.40; Dividend: 25.00 %; P/E: 76.94 times; Ind P/E: 50.12; EV/EBITDA: 24.95.

Total Debt: ZERO; Enterprise Value: Rs. 6,768.62 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 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 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 February 6, 2017, Jubilant FoodWorks Ltd operated 1,111 Domino’s Pizza restaurants in across 260 cities; and 68 Dunkin’ Donuts restaurants in 19 cities in India. Jubilant Foodworks Ltd is locally compared with Westlife Development Ltd (who runs McDonalds in India), Speciality Restaurants (which runs Mainland China & Ohh Calcutta in India), 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 over 1,100 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 (QSR) 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. QSR’s 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 industry is poised for huge growth, increasing its contribution to world food trade every year. In India, the food sector has emerged as a high-growth and high-profit sector due to its immense potential for value addition, particularly within the food processing industry. The food industry, which is currently valued at US$ 39.71 billion, is expected to grow at a Compounded Annual Growth Rate (CAGR) of 11 % to US$ 65.4 billion by 2018. Food and grocery account for around 31 % of India’s consumption basket. Indian food service industry is expected to reach US$ 78 billion by 2018.The Indian gourmet food market is currently valued at US$ 1.3 billion and is growing at a Compound Annual Growth Rate (CAGR) of 20 %. India's organic food market is expected to increase by three times by 2020. The online food ordering business in India is in its nascent stage, but witnessing exponential growth. The organised food business in India is worth US$ 48 billion, of which food delivery is valued at US$ 15 billion. With online food delivery players like FoodPanda, Zomato, TinyOwl and Swiggy building scale through partnerships, the organised food business has a huge potential and a promising future. The online food delivery industry grew at 150 per cent year-on-year with an estimated Gross Merchandise Value (GMV) of US$ 300 million in 2016. Also as a help for QSR industry, there are many business factors such as high turnover, low area occupied; reasonable ticket size matters. 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 900-1,500 sq.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. Jubilant FoodWorks has focused on its less competitive intensity delivery start-ups focusing more on profitability and will also focus on Same Stores Sales Growth over store expansion via store opening rationalisation. The demonetization drive was dampening on JFL’s performance in 2HFY17E, but with gradual recovery in consumer confidence, increased promotions, moderation in competition from food aggregators and success of new products could take SSSG to higher levels, going forward. While JFL’s operating cash generation has fallen from 15 % to 10 % of sales in past four years, it still remains strong as the Company generates operating cash in the excess of Rs. 2500 Cr annually. Notably, in past four years JFL has doubled its store count from 550 to 1,100 and added several commissaries without adding any debt on its books, which is impressive. JFL has maintained solid control over its costs. While overall expenditure witnessed 4 % CAGR through FY12-17E, JFL has remarkably been able to maintain its total expenditure per store constant in the last four years. Around half of Dominos’ sales are through the delivery platform with the average online ordering as a percentage of delivery sales has been increasing rapidly, which now accounts for 47 % of delivery sales. Most of these customers are using alternative payment options i.e. credit-debit cards, mobile wallets and net banking for paying the bill. JFL has now also offered cashless payment facilities for all home deliveries ordered through the phone. JFL did witnessed fall in revenues in initial days of demonetization, but gradually it improved as new currency started floating in hence marking improvement in sales. Not with standing significant material impact on revenues in last 4 years owing to dismal SSS growth with additional impact of Dunkin Donuts, JFL has impressively contained its costs. While overall expenditure increased at 24 % CAGR through FY12-17E, it has been able to maintain its total expenditure per store constant in the last 4 years. Despite steady rise in overall cost, JFL has been able to maintain average operating cost per store constant at Rs. 2.2 Cr calculated based on average number of stores per year. Company reduced employee strength per store without hampering efficiency and has also rationalized its power supply expenditure by implementing Wipro’s energy management services. Company have increased its share of online ordering and is renegotiating rentals and increasingly entering into rental contracts based on % of revenue rather than flat structure. The company is reducing the capex costs per store and increasing its emphasis on launching new products, JFL has introduced several new products especially in non-pizza segment like Pizza Mania Extreme & Burger Pizza. While through Pizza Mania Extreme, JFL intends to provide value-added offerings at reasonably lower price points vs. regular pizza, it introduced Burger Pizza to cash in the rising opportunity in Burgers segment with an all-day menu option, unlike Pizza which is more of a meal replacement category. With both these products getting encouraging response from the consumers, they would permanently feature on Dominos’ menu, going forward. In the pizza segment, the company has recently launched Quattro Formaggi Burst Pizza and Choco Pizza. JFL’s new state of the art commissary is expected to be commissioned in Noida by March’17, which is expected to not only manufacture the conventional dough, but also other products such as buns, breads and some types of desserts. This is anticipated to accentuate new product development and increase JFL’s ability to introduce new products at a faster rate. However, only very few of them contributed meaningfully to its growth in past few years, which is evident from share of Pizzas to its overall sales remaining more or less stagnant in past four years. Jubilant’s 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. Jubilants’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 resumes on same-store sales, cash flow improvement will be 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 1,100 stores currently including 68 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.

Outlook and Valuation:

Jubilant FoodWorks Limited is India’s largest food service company. JFL operates Domino’s Pizza & Dunkin Donuts brand with the exclusive rights for India, Sri Lanka, Bangladesh and Nepal. The company have recently launched Pizza Mania Extreme & Burger Pizza and launched Quattro Formaggi Burst Pizza and Choco Pizza, Navratra Pizza and these products are receiving positive response from its customers. 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 62 lakh downloads of the Domino’s Pizza mobile ordering app across various smart phones & the Average Online ordering contributes to 49 % of delivery sales in Q3 FY17 and Mobile Ordering sales contributes to 56 % during the quarter. There are total 68 Dunkin’ Donuts Restaurants as on February 06, 2017 in 19 Cities and offers a wide variety of western menu including donuts, coffee, burgers, sandwiches, snacks, and more. It has introduced Big Joy Paneer Delight, Munchkins, Donut Cakes which is 100 % eggless, DunkyDoos, Big Joy Burger which are gaining popularity amongst kids and youngsters. 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. 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. Company will focus more on Same Store Sales Growth rather than focusing on opening on new stores and expected that SSS growth could be around 8-9 %. Growth in SSS will depend on a mix of company-related and macro factors, like Increase traction in new products, faster growth in value-added offerings, Revival in consumer confidence, especially post demonetization, Level of discounting and promotions, Uptick in job creation, and Extent of price hikes which JFL could pass on to the consumers. The growth in SSS is likely to recover in FY18E on the back of positive improvement in afore-mentioned areas and it could be around 8 %. JFL plans to open over 100 stores annually in next few years. While the number of Dominos outlets stood at 1,100 at Feb 17 end, Dominos International has projected the potential store count for Dominos in India at 1,800. However, with the decline in percentage of new stores opened vis-à-vis extant stores, JFL’s margins would improve at a faster pace as higher number of stores would have attained breakeven. Based on current SSS growth trends, calculation suggests a new Dominos store would typically achieve cash breakeven in 4 years. On financial side Jubilant Foodworks Q3FY17 performance was good, it reported Revenues of Rs. 660 Cr, up 3.9 % YOY; SSG was at -3.3 %, EBITDA at Rs. 64 Cr, down 12 % YOY, gross margin declined 2 % YOY to 74.9 %, impacted by promotional activity and change in mix; EBITDA margin declined 1.80 % YOY to 9.7 %, impacted by higher rent cost, however lower employee cost and controlled other expenditure curtailed decline in EBITDA margins. Home delivery sales through phone has also been impacted due to cash crunch and has been not compensated by online sale, company is working on getting card machines for home delivery. New product launches like Pizza Mania extremes and Burger Pizza are seeing healthy traction and aiding growth. Delivery sales continue to grow faster than dine-in sales as company is aggressive on driving sales through OLO (online ordering) and in long term it expects to be 70 % to 80 % which is the average seen in developed markets. SSSG uptick, GST and break-even in Dunkin are levers to margin expansion. JFL’s operating cash generation has fallen from 15 % to 10% of sales in past four years, yet it still remains strong as the company generates operating cash in the excess of Rs. 250Cr annually. Notably, in past four years JFL has doubled its store count from 550 to 1,100 and added several commissaries without adding any debt on its books, which is impressive. JFL’s gross block increased by >2.5x to Rs. 900 Cr in the last 4 years, while the resultant higher depreciation impacted its earnings as well. This is evident from JFL’s cash profit of Rs. 220 Cr was almost double than the reported net profit Rs. 110 Cr in FY16. The growth shown by Jubilant FoodWorks Ltd is consistently based on the robust operational foundation on which it stands. In the current economic environment, demonetization 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 mobile ordering (Online Ordering (OLO)) remains an important platform to reach a wider audience base serving around 63 lakh pizzas every month with its new ad campaign on Order 1 pizza online and get 1 pizza free. This enables to drive higher levels of optimization and supply chain systems into the hinterland, to serve tier 2 and 3 cities. At the current market price of Rs. 1031.10, the stock is trading at a PE of 80.55 x FY17E and 44.83 x FY18E respectively. The company can post Earnings per share (EPS) of Rs. 12.80 in FY17E and Rs. 23.00 in FY18E. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also.

KEY FINANCIALS	FY16	FY17E	FY18E	FY19E
SALES (₹ Crs)	2,410.20	2,608.00	3,116.00	3,788.50
NET PROFIT (₹ Cr)	106.60	84.40	151.20	229.70
EPS (₹)	16.20	12.80	23.00	34.90
PE (x)	62.20	78.60	43.90	28.90
P/BV (x)	8.70	7.90	7.00	5.90
EV/EBITDA (x)	24.30	25.90	17.90	12.90
ROE (%)	14.90	10.60	16.90	22.00
ROCE (%)	20.40	14.30	23.10	30.40

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Thursday, December 3, 2015

JUBILANT FOODWORKS LIMITED: IT's BUYING TIME AGAIN !!!

Scrip Code: 534804 / JUBLFOOD

CMP: Rs. 1517.20; Market Cap: Rs. 9,958.25 Cr; 52 Week High/Low: Rs. 1959.50 / Rs. 1271.05

Total Shares: 6,56,35,702 shares; Promoters : 3,20,22,954 shares – 48.79 %; Total Public holding : 3,36,12,748 shares – 51.21 %; Book Value: Rs. 102.13; Face Value: Rs. 10.00; EPS: Rs. 18.24; Dividend: 25.00 %; P/E: 83.17 times; Ind P/E: 48.30; EV/EBITDA: 34.98.

Total Debt: ZERO; Enterprise Value: Rs. 9,927.88 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 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 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 December, 2015, Jubilant FoodWorks Ltd operates 911 Domino’s Pizza restaurants in approximately 209 cities; and 59 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 is the sole master franchisee for both Domino’s Pizza Brand since 1996 as well as Dunkin’ Donuts Brand since 2011 in India. The master franchise agreement with Dominos International is till 2024 and is renewable for another 10 years. The company is part of the Bhartia group, which owns a 48.9 % stake in Jubilant FoodWorks ltds and is India’s largest food service company, with a network of 921 Domino’s Pizza restaurants across 209 cities. The Company & its subsidiary have the exclusive rights to develop and operate Domino’s Pizza brand in India, Sri Lanka, Bangladesh and Nepal. At present it operates in India and Sri Lanka. The Company is the market leader in the chained pizza market with 72 % market share in India. The Company also has exclusive rights for developing and operating Dunkin’ Donuts restaurants for India and has launched 61 Dunkin’ Donuts restaurants across 21 cities in India. Domino’s Pizza India has won the Customer Service Excellence Award at The Annual Indian Retail Awards, also it has won the prestigious “Golden Peacock National Training Award” by the “Institute of Directors (IOD) - India at the”25th World Congress on Leadership for Business Excellence & Innovation’ and the Golden Peacock Awards Presentation Ceremony. Domino’s Pizza India has been awarded as one among Top 4 winners of coveted BML Munjal Awards (2015) for Business Excellence through Learning & Development. Domino’s Pizza also crossed the landmark with the launch of its 900th restaurant in the country. India is now becoming a consumption driven country. With increasing disposable income this set of consumers is more inclined to spend luxuries and fine dines & foods services these demands are mainly driven by the youth population and India accounts for the largest young age group of 15-34 years of age population which amounts to 43.5 Cr people, for Jubilant this is the most important factor, this 43.5 Cr of population 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 on their highs in students and professionals. And these are the factors which are creating a strong potential market for QSR business to flourish in India. The Indian Food Services Industry (FSI) is worth Rs 6,27,245 Crore. It offers promising opportunities for both the chained and independent sectors, with the market projected to grow to Rs 10,10,416 Crore by Calender Year (CY) 2019. Domino’s Pizza comes under Quick Service Restaurants. The India’s Quick Service segment is the clear winner in the eating out market with a growth rate of 21 %. The QSR industry has an OPM of close to 15 % to 25 %. The QSR organized segment is expected to reach Rs. 22,000 Cr by 2017 driven by rising disposable income, nuclear family structure, increasing working population, rapid urbanization and consumerism, increased private equity interest. Indian on an average eats out lesser than 2 times a month as compared to 40 times in Singapore. Even a small increase in this number provides a huge market opportunity for restaurants in India. Driven by an improving economy, and with inflation being under control, the Food Service Industry is expected to return to a reasonable growth momentum in the near term. The Indian Quick Service Restaurant (QSR) markets are affordable and competitive in pricing, have innovative food products with strong focus on quality and hygiene, and provide a higher level of consumer confidence and this has led to the rapid rise of the QSR segment in India. In fact, QSRs have become the fastest growing segment in the eating out market, along with the casual dining segment. The QSR growth is further fuelled by customisation efforts, with most QSRs tailoring their offerings in terms of flavours, pricing, services, etc. to meet Indian consumers’ evolving preferences. By tapping the digital medium, the QSRs are continuously expanding their consumer base. QSRs are also investing significantly in strengthening their back-end, which facilitates expansion. Domino’s Pizza was the largest QSR brand by revenue figures and also as per market share in CY 2014.

The Indian consumer is driven by special occasions to indulge in dining out or ordering in. Further “Eating Out” has become an occasion-behaviour driver in itself. Multiple factors spur the “Eating Out” culture and correspondingly, it thrusts the growth of the organised Food Sector Industry in India. Within the QSR segment, the size of the organized café market in which Dunkin operates, is estimated to be worth Rs. 6,700 in 2014 and is projected to record a CAGR of 15 % to Rs. 15,100 Cr by 2020. Since its launch of Dunkin in 2011, in FY13 in the café segment, Dunkin has expanded its reach to 61 stores as of now, occupying a similar share with Starbucks Coffee, Costa Coffee and Coffee Bean and Tea Leaf in terms of number of stores. Around 70 % of Dunkin stores are in the top 8 cities like Delhi, Gurgaon, Greater Mumbai, Bangalore, Chennai, Hyderabad, Kolkata and Pune and they contribute around 40 % to 45 % of the chained café market. When compared to its competitors, Dunkin has managed to record high average sales per day (ASPD) of Rs. 45,000 to Rs. 50,000 despite having one of the lowest price points on the menu. The Food businesses usually have a long gestation period (around 10 years for Domino’s) and, therefore, it would be better to wait for now and would take a call when the company starts providing data on the Dunkin Donuts business. Currently it is estimated that Dunkin could have revenue CAGR of around 75 % till FY18F, driven by the company’s expansion plans. Jubilants Same Stores Sales Growth for Q2FY16 was 3.2 % and 3.9 % for H1FY16. For Dominos, the company increased its restaurant count to 950 restaurants and is present in 216 cities, from 797 and 167 cities last year; it opened 39 stores last quarter in areas of Bhuj, Bokara, Kadapa, Ratnagiri, Mughalsari, Sirsa , Palwal and Agra. The company managed to deepen its online presence from 27 % a year ago to 36 % at present. Its presence on the mobile platform also increased during the quarter. Its share of online now accounts of 30 % and its app downloads increased to 35 lakh as compared to 2 lakh last year. It launched a new range of pizzas in partnership with the famous chef Vikas Khanna under the theme Exotic Italian Pizza. For Dunkin Donuts, the company opened seven new restaurants this quarter; the total store count is now stands at 66 stores as compared to 37 stores a year ago. Dunkin has now presence across 23 cities from 13 cities a year ago including new cities like Vadodara and Bhopal. It launched wraps and donut cakes during the quarter. It also has tied up with online grocery delivery platform Grofers for home delivery. The company has seen successful in its new launches in Donuts and burgers among consumers. The company retained its target of 150 new Domino’s outlets in FY16 and 30 new Dunkin outlets. They have completed the setting up of 74 and 12 restaurants to date. Online ordering will remain a key focus area along with Innovation. Looking at such plans along with the new launches Jubilant Foodworks ltd looks great business to buy.

Outlook and Valuation:

Jubilant FoodWorks Limited is India’s largest food service company. 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 one 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. 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 and to tackel that company has adopted Asset-light business model which 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. Domino’s predominantly delivery-based model in these cities has proportion of delivery to dine-in is of 50:50. Consequently, the store size required is much smaller at around 900 sq ft to 1,500 sq ft compared to dine-in restaurants and other QSR which requires space of around 2,500 sq ft to 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. It also notable here that the gap between the stores of Domino’s and the rest of its peers is huge like Domino’s has 950 stores including 66 stores of Dunkin Donuts versus 307 of Pizza Hut, 350 McDonalds and 360 stores of KFC. Within the pizza market, Domino’s has a share of more than 67 %. Domino’s has consistently gained its market share from its pizza peers as well as other QSRs in the past few years. Jubilant 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 resumes on same-store sales, cash flow improvement will be significant. It is remarkable that Jubilant FoodWorks, which runs a high-growth business like Domino’s, including 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. Jubilant has expanded rapidly in the past few years, with Domino’s having 921 outlets and presence in 201 cities as of August 2015. The company plans to establish 115 more stores in the rest of the year. As India’s economy is picking up along with discretionary demand, growth for Domino’s is bound to pick up given its leadership position in its segment and the lower base of FY15. According to management, it believes that high single-digit SSSG can be achieved by mid-FY17F. It could be expected that there could be growth of 7 % in Same Store Sales (SSS) by end of FY16F, and thereby expect EBITDA margins recovery for Jubilant Foodworks Ltd also. There could be a 0.60 % improvement in FY16F EBITDA margins for the Domino’s business, and margins to reach around 15.8 % levels by FY18F before stabilizing at around that level, which would be similar to QSR players around the world. These margins are at risk due to rising rental and personnel costs. The Indian pizza space has two dominant players, Pizza Hut and Dominos, and this competition has moderated slightly in the past few months with aggressive Buy One Get One (BOGO) free offers which now has been replaced with 20 % to 25 % off on bill value and launch of value meals. Dominos, which earlier offered BOGO on a selected weekdays, is now using 20 % off as a Promotional offer. This reflects some sanity in promotions in the thick competitive pizza space. These big players are trying to rope in new customers with value-for-money offerings. Dominos, on the other hand, has initiated a value fest promoting family meals, kid’s combo packs and pan-pizza combos. Dominos has launched a new offering—Veg Parcel at Rs. 35 and Non-Veg Parcel at Rs. 40. Also the prices of key raw materials, primarily like cheese and chicken, too have been benign (gentle), which goes well for pizza players’ for their margins; some improvement herein could be routed to heightened promotional activity to revive SSG which was gentle due to consumer sentiments. Jubilant Foodworks has already opened 74 Dominos and 12 Dunkin Donuts stores in H1FY16 and expects to meet its target of adding 150 & 30 stores in FY16. Jubilant Foodworks took a price hike of 3.8 % YoY on 1 Sep’15 as against its usual practice of taking hikes in the month of August each year. This delay in taking a price hike was attributed by management to product experiments. Management expects pricing to contribute around 7 % YoY to the top-line in Q3FY16 which should largely nullify the impact of higher employee costs on margins. Employee costs were up 31 % YoY due to higher personnel costs which are linked to network growth, annual increase in compensation and enhanced pay-scales for team members due to adjustments in minimum wages. The employee count increased to 29,168 in Q2FY16 from 26,818 in Q2FY15. On Line Orders (OLO) continues to drive growth for delivery sales, with its contribution improving to 36 % of delivery sales in Q2FY16 from 33 % in Q1FY16. Also, mobile ordering contributed 30 % to overall OLO in Q2FY16 as against 28 % in Q1FY16. Management has revised the margin impact of Dunkin Donuts on Dominos to 2.00 % on an annualised basis from 1.80 % earlier. Management maintained its capex guidance of Rs. Rs 250 Cr for FY16. Company’s ad spend have increased to 5.5 % from 5 % and Rentals have surge 15 % every 3 years (5 % YOY) as per the agreement. Rental cost in the industry is increasing 7 % to 8 % on long term. Therefore, rental cost increment is lower for the company. Dunkin stores are almost PAT positive at the store level. However, at the brand level, the company is still burning cash due to high marketing expenses and S&G expenses. Once Dunkin reaches a store count of 120-130, Jubilant Foodworks expects to breakeven at the brand level and this may take less than 3 years. Capital employed in Dunkin store is Rs. 120 Cr so far and management expects capex to around Rs. 300 Cr for FY16. Jubilant currently pays 14 % VAT and 5 % service tax, which is passed on to the consumer. Another 2 % tax impact is absorbed by the company. Therefore, Jubilant Foodworks Ltd will be GST neutral at 21 %. The tie up with IRCTC has not contributed much in revenue till now, but the company believes this space will be more exciting in 5 years. Looking forward the medium-term earnings growth and improvement of return ratios gives immense opportunity to this company and will help the company's share prices to sustain high valuation metrics. Also its Earnings growth potential is far superior when compared with its peers. It is expected that with the company’s surplus scenario beeng created due to its asset light and its net working capital continues to be in excess along with its fixed asset turnover which continues to be in excess of 3 times, its growth story is likely to be intact for the coming quarters also. At the current market price of Rs. 1,517.20, the stock is trading at a PE of 81.65 x FY16E and 20.39 x FY17E respectively. The company can post Earnings per share (EPS) of Rs. 18.58 in FY16E and Rs. 58.15 in FY17E. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also.

KEY FINANCIALS	FY14	FY15	FY16E	FY17E
SALES (₹ Crs)	1,736.00	2,092.40	2,555.50	3,991.40
NET PROFIT (₹ Cr)	118.60	112.60	121.80	171.10
EPS (₹)	18.07	16.94	18.58	26.09
PE (x)	76.30	80.50	74.40	53.00
P/BV (x)	16.40	14.00	11.80	10.40
EV/EBITDA (x)	36.30	35.30	30.30	23.00
ROE (%)	24.10	18.60	17.20	20.80
ROCE (%)	23.50	16.60	14.30	17.20

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