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Jubilant Foodworks (JUBI)
Consumer products
An in-line result, cash utilization is a key monitorable. 37% yoy same-store growth
in 1QFY12 is likely benefited by extended IPL cricket season as well. Gross margins
declined 100 bps and staff cost growth higher than sales growth reinforces our view
that operating leverage in JUBI’s model is limited (other than rent and corporate
expenditure). JUBI has given an ICD of Rs300 mn in FY2011; it has not declared any
dividend in FY2011. Promoter stake has declined to 58.9% as of June 30, 2011 (60.2%
as of March 31, 2011, 61.8% as of June 30, 2010). SELL. Management commentary
regarding demand conditions for discretionary consumption is a key monitorable.
Good sales and profitability growth
Jubilant Foodworks reported net sales of Rs2.2 bn (+60%, KIE estimate Rs2.1 bn), EBITDA of
Rs413 mn (+65%, KIE estimate Rs400 mn) and PAT of Rs232 mn (+52%, KIE estimate Rs224 mn).
Sales growth of 60% is largely in line with estimates and is likely driven by same-store growth
(SSG) of ~37%. Sales for the quarter likely had the benefit of an extended IPL cricket season (51
days in 2011 versus 44 days in 2010), in our view. In FY2011, the same-store growth (SSG) was
37%, significantly higher than the average of the six years prior to that of 20%.
On the cost front - material cost increased 66% likely due to higher price of milk products
(cheese is an important ingredient; similar trends were seen in gross margins of Nestle and GSK
Consumer as well) and vegetables and staff cost increased 68%. Raw material costs and staff
costs increasing at a faster pace than sales is not surprising considering that Jubilant’s model is
dependant on increasing manpower for higher number of pizza deliveries. However, benefits of
operating leverage were seen in rent (130 bps) and other expenditure (110 bps). This aided
EBITDA margin expansion by 54 bps to 19.1%.
Higher other income of Rs13 mn is likely on account of increase in interest income as JUBI had
given an inter-corporate loan of Rs300 mn in September 2010. The entity to which the loan has
been granted has not been disclosed by the company.
The company has started paying full tax from this quarter onwards.
14 new stores were opened in 1QFY12 and total number of stores as of June 30, 2011 is 392.
The company plans to open 80 new stores in FY2012E. Number of employees increased to
12,593 from 11,514 as of March 31, 2011.
Promoter stake has declined to 58.9% as of June 30, 2011 versus 60.2% as of March 31,
2011 and 61.8% as of June 30, 2010.
Some positives and negatives
Interest in the food service sector continues. Pursuant to ICICI Ventures’ 10% stake
acquisition in Devyani International for Rs2.5 bn, media reports suggest that India Equity
Partners (US based PE) has acquired a controlling stake in Sagar Ratna Hotels, a restaurant
chain specializing in south Indian cuisine. Early this year, TVS Capital invested US$11 mn
in Om Pizzas & Eats, the franchisee of Papa John’s Pizza, Chili’s Grill & Bar and The Great
Kabab Factory in India. Continued interest in the sector is likely acting as a tailwind for
JUBI’s stock price performance.
We are positive on the tie-up with Dunkin Donuts from a long-term perspective
as it addresses the cyclicality in Dominos business model (pizza business is cyclical
due to high average bill value, in our view). However, leveraging benefits will
likely be restricted to management bandwidth and utilization of commissaries
and there will likely be no benefits at store level operations.
The company has given an inter-corporate deposit of Rs300 mn in FY2011 (as per
annual report). We highlight its dividend policy “Keeping in view your Company’s
requirement of capital for its growth plans and the intent to finance such plans through
internal accruals to the maximum, the Board has not proposed any dividend”.
Retain SELL
We like JUBI’s business model, have strong conviction in the management and see huge
growth opportunities for the company driven by changing demographic and socio-economic
factors. Despite the strong near-term earnings forecast and favorable view, we find it
difficult to justify the current valuation of the company (PE of 36X FY2013E). Building in
higher sales growth and marginally higher operating leverage in corporate expenses, our
estimates for FY2012E and FY2013E are higher by ~12%. Our EPS estimates for FY2012E
and FY2013E are Rs16.5 and Rs22.2, respectively. We continue to value JUBI on DCF with a
revised target price of Rs650 (Rs550 previously). Maintain SELL. Upside risk is better-than
expected sales growth.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Jubilant Foodworks (JUBI)
Consumer products
An in-line result, cash utilization is a key monitorable. 37% yoy same-store growth
in 1QFY12 is likely benefited by extended IPL cricket season as well. Gross margins
declined 100 bps and staff cost growth higher than sales growth reinforces our view
that operating leverage in JUBI’s model is limited (other than rent and corporate
expenditure). JUBI has given an ICD of Rs300 mn in FY2011; it has not declared any
dividend in FY2011. Promoter stake has declined to 58.9% as of June 30, 2011 (60.2%
as of March 31, 2011, 61.8% as of June 30, 2010). SELL. Management commentary
regarding demand conditions for discretionary consumption is a key monitorable.
Good sales and profitability growth
Jubilant Foodworks reported net sales of Rs2.2 bn (+60%, KIE estimate Rs2.1 bn), EBITDA of
Rs413 mn (+65%, KIE estimate Rs400 mn) and PAT of Rs232 mn (+52%, KIE estimate Rs224 mn).
Sales growth of 60% is largely in line with estimates and is likely driven by same-store growth
(SSG) of ~37%. Sales for the quarter likely had the benefit of an extended IPL cricket season (51
days in 2011 versus 44 days in 2010), in our view. In FY2011, the same-store growth (SSG) was
37%, significantly higher than the average of the six years prior to that of 20%.
On the cost front - material cost increased 66% likely due to higher price of milk products
(cheese is an important ingredient; similar trends were seen in gross margins of Nestle and GSK
Consumer as well) and vegetables and staff cost increased 68%. Raw material costs and staff
costs increasing at a faster pace than sales is not surprising considering that Jubilant’s model is
dependant on increasing manpower for higher number of pizza deliveries. However, benefits of
operating leverage were seen in rent (130 bps) and other expenditure (110 bps). This aided
EBITDA margin expansion by 54 bps to 19.1%.
Higher other income of Rs13 mn is likely on account of increase in interest income as JUBI had
given an inter-corporate loan of Rs300 mn in September 2010. The entity to which the loan has
been granted has not been disclosed by the company.
The company has started paying full tax from this quarter onwards.
14 new stores were opened in 1QFY12 and total number of stores as of June 30, 2011 is 392.
The company plans to open 80 new stores in FY2012E. Number of employees increased to
12,593 from 11,514 as of March 31, 2011.
Promoter stake has declined to 58.9% as of June 30, 2011 versus 60.2% as of March 31,
2011 and 61.8% as of June 30, 2010.
Some positives and negatives
Interest in the food service sector continues. Pursuant to ICICI Ventures’ 10% stake
acquisition in Devyani International for Rs2.5 bn, media reports suggest that India Equity
Partners (US based PE) has acquired a controlling stake in Sagar Ratna Hotels, a restaurant
chain specializing in south Indian cuisine. Early this year, TVS Capital invested US$11 mn
in Om Pizzas & Eats, the franchisee of Papa John’s Pizza, Chili’s Grill & Bar and The Great
Kabab Factory in India. Continued interest in the sector is likely acting as a tailwind for
JUBI’s stock price performance.
We are positive on the tie-up with Dunkin Donuts from a long-term perspective
as it addresses the cyclicality in Dominos business model (pizza business is cyclical
due to high average bill value, in our view). However, leveraging benefits will
likely be restricted to management bandwidth and utilization of commissaries
and there will likely be no benefits at store level operations.
The company has given an inter-corporate deposit of Rs300 mn in FY2011 (as per
annual report). We highlight its dividend policy “Keeping in view your Company’s
requirement of capital for its growth plans and the intent to finance such plans through
internal accruals to the maximum, the Board has not proposed any dividend”.
Retain SELL
We like JUBI’s business model, have strong conviction in the management and see huge
growth opportunities for the company driven by changing demographic and socio-economic
factors. Despite the strong near-term earnings forecast and favorable view, we find it
difficult to justify the current valuation of the company (PE of 36X FY2013E). Building in
higher sales growth and marginally higher operating leverage in corporate expenses, our
estimates for FY2012E and FY2013E are higher by ~12%. Our EPS estimates for FY2012E
and FY2013E are Rs16.5 and Rs22.2, respectively. We continue to value JUBI on DCF with a
revised target price of Rs650 (Rs550 previously). Maintain SELL. Upside risk is better-than
expected sales growth.
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