18 November 2014
Update | Sector: Retail
Jubilant Foodworks
BSE Sensex
28,163
S&P CNX
8,426
CMP: INR1,451
TP: INR1,600
Buy
Demand environment remains soft
Moderating inflation augurs well for discretionary demand
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
JUBI IN
65.5
1,480/939
23/13/-50
95.1
1.5
SSG to recover to high single digits after four to six quarters.
Lower inflation positive for discretionary demand and margins.
Dunkin Donuts
receiving good response in new markets.
Aggressive expansion plans for next three years.
Financial Snapshot (INR Million)
Y/E March
2015E 2016E 2017E
Net Sales
21,029 28,866 37,945
EBITDA
Adj PAT
EPS (INR)
Growth (%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
2,749 4,193 5,686
1,332 2,140 3,024
20.4
12.6
21.5
26.2
71.3
13.8
32.7
60.6
27.0
33.7
44.4
10.5
46.2
41.3
28.7
36.5
31.4
7.9
105.0 137.6 183.9
Shareholding pattern (%)
Sep-14 Jun-14 Sep-13
Promoter
49.6
49.6
51.7
DII
1.7
1.3
0.1
FII
45.0
46.2
45.4
Others
3.8
2.9
2.9
*FII includes depository receipts
Stock Performance (1-year)
Jubilant Foodworks
Sensex - Rebased
2,300
1,950
1,600
1,250
900
Soft demand outlook; incremental sales trend stabilizing:
In our
interaction with JUBI’s management, it indicated softer demand
environment for the next few quarters before returning to high single digit
same store growth (SSG). However, incremental sales trends are not
worsening and have stabilized. If inflation continues to moderate,
discretionary spends can revive and boost QSR spends, and indeed margins.
From RM price viewpoint, prices have stabilized and gross margins will
remain in the 74-76% band, as per management.
Competition increases; will expand market in medium-to-long term:
Competition is intensifying both from Pizza and non-Pizza QSR players
(competition for share of stomach), but it is not the core factor which drove
SSS slowdown. In fact, the same store performance of cities where
competition is intense versus those where competition is benign does not
defer materially. While higher competition can impact sales and margins in
the short term, it should help expand category in the medium-to-long term.
Management noted that long term potential of Indian pizza market remains
unchanged and the potential store size for JUBI has not been lowered. It is
planning 180 new store additions per annum for three to four years.
Dunkin Donuts
received good response:
Dunkin
has received a good
response in Mumbai and using the learnings from Mumbai and Delhi, it
entered Bengaluru where, according to the management, it achieved
highest first day QSR sales. Despite dine-in format and lower margins, JUBI
expects three-year store level payback for
Dunkin.
No respite in manpower costs:
Management has guided for continued
inflation in manpower costs due to revision in minimum wages (revised
significantly upwards in Maharashtra from July 2014) and also to prevent
attrition. However, it is implementing several cost cutting initiatives in
logistics and ensuring better supply chain planning. On discounting, it aims
to keep the surprise element relevant to prevent consumers from planning
orders in advance, which otherwise can cannibalize regular pizza sales.
Maintain Buy:
Near-term SSG disappointment will present good entry
opportunity, in our view. We believe JUBI offers a good play on urban
consumption recovery given the size of the prize, expanding market share
of JUBI, its superior execution on ground and also the operating leverage
residing in its business model. We maintain a
Buy
with a target price of
INR1,600. Extended period of SSG slowdown is a key downside risk.
Gautam Duggad
(Gautam.Duggad@MotilalOswal.com); +91 22 3982 5404
Manish Poddar
(Manish.Poddar@MotilalOswal.com); +91 22 3027 8029
Investors are advised to refer through disclosures made at the end of the Research Report.

Jubilant Foodworks
Other key takeaways
Capex: minimum INR3b per annum for the next two years.
It is opening three new commissaries – Guwahati, Hyderabad and Nagpur. Of
this, two will be operational in FY15. Also, planning for the fourth commissary in
Greater Noida; land for this commissary is finalized. This commissary will absorb
a capex of INR1.5b, of which INR1.1b will be incurred in FY16.
It is also installing an additional production facility to manufacture “specialized
crust”. It will be made at the Noida facility and is included in the INR1.1b capex.
Pizzas used to form 85% of revenue three years ago. Now, it contributes 76%
due to expansion of offerings in the side menu.
65% of pizza sales happen during peak hours. 30%, 20% and 50% of sales
happen during 11-3pm, 3pm-7pm and 7pm-11pm zone, respectively.
SSS trends are not different in dining versus Home Delivery outlets.
Frequency of ordering has come off across set of customers.
Slowdown in addition of new consumers has also reduced (though it is still
adding new consumers).
Unlike other markets, in India, pizza will continue to remain a bigger category
versus the burger due to a close resemblance of pizza to the core Indian diet of
“roti plus vegetables”.
Proportion of Pizza Mania, entry level pizza at a price point of INR49, has gone
up in the last 12 months.
Dominos
generates 15% higher revenue versus
McDonald’s,
as per Euromonitor.
Do not expect weighted average inflation index to go up for the next six months.
Cost rationalization initiatives: a) automated
tool
to optimize route-to-reach –
which route and vehicle to use to reach the store in the most cost efficient
manner. b)
Six Sigma:
to manage stock-outs (highlighted the example of Coke,
wherein supply of Coke was stopped due to issues related to payments.
Subsequently, a direct communication channel was established to avert this
issue in future). c)
Sankalp:
in-house idea sourcing from employees to reduce
cost. Has a separate team to implement the ideas.
Labor inflation will continue.
Exhibit 1: JUBI is opening 150 stores per annum for next 3
years
Stores
Cities
679
797
726 761
Exhibit 2: Same store growth will have benign base in 2HFY15
SSS Growth (%)
632
552 576 602
489 515
439 465
411
142 152 154 167
96 100 105 110 112 118 123 128 132
43.835.733.236.726.730.126.222.319.816.1 7.7 6.3 6.6
-2.6 -3.4 -2.4 -5.3
Source: Company, MOSL
Source: Company, MOSL
18 November 2014
2

Jubilant Foodworks
Exhibit 3: Sales growth is soft
59
67
58 56 60
Sales growth (%)
47 49 46 45
42
18.1 18.6 17.9 18.2
39
29 26 28
19 19 20
Exhibit 4: Lower SSG plus network expansion eroded margins
EBITDA Margin (%)
17.2 17.4 16.7 16.8
15.0 14.8
12.8 12.4 12.2
15
Source: Company, MOSL
Source: Company, MOSL
18 November 2014
3

Jubilant Foodworks
Financials and valuation
Income statement
Y/E March
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Reported PAT
Adjusted PAT
Change (%)
Min. Int. & Assoc. Share
Adj Cons PAT
2012
10,191
50.2
1,881
18.5
377
1,504
0
58
0
1,562
488
31.3
1,073
1,033
43.4
0
1,033
2013
14,145
38.8
2,418
17.1
556
1,862
1
77
0
1,939
628
32.4
1,311
1,311
26.9
0
1,311
2014
17,372
22.8
2,505
14.4
787
1,718
0
85
0
1,803
620
34.4
1,182
1,182
-9.8
0
1,182
2015E
21,029
21.1
2,749
13.1
1,001
1,748
1
103
0
1,850
518
28.0
1,332
1,332
12.6
0
1,332
(INR Million)
2016E
28,866
37.3
4,193
14.5
1,358
2,834
10
147
0
2,972
832
28.0
2,140
2,140
60.6
0
2,140
2017E
37,945
31.5
5,686
15.0
1,676
4,010
10
199
0
4,200
1,176
28.0
3,024
3,024
41.3
0
3,024
Balance sheet
Y/E March
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets
2012
651
2,312
2,963
133
69
3,165
3,935
1,392
2,543
135
923
578
187
64
131
196
1,504
1,437
67
-926
3,166
2013
653
3,645
4,298
122
201
4,621
5,802
1,852
3,950
102
940
866
240
68
378
179
1,897
1,825
72
-1,032
4,621
2014
654
4,846
5,500
146
375
6,021
8,065
2,601
5,464
196
937
1,102
331
90
246
435
2,599
2,484
115
-1,497
6,021
2015E
654
6,214
6,868
100
375
7,342
11,007
3,603
7,405
226
937
1,031
435
98
84
415
3,422
3,221
202
-2,392
7,343
(INR Million)
2016E
2017E
654
654
8,353
11,377
9,007
12,031
100
100
375
375
9,482
12,506
13,691
16,782
4,961
6,637
8,730
10,145
260
299
1,737
2,249
2,036
4,919
598
794
134
246
771
3,243
533
636
4,715
6,832
4,361
6,368
354
465
-2,679
-1,913
9,482
12,506
E: MOSL Estimates
18 November 2014
4

Jubilant Foodworks
Financials and valuation
Ratios
Y/E March
Basic (INR)
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Valuation (x)
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Cash P/E
Price / Book Value
EV/Sales
Profitability Ratios (%)
EV/EBITDA
Dividend Yield (%)
Turnover Ratios
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios (%)
Leverage Ratio
Asset Turnover (x)
2012
2013
2014
2015E
2016E
2017E
15.9
21.7
45.5
0.0
0.0
91.4
67.0
31.9
9.2
49.9
0.0
20.1
28.6
65.8
0.0
0.0
72.3
50.7
22.0
6.6
38.8
0.0
18.1
30.1
84.1
0.0
0.0
80.3
48.2
17.3
5.4
37.5
0.0
20.4
35.7
105.0
0.0
0.0
71.3
40.7
13.8
4.5
34.1
0.0
32.7
53.5
137.6
0.0
0.0
44.4
27.1
10.5
3.2
22.1
0.0
46.2
71.8
183.9
0.0
0.0
31.4
20.2
7.9
2.4
15.8
0.0
44.0
58.4
36.1
47.8
24.1
32.3
21.5
26.2
27.0
33.7
28.7
36.5
4.0
3.6
3.3
3.1
3.4
3.5
Cash flow statement
Y/E March
OP/(Loss) before Tax
Depreciation
Others
Interest
Direct Taxes Paid
(Inc)/Dec in Wkg Cap
CF from Op. Activity
(Inc)/Dec in FA & CWIP
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax)
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
2012
1,562
377
0
0
488
-575
2,009
1,132
718
159
2,009
22
34
0
0
40
39
92
131
2013
1,939
556
0
1
628
-354
2,143
1,834
17
170
2,021
16
-11
0
0
126
248
131
378
2014
1,803
787
0
0
620
-332
2,217
2,357
-3
260
2,615
15
24
0
0
265
-133
378
246
2015E
1,850
1,001
0
1
518
-733
2,962
2,972
0
246
3,218
0
-46
0
0
94
-162
246
84
(INR Million)
2016E
2017E
2,972
4,200
1,358
1,676
0
0
10
10
832
1,176
-974
-1,706
4,315
6,196
2,717
3,131
800
512
268
292
3,785
3,934
0
0
0
0
0
0
0
0
157
209
687
2,471
84
771
771
3,243
E: MOSL Estimates
18 November 2014
5

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company(ies). This
its affiliated
Foodworks
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JUBILANT FOODWORKS LTD
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6