Jubilant FoodWorks Limited is India’s largest food service company. JFL & its subsidiary operate Domino’s Pizza brand with the exclusive rights for India, Sri Lanka, Bangladesh and Nepal. The company have recently launched three new products in the quarter - Spicy Baked Chicken, Lebanese rolls and Calzone Pockets; positive response received by all the three products. 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 9 lakh downloads of the Domino’s Pizza mobile ordering app across various smart phones & the Average Online ordering contributes to 18 % of delivery sales in Q2 FY14 and Mobile Ordering sales contributes to 12 % during the quarter. There are total 22 Dunkin’ Donuts Restaurants as on 31 October, 2014 and offers a wide variety of western menu including donuts, coffee, burgers, sandwiches, snacks, and more. It is notable here that the gap between the stores of Domino’s and the rest of its peers is huge. Domino’s has 806 stores versus 307 of Pizza Hut, 350 McDonalds and 360 stores of KFC. 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. Jubilant FoodWorks’ also has plans to expand its networks adding around 150 Domino’s outlet every year and looking at the scale at which its peers plans their expansion, Jubilant looks faster and better positioned. Domino’s in India has traditionally added new stores particularly in the past five years which are anywhere between 19 %-22 % of existing stores. New stores take time to break-even and the burden on overall profitability goes on reducing as time goes forward. Innovations also are essential for any consumer business and particularly during an early stage of operations compared to overall growth potential. 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. Jubilant FoodWorks Ltd has recently renewed their contract with master franchise controller Dominos International. The new contract is for 15 years, which gives them exclusive rights for operations in India, Nepal, Sri Lanka and Bangladesh. The growth shown by Jubilant FoodWorks Ltd is consistently based on the robust operational foundation on which it stands. In the current economic environment 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 has made rapid strides in restaurant expansion and has 772 Domino’s Pizza restaurants. The company launched three new products in the quarter - Spicy Baked Chicken, Lebanese rolls and Calzone Pockets; in Domino’s Pizza and burgers in Dunkin’ Donuts received positive response by all the three products and Domino’s Pizza mobile ordering (Online Ordering (OLO)) remains an important platform to reach a wider audience base serving around 8 million pizzas every month. This enables to drive higher levels of optimization and supply chain systems into the hinterland, to serve tier 2 and 3 cities. On Financials Jubilant FoodWorks Ltd’s Net sales were up 14.8 % YoY at Rs. 501.2 Cr. Its Same-Store Sales Growth (SSG) declined 5.3 % YoY. 2QFY14 was the last quarter of positive SSG at 6.6 % because of a Buy One Get One’ scheme and the base going forward are not challenging. Its EBITDA declined and fell to Rs. 61.1 Cr down by 6.5 % YoY. Gross margin was up 1.50 % YoY, aided by lower proportion of special schemes in 2QFY15, EBITDA margin was down 2.80 % YoY owing to SSG decline. Ongoing expansion (including Dunkin’ Donuts) meant that staff costs and rent cost increase as a percentage of sales were unabated. Jubilant pays Domino’s around 3.2 % of sales as royalty. The management stated that in FY15, there will be a 1.50 % to 1.60 % impact on margins because of Dunkin’ Donuts rollout. Number of Dominos outlets (including Dunkin Donuts outlets) touched 797 which are spread across 167 cities at the end of September 2014 quarter and 806 at the end of October 2014. The company added 80 Domino’s stores in 1HFY15, and are on target to add 150 stores by the end of the year. Company had its new commissaries at Guwahati, Nagpur and Hyderabad these are expected to commence operations in 2HFY15. The pace at which the Jubilant FoodWorks Ltd is setting up its stores it can be easily assumed that it can easily set up 2,000 Domino’s stores in India. The management stated that it is confident of industry growth potential and the company’s own brands. Market share in the organised QSR space actually increased from 6 % to 7 % five years ago to 14 % to 15 % in FY13 and 16 % & 17 % in FY14. Jubilant FoodWorks business model, scale and ability to innovate are creating significant barriers to entry to competitors. Most important is the learning from its experience of being at the forefront of expansion in unchartered territories. As demonstrated by the improvement in Dunkin’ Donuts business after the menu makeover, the management has demonstrated its ability to innovate and think out of the box and use the learning that it has developed in the food business in India. A learning organisation will find new levers of growth. Looking forward the medium-term earnings growth and improvement of return ratios gives immense opportunity to this company will help to sustain high valuation metrics. Also its Earnings growth potential is far superior compared to peers. It is expected that with the company’s surplus scenario is likely to continue for the next three years & will keep its growth story intact for the coming quarters also.
|SALES (₹ Crs)||1,736.30||2,043.60||2,548.40||3,323.10|
|NET PROFIT (₹ Cr)||118.20||119.30||161.10||254.70|