18 August 2015
Annual Report Update FY15 | Sector: Retail
Jubilant Foodworks
BSE Sensex
27,832
S&P CNX
8,467
CMP: INR1,747
TP: INR2,100 (+20%)
Buy
Muted SSSG impacts RoE and margin profile
Gains market share; new initiatives to drive demand
n
Flat SSSG on a benign base, but gains market share:
Despite soft base
(1.6% SSSG), JUBI’s SSSG growth moderated further in FY15 to 0.06%—led
by weak consumer sentiments and stagnant discretionary demand.
However, JUBI’s SSS growth beat peers (who are still witnessing a decline in
SSSG)—driving market share gains (72% in CY14 v/s 70% in CY13). We note
that during FY15, JUBI’s order volumes stood at 58m—an average ticket size
of INR361 and 181 orders per day from a DPI outlet. As per our recent
management interactions, SSS growth demand patterns across channels
and regions are not materially different; however, incremental sales trends
are not worsening and have stabilized.
Multiple initiatives to drive demand:
JUBI implemented several
initiatives on the ground to drive demand. During FY15, the company
broadened its product portfolio by launching the highest number of new
product offerings in a single year in its history (introduced 10 new varieties
of Pizza—launched Cheese Burst Pizza Crust and Fresh Pan Pizza in regular
size besides the existing medium size offering; Oven Baked Subwich—a
lunch option; Taco Mexicana and Crispy Chicken Strips with Oriental flavor
(side product); and Zingy Parcel—anytime, anywhere snack at INR29). Given
the increased acceptance of its side offerings (26% of sales in FY15 v/s 22%
in FY12), JUBI changed its delivery policy during the year to allow delivery of
only side products. It also extended the Pizza Theatre restaurant format
(the open kitchen concept) and all new DPI restaurants (except food courts)
during FY15 were launched under this format.
Front-end + back-end network expansion:
During FY15, JUBI increased
its store count by 150—taking the total count to 876 (added 411 stores
during FY12-FY15), with presence across 196 cities (almost doubled the
count during FY12-15). Having surpassed the UK restaurant count, India is
now the largest market outside the US in the Domino’s Pizza network. The
company also expanded its manufacturing footprint in FY15 by setting up
four new commissaries, taking the total to nine (three in the north, two
each in the south and the east, and one each in central and west India); of
the four commissaries, Nagpur, Guwahati and Hyderabad are now
operational while it has purchased the land for Greater Noida commissary
(expected to commence operations in FY16).
Stock Info
Bloomberg
Equity Shares (m)
M.Cap. (INR b) / (USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val (INR m)/Vol‘000
Free float (%)
JUBI IN
65.6
114.6/1.8
1984/1151
-6/12/39
445/294
51.2
n
Financial Snapshot (INR Billion)
Y/E March
2015 2016E 2017E
Sales
20.9 26.4 34.9
EBITDA
Adj. PAT
Adj.EPS(INR)
EPS Gr. (%)
BV/Sh.(INR)
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div. Yield (%)
103.1
17.7
44.4
0.1
70.3
14.7
32.0
0.2
44.3
11.5
21.3
0.3
2.6
1.1
16.9
-6.2
17.2
23.5
14.8
3.5
1.6
24.9
46.7
20.9
28.9
16.1
5.3
2.6
39.4
58.7
26.1
36.2
15.2
n
98.6 118.9 151.3
Gautam Duggad
(Gautam.Duggad@MotilalOswal.com); +91 22 3982 5404
Manish Poddar
(Manish.Poddar@MotilalOswal.com); +91 22 3027 8029/
Vishal Punmiya
(Vishal.Punmiya@MotilalOswal.com)
Investors are advised to refer through disclosures made at the end of the Research Report.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.

Jubilant Foodworks
n
Operating margin at multi-year low:
JUBI’s operating margin contracted
220bp YoY to 12.2% in FY15—a reflection of muted SSG, aggressive
expansion (new stores work at 70% productivity of system-wide average) and
Dunkin Donuts incubation expenses (180bp impact at EBITDA level; will recur
in FY16 as well). Over FY12-15, margin witnessed a sharp contraction—from
18.5% to 12.2%, reflecting the importance of SSSG for JUBI’s business model.
As the proportion of new stores decline, we expect margin pressures to
moderate. We expect margin to expand 120bp to 13.4% in FY16 and 170bp
to 15.1% in FY17.
Subsidiary losses now form ~11% of PAT
:
JUBI has the exclusive rights to
develop and operate Domino’s Pizza in Sri Lanka, Bangladesh and Nepal
(currently operates only in Sri Lanka). During FY15, JUBI opened four new
restaurants (taking the total count to 15) and launched the Pizza Mania
product range in Sri Lanka. We note increased investments with its first TV
commercial campaign increased the losses from the Sri Lanka subsidiary,
which now forms ~11% of consolidated PAT—up from 6% in FY14.
n
n
Dunkin Donuts—180bp dilutive impact on JUBI’s EBITDA margin:
After various iterations on menu mix, size of store, ambience etc., JUBI
established the ‘proof of concept’ during FY15. The company extended the
market reach of Dunkin by foraying into the west and south India, taking the
total restaurant count to 54 (26 in FY14). As per our recent management
interactions, most of the Dunkin stores are profitable at store level.
However, given the dine-in format and lower margins (high wastage and
scale inefficiencies—lower volume and store count), increasing salience of
Dunkin in the total revenue pie will be margin dilutive even after the brand
beaks even—as margins of Dunkin will be lower versus Domino’s, in our
view. The management has guided for 180bp dilutive impact at EBITDA level
for FY16, same as FY15.
RoE at decadal low; cash conversion improves:
JUBI’s RoE deteriorated
to 17.2% from 21.5% in FY14, primarily led by lower profitability (net profit
margin contracted 150bp YoY to 5.3%). Asset turnover and leverage has not
changed materially. Cash conversion cycle improved by five days ((35) days in
FY15 v/s (30) days in FY14), aided by higher creditor days (up 7 days) but
offset by higher inventory day.
Maiden dividend of INR2.5:
JUBI declared its maiden dividend in FY15—
INR2.5/share (14.8% payout ratio). In earlier earnings calls, the company
mentioned that there is no specific dividend policy yet and thus payout will
depend on its annual performance.
Valuation and view:
JUBI’s performance, while better than competitors,
has lagged our and market’s expectations. Near-term quarterly trends are
unlikely to be linear and, thus, may induce volatility in performance;
notwithstanding that, we like the long-term potential in the food service
industry and JUBI’s execution prowess to outperform the industry and
capitalize on it. Maintain
Buy
with a target price of INR2,100 (45x Sep-17E
EPS—a 20% discount to three-year average P/E to factor in a lower SSS
growth).
n
n
n
18 August 2015
2

Jubilant Foodworks
Exhibit 1: SSSG remained flattish on moderate base
SSSG (%)
37.2
30.0
22.0
16.2
6.0
1.6
FY10
FY11
FY12
FY13
FY14
0.1
FY15
51.0
Exhibit 2: Revenue growth came off to ~20% levels
Sales (INR b)
59.9
50.2
38.8
22.8
3
FY09
4
FY10
7
FY11
10
FY12
14
FY13
17
FY14
20.5
21
FY15
Sales growth (%)
FY09
Source: MOSL, Company
Source: MOSL, Company
Exhibit 3: Store Count almost doubled in last 3 years, 1/3 of
total stores are <2 years old
Store Count
576
465
241
306
378
726
Exhibit 4: JUBI has used the slowdown to expand network
outside metros
City Count
152
90
105
123
69
47
129
181
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY09
FY10
FY11
FY12
FY13
FY14
Source: MOSL, Company
Source: MOSL, Company
Exhibit 5: No change in revenue per store.
Rev/store (INR Mn)
17.9
10.8
11.7
11.7
13.9
21.9
24.6
23.9
23.9
Exhibit 6: ..rev/store growth trends
Rev/store growth (%)
29.5
15.1
8.6
-0.1
-2.6
-0.1
18.9
22.1
12.1
Source: MOSL, Company
Source: MOSL, Company
Exhibit 7: EBITDA per store below FY11 levels
EBITDA/ store (INR Mn)
4.2
4.0
3.2
2.2
1.3
1.5
1.4
Exhibit 8: ….with 15% decline in EBITDA/store in FY15
EBITDA/ store growth (%)
53.3 47.3
3.5
2.9
24.5
8.2
-3.1
27.3
3.8
-17.8
-15.3
Source: MOSL, Company
Source: MOSL, Company
18 August 2015
3

Jubilant Foodworks
Exhibit 9: Common Size Profit and Loss Statement
Profit & Loss Account
Total Revenues
Gross Margin (%)
Manufacturing & other Expenses
Stores Consumed
Packing Materials
Power and Fuel
Other Expenses
Personnel
Franchisee Fee
Ad-spend
Selling and Distribution exp
Rent
Freight and Delivery
Misc Exp
Other Expenses
EBIDTA Margin (%)
Depreciation
Tax
Net Profit Margin (%)
FY09
100.0
74.4
13.7
1.2
4.0
6.3
2.3
19.8
3.4
4.7
20.7
9.5
3.9
3.8
3.6
12.1
6.0
0.3
2.6
FY10
100.0
75.3
13.4
1.3
3.9
5.5
2.7
19.0
3.3
4.6
19.4
9.3
3.4
4.2
2.6
15.6
5.7
0.0
7.9
FY11
100.0
74.9
12.5
1.4
3.9
5.0
2.1
20.0
3.3
4.1
17.2
7.9
3.3
3.4
2.6
17.7
4.3
3.0
10.6
FY12
100.0
74.3
12.2
1.4
4.0
4.7
2.1
19.4
3.3
4.0
16.9
7.6
3.3
3.3
2.8
18.5
3.7
4.8
10.5
FY13
100.0
73.8
12.7
1.4
4.0
5.2
2.1
19.2
3.4
4.4
17.1
8.3
3.1
3.4
2.2
17.1
3.9
4.4
9.3
FY14
100.0
73.9
13.2
0.8
4.1
6.0
2.3
19.6
3.2
5.1
18.3
9.0
3.0
4.0
2.2
14.4
4.5
FY15
100.0
74.8
13.0
0.8
3.8
5.9
2.6
21.2
3.3
5.6
19.5
9.9
2.9
3.9
2.7
12.2
4.8
3.6
2.4
6.8
5.3
Source: Company, MOSL
Exhibit 10: Side order salience up 400bp over FY11-FY15
FY11
Manufactured Goods
Pizza
Others
Traded Goods
Beverages
Dessert
Dips
Others
78.8
13.2
3.6
4.4
-
-
FY12
78.0
11.2
3.5
5.7
1.6
-
FY13
75.9
14.1
3.8
4.3
1.9
0.0
FY14
75.2
15.7
FY15
74.5
16.4
4.0
4.4
3.4
3.2
1.4
1.2
0.2
0.4
Source: Company, MOSL
Exhibit 11: RoE (%) slides further primarily owing to contraction in PAT margins
Net Profit Margin (%)
Asset Turnover (x)
Leverage Ratio (x)
RoE (%)
FY11
10.6
3.4
1.1
37.6
FY12
10.5
3.3
1.0
36.2
FY13
9.3
3.2
1.0
30.5
FY14
FY15
6.8
5.3
3.1
3.2
1.0
1.0
21.5
17.2
Source: Company, MOSL
Exhibit 12: Subsidiary losses further increased in FY15 and now form 11% of Consol PAT
Sales (INR m)
PAT (INR m)
Subsidiary PAT as % of Consol PAT
FY12
17
17
1.6
FY13
69
-40
(3.1)
FY14
FY15
137
193
-76
-122
(6.4)
(11.0)
Source: Company, MOSL
18 August 2015
4

Jubilant Foodworks
Story in Charts: Attractive long term opportunity dwarfs near term challenges
Exhibit 13: Overall food service market expected to post 10% CAGR over FY13-18E (USD b)
Food Services Market Size
Chain Market
Licensed Standalone Market
Standalone Market (In Hotels)
Organized Market
Unorganized Market
Total Market
2013
2.5
10.5
1.3
14.3
33.7
48.0
2018
6.5
21.5
2.0
30.0
48.0
78.0
CAGR
21.1%
15.4%
9.0%
16.0%
7.3%
10.2%
Source: Indian Food Services, MOSL
% of Total
2013
2018
5.2%
8.3%
21.9%
27.6%
2.7%
2.6%
29.8%
38.5%
70.2%
61.5%
Exhibit 14: Organized market to outpace unorganized
segment
CAGR: 2013-2018
16.0%
10.2%
7.3%
Exhibit 15: QSR segment expected to deliver highest CAGR in
five years
25.0%
Chain Market - CAGR (2013-18)
24.2%
20.1%
18.0%
15.5%
14.9%
21.4%
Organized Market
Unorganized Market
Total Market
Source: Indian Food Services, MOSL
Source: Indian Food Services, MOSL
Exhibit 16: Break-up of chain market: QSR expected to triple in size in five years (USD m)
Chain Market
QSR
Casual Dining
Café
Frozen Desserts
PBCL
Fine Dining
Chain Market
2013
1060
760
290
150
105
95
2460
2018
3230
1740
725
300
310
195
6500
CAGR
25.0%
18.0%
20.1%
14.9%
24.2%
15.5%
21.4%
Source: Indian Food Services, MOSL
Exhibit 17: Demographic variables (population by age group)
still intact
0-24
16
44
46
40
47
27
25-54
13
41
47
40
55+
21
27
Exhibit 18: Rise in the number of middle class
LSM 8+
LSM 5-7
LSM 1-4
104
162
178
48
9
2009
125
23
2015
27
Russia
32
China
33
15
3
U.S
2004
Brazil
India
Source: Industry, MOSL
Source: CSO, MOSL
18 August 2015
5

Jubilant Foodworks
Exhibit 19: Growth Story of QSR Industry in India
Source: Company, MOSL
18 August 2015
6

Jubilant Foodworks
Financials and valuations
Income Statement
Y/E March
Net Sales
Change (%)
Material Consumed
Gross Profit
Gross Margin %
Operating expenses
EBITDA
Change (%)
Margin (%)
Depreciation
Int. and Fin. Ch.
Other Non-recurring Inc.
PBT
Change (%)
Margin (%)
Tax
Tax Rate (%)
Adjusted PAT
Change (%)
Margin (%)
Non-rec. (Exp)/Inc.
Reported PAT
2011
6,783
59.9
1,706
5,077
74.9
3,876
1,202
82.0
17.7
293
3
19
924
176.0
13.6
204
22.1
720
115.5
10.6
0
720
2012
10,191
50.2
2,617
7,574
74.3
5,693
1,881
56.5
18.5
377
0
58
1,562
69.0
15.3
488
31.3
1,073
49.1
10.5
-41
1,033
2013
14,145
38.8
3,700
10,445
73.8
8,027
2,418
28.5
17.1
556
1
77
1,939
24.1
13.7
628
32.4
1,311
22.1
9.3
0
1,311
2014
17,372
22.8
4,534
12,838
73.9
10,333
2,505
3.6
14.4
787
0
85
1,803
-7.0
10.4
620
34.4
1,182
-9.8
6.8
0
1,182
2015
20,937
20.5
5,279
15,659
74.8
13,098
2,561
2.2
12.2
1,011
0
65
1,615
-10.4
7.7
504
31.2
1,111
-6.1
5.3
0
1,111
2016E
26,403
26.1
6,339
20,064
76.0
16,522
3,542
38.3
13.4
1,261
0
81
2,362
46.2
8.9
732
31.0
1,630
46.7
6.2
0
1,630
(INR Million)
2017E
34,913
32.2
8,301
26,612
76.2
21,342
5,270
48.8
15.1
1,648
0
125
3,747
58.7
10.7
1,162
31.0
2,586
58.7
7.4
0
2,586
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Loans
Capital Employed
Gross Block
Less: Accum. Depn.
Net Fixed Assets
Lease Deposits
Capital WIP
Investments
Deferred tax assets
Curr. Assets, L&A
Inventory
Account Receivables
Cash and Bank Balance
Others
Curr. Liab. and Prov.
Current Liabilities
Creditors
Provisions
Net Curr. Assets
Appl. of Funds
E: MOSL Estimates
2011
645
1,269
1,914
99
2,013
2,904
1,103
1,801
331
34
205
31
660
142
41
92
385
1,050
185
800
65
-390
2,014
2012
651
2,312
2,963
133
3,096
3,935
1,392
2,543
491
135
923
-69
578
187
64
131
196
1,504
304
1,133
67
-926
3,097
2013
653
3,645
4,298
122
4,420
5,802
1,852
3,950
660
102
940
-201
866
240
68
378
179
1,897
441
1,384
72
-1,032
4,420
2014
654
4,846
5,500
146
5,647
8,065
2,601
5,464
921
196
937
-375
1,102
331
90
246
435
2,599
659
1,825
115
-1,497
5,647
2015
656
5,806
6,462
144
6,606
10,810
3,438
7,373
1,142
199
746
-578
1,287
433
119
389
346
3,564
704
2,555
305
-2,276
6,606
2016E
656
7,140
7,795
100
7,895
14,410
4,699
9,711
1,404
199
846
-578
1,305
521
147
332
305
4,993
889
3,454
650
-3,687
7,896
(INR Million)
2017E
656
9,263
9,919
100
10,019
18,549
6,347
12,202
1,690
199
946
-578
2,750
728
216
1,451
355
7,191
1,175
5,061
956
-4,441
10,018
18 August 2015
7

Jubilant Foodworks
Financials and valuations
Ratios
Y/E March
Basic (INR)
EPS
BV/Share
DPS
Payout %
Valuation (x)
P/E
EV/Sales
EV/EBITDA
P/BV
Return Ratios (%)
RoE
RoCE
Working Capital Ratios
Debtor (Days)
Inventory (Days)
Creditor (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
2011
11.2
29.7
2012
16.5
45.5
0.0
0.0
105.9
11.1
60.0
38.4
36.2
48.6
2
7
41
3.3
0.0
2013
20.1
65.8
0.0
0.0
87.0
8.0
46.7
26.5
30.5
42.1
2
6
36
3.2
0.0
2014
18.1
84.1
0.0
0.0
96.7
6.5
45.2
20.8
21.5
30.4
2
7
38
3.1
0.0
2015
16.9
98.6
2.5
14.8
103.1
5.4
44.4
17.7
17.2
2016E
24.9
118.9
4.0
16.1
70.3
4.3
32.0
14.7
20.9
2017E
39.4
151.3
6.0
15.2
44.3
3.2
21.3
11.5
26.1
156.6
16.6
93.7
58.9
37.6
45.1
2
8
43
3.4
0.1
23.5
2
8
45
3.2
0.0
28.9
2
7
48
3.3
0.0
36.2
2
8
53
3.5
0.0
Cash Flow Statement
Y/E March
OP/(loss) before Tax
Int./Div. Received
Depreciation & Amort.
Interest Paid
Direct Taxes Paid
Incr in WC
CF from Operations
Extraordinary Items
Incr in FA
Free Cash Flow
Incr in lease deposits
Pur of Investments
CF from Invest.
Issue of Shares
Incr in Debt
Others
CF from Fin. Activity
Incr/Decr of Cash
Add: Opening Balance
Closing Balance
E: MOSL Estimates
2011
924
-19
293
3
204
14
976
0
638
339
52
205
894
22
-10
-74
-61
21
70
92
2012
1,562
-58
377
0
488
-575
1,968
-41
1,132
796
159
718
1,968
22
34
-17
40
39
92
131
2013
1,939
-77
556
1
628
-354
2,143
0
1,834
309
170
17
2,021
16
-11
122
126
248
131
378
2014
1,803
-85
787
0
620
-332
2,217
0
2,357
-140
260
-3
2,615
15
24
226
265
-133
378
246
2015
1,615
-65
1,011
0
504
-923
2,979
0
2,748
232
221
-191
2,778
21
-2
-77
-58
143
246
389
2016E
2,362
-81
1,261
0
732
-1,353
4,163
0
3,599
564
262
100
3,962
-1
-44
-21
-259
-57
389
332
(INR Million)
2017E
3,747
-125
1,648
0
1,162
-1,874
5,982
0
4,139
1,843
286
100
4,525
0
0
-30
-338
1,119
332
1,451
18 August 2015
8

Jubilant Foodworks
Corporate profile: Jubilant Foodworks
Company description
Jubilant Foodworks is the master franchisee of
Domino’s Pizza Inc in India with 67% market share
of organized Pizza market. The Company is the
market leader in the organized pizza market with a
50% overall market share and 70% share in the
home delivery segment in India. JFL focuses on a
home delivery and takeaway oriented business
model, which offers its customers the convenience
of eating in the comfort of their own homes and
workspaces. The company also holds master
franchise of Domino’s in Sri Lanka, Nepal and
Bangladesh.
Exhibit 20: Sensex rebased
2,200
1,900
1,600
1,300
1,000
Aug-14
Nov-14
Feb-15
May-15
Aug-15
Jubilant Food.
Sensex - Rebased
Exhibit 21: Shareholding pattern (%)
Jun-15
Promoter
DII
FII
Others
48.8
4.5
41.5
5.2
Mar-15
48.8
4.7
41.4
5.1
Jun-14
49.6
1.3
46.2
2.9
Exhibit 22: Top holders
Holder Name
Morgan Stanley Asia (Singapore) Pte
Copthall Mauritius Investment Ltd
Smallcap World Fund INC
Wasatch Small Cap Growth Fund
Reliance Capital Trustee Co.Ltd
% Holding
4.6
3.9
3.4
2.3
1.8
Note: FII Includes depository receipts
Exhibit 23: Top management
Name
Shyam S Bhartia
Hari S Bhartia
Designation
Chairman
Co-Chairman
Exhibit 24: Directors
Name
Shyam S Bhartia
Hari S Bhartia
Arun Seth*
Ramni Nirula*
*Independent
Name
Vishal Marwaha*
Phiroz Vandrevala*
Ajay Kaul
Exhibit 25: Auditors
Name
S R Batliboi & Co LLP
Jitender, Navneet & Co
Type
Statutory
Cost Auditor
Exhibit 26: MOSL forecast v/s consensus
EPS
(INR)
FY16
FY17
MOSL
forecast
24.9
39.4
Consensus
forecast
27.4
38.8
Variation
(%)
-9.1
1.4
18 August 2015
9

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JUBILANT FOODWORKS LTD
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