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MacVisit – Jubilant Foods
Growth company with option values
We met Jubilant Foodworks’ (JUBI IN, Not Rated) management in Delhi
recently. Jubilant is the master franchise of Domino’s Pizza in India and has a
~65% market share in the pizza home delivery segment. JUBI benefits from
rising income levels and low penetration of Quick Service Restaurants (QSR) in
India. JUBI’s strong cash generation and shorter payback period from new
stores has been superior to Indian departmental and supermarket retail players.
Tier-II/III expansion is the key driver for faster growth
The company operates over 364 stores across 87 cities in India and has
recently expanded its footprint to tier II/III cities such as Patna, Bhubaneswar,
Bilaspur, Salem, Howrah, Saharanpur, Zirakpur etc. Currently ~65-70% of its
sales come from the top ten cities which account for ~65% of its total stores.
This may change significantly over the next 4-5 years as more than half of its
new stores will be opened in smaller cities. We believe tier-II/III cities present
penetration-led growth opportunities for QSRs given JUBI’s success in cities like
Patna.
Management guided long-term SSS growth of ~18-20%
The company has achieved 22% and 38.7% same store sales (SSS) growth in
FY10 and 9-months FY11. However, the company has guided ~18-20% SSS
growth going forward as the number of stores in existing cities is set to increase
significantly (expects ~75 new stores in FY12). Management believes 18-20%
SSS growth is achievable due to lifestyle change related to the QSR growth
potential in urban India.
Dunkin’ Donuts provides an additional growth option
JUBI has recently entered into a master franchise agreement with Dunkin’
Donuts with an agreement to open Dunkin’s stores in India with the first store
likely to be opened in 4Q’FY12. JUBI has a plan to open 80-100 stores over the
next five years. Given its successful experience of operating Domino’s Pizza
stores and the modular nature of business, Dunkin’ Donuts provides a future
growth option.
Strong operating cash flow to fund future store expansions
JUBI’s business provides strong cash flow support driven by high gross margins
(>70%) and negative working capital (NWC) due to centralised sourcing, the
storage and distribution of raw materials along with centralised commissaries.
JUBI has stated that the average payback period of its stores is ~3 years with
older stores (2 years or above) having better economics due to improved
margins. High asset turnover, the NWC cycle and higher operational efficiency
due to economics of scale support internal funding of its new store growth
capex.
Trading at 29x FY13E consensus EPS and 5.1% cash yield
JUBI is currently trading at 40.7x and 28.7x its FY12E and FY13E Bloomberg
consensus earnings, respectively. We believe a higher multiple is derived from
its higher cash yield (5.1% FY13E consensus cash yield), strong execution
track record and high growth expectation. JUBI is a key retail play in India given
the modularity of its business with the existence of growth options like Dunkin’
Donuts, the future tie-ups and proven food retailing business model
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
MacVisit – Jubilant Foods
Growth company with option values
We met Jubilant Foodworks’ (JUBI IN, Not Rated) management in Delhi
recently. Jubilant is the master franchise of Domino’s Pizza in India and has a
~65% market share in the pizza home delivery segment. JUBI benefits from
rising income levels and low penetration of Quick Service Restaurants (QSR) in
India. JUBI’s strong cash generation and shorter payback period from new
stores has been superior to Indian departmental and supermarket retail players.
Tier-II/III expansion is the key driver for faster growth
The company operates over 364 stores across 87 cities in India and has
recently expanded its footprint to tier II/III cities such as Patna, Bhubaneswar,
Bilaspur, Salem, Howrah, Saharanpur, Zirakpur etc. Currently ~65-70% of its
sales come from the top ten cities which account for ~65% of its total stores.
This may change significantly over the next 4-5 years as more than half of its
new stores will be opened in smaller cities. We believe tier-II/III cities present
penetration-led growth opportunities for QSRs given JUBI’s success in cities like
Patna.
Management guided long-term SSS growth of ~18-20%
The company has achieved 22% and 38.7% same store sales (SSS) growth in
FY10 and 9-months FY11. However, the company has guided ~18-20% SSS
growth going forward as the number of stores in existing cities is set to increase
significantly (expects ~75 new stores in FY12). Management believes 18-20%
SSS growth is achievable due to lifestyle change related to the QSR growth
potential in urban India.
Dunkin’ Donuts provides an additional growth option
JUBI has recently entered into a master franchise agreement with Dunkin’
Donuts with an agreement to open Dunkin’s stores in India with the first store
likely to be opened in 4Q’FY12. JUBI has a plan to open 80-100 stores over the
next five years. Given its successful experience of operating Domino’s Pizza
stores and the modular nature of business, Dunkin’ Donuts provides a future
growth option.
Strong operating cash flow to fund future store expansions
JUBI’s business provides strong cash flow support driven by high gross margins
(>70%) and negative working capital (NWC) due to centralised sourcing, the
storage and distribution of raw materials along with centralised commissaries.
JUBI has stated that the average payback period of its stores is ~3 years with
older stores (2 years or above) having better economics due to improved
margins. High asset turnover, the NWC cycle and higher operational efficiency
due to economics of scale support internal funding of its new store growth
capex.
Trading at 29x FY13E consensus EPS and 5.1% cash yield
JUBI is currently trading at 40.7x and 28.7x its FY12E and FY13E Bloomberg
consensus earnings, respectively. We believe a higher multiple is derived from
its higher cash yield (5.1% FY13E consensus cash yield), strong execution
track record and high growth expectation. JUBI is a key retail play in India given
the modularity of its business with the existence of growth options like Dunkin’
Donuts, the future tie-ups and proven food retailing business model
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