buy weathering the storm with gusto industry fmcg cmp (as … foodworks... · 2020-01-30 ·...

RESULTS REVIEW 3QFY20 30 JAN 2020

Jubilant FoodWorks BUY

HDFC securities Institutional Research is also available on Bloomberg ERH HDF <GO>& Thomson Reuters

Weathering the storm with gustoJFL reported healthy SSG of 6% (7.2% like-like) amid an environment marred with weak demand. Sequential improvement in SSG despite disturbance in several markets due to protest is encouraging (4.9% in 2QFY20). Steep dairy inflation impacted gross margin, it can sustain in 4Q also. Co has opened a record 42 net additions in Domino’s stores in 3Q (highest in 22 quarters). JFL plans to maintain high store opening in the coming quarters. Thereby, JFL is entering into a high revenue growth phase (healthy SSG along with higher share of new stores). Despite the recent run-up in the stock, JFL still holds potential of delivering healthy upside. We value JFL at 46x P/E at Dec-21E EPS, our TP is at Rs 2,175. Reiterate BUY. HIGHLIGHTS OF THE QUARTER Net revenues grew by 14% (vs. exp of 13%) as ex-SSG

growth accelerated. Reported SSG grew at 5.9% (est. 6%) while like-like SSG (adj. for splitting stores) stood at 7.2% (est. 7.5%). However, ex-SSG growth was strong at 8.2%. Growth in delivery was much higher than the co, driven mainly by metros and tier-1 cities. Heavy SSG base (avg 22% SSG for the last 4 quarters) is behind and JFL is entering into moderate base (avg 5% SSG for the next 4 quarters). We model reported SSG of 8.8/8.3% for FY21/22. We model 145/120/110 new Domino’s stores in FY20/21/22.

App downloads grew at 92/16% YoY/QoQ (29mn app downloads) led by in-store activations. This highlights JFL’s

success in new customer acquisition. Eventually, JFL will focus on driving frequency via its app (loyalty program coming).

GM contracted 65bps to 74.9% (exp. 76%) due to steep dairy and vegetable inflation. Dairy inflation impacted GM by 220bps YoY. Price hike in 1Q (~3%) helped partially offset pressure of RM. We model GM pressure in near term (50bps dip in 4Q) as dairy inflation is firm. While expect GM to expand in FY21 on anticipation of moderate inflation and higher mix of value-added products.

Employee costs grew by 17% (in-line) owing to store expansion and investments in building core team. Other expense spiked 17% vs exp. of 12% on account of (1) Higher delivery mix, (2) Investment in digital infrastructure and (3) New marketing campaign. Adj EBITDAM (IND AS) declined by 161bps to 16.8% (est .flat).

STANCE We foresee enough levers of growth in Domino’s like (a) Splitting urban stores (margin accretive), (b) Menu expansion (pizza variants and in-house beverages), (c) Shorter delivery time (20min live in few stores), (d) Reimaging stores to combat slowdown in dine-in and (e) Loyalty program (winning strategy in Domino’s US). Additionally, JFL is aspiring to grow non-linearly driven by its investments in technology, core team and creating more brands under JFL umbrella.

Financial Summary (Consolidated) YE March (Rs mn) 3QFY20 3QFY19 YoY (%) 2QFY20 QoQ (%) FY18 FY19 FY20E FY21E FY22E Net Revenues 10,596 9,291 14.1 9,882 7.2 30,184 35,631 40,355 47,279 54,213 EBITDA 2,536 1,706 48.7 2,351 7.9 4,401 5,998 9,484 11,671 13,639 APAT 1,123 965 16.3 1,046 7.3 1,918 3,180 4,164 5,283 6,570 Diluted EPS (Rs) 8.51 7.31 16.3 7.93 7.3 14.5 24.1 31.6 40.0 49.8 P/E (x) 121.1 73.0 55.8 44.0 35.4 EV / EBITDA (x) 51.9 37.6 34.3 27.1 21.9 Core RoCE (%) 26.5 45.8 33.5 24.2 31.7

Source: Company, HDFC sec Inst Research

INDUSTRY FMCG CMP (as on 29 Jan 2020) Rs 1,749 Target Price Rs 2,175 Nifty 12,130 Sensex 41,199 KEY STOCK DATA Bloomberg JUBI IN No. of Shares (mn) 132 MCap (Rs bn) / ($ mn) 231/3,240 6m avg traded value (Rs mn) 1,414 STOCK PERFORMANCE (%) 52 Week high / low Rs 1,830/1,078 3M 6M 12M Absolute (%) 10.7 44.0 46.3 Relative (%) 7.3 34.7 30.5 SHAREHOLDING PATTERN (%) Sep-19 Dec-19 Promoters 41.94 41.94 FIs & Local MFs 17.05 18.93 FPIs 34.49 32.65 Public & Others 6.52 6.48 Pledged Shares (% of total shares) 1.06 1.21

Source : BSE

Naveen Trivedi [email protected] +91-22-6171-7324

Aditya Sane [email protected] +91-22-6171-7336

JUBILANT FOODWORKS: RESULTS REVIEW 3QFY20

Page | 2

Jubilant FoodWorks Quarterly Commentary 4QFY19 1QFY20 2QFY20 3QFY20

Industry - Growth rates of dine-in category saw moderation - Delivery market is seeing growth with consumers becoming more comfortable with ordering at home

- Dine-in category has seen pressure - Delivery has seen growth across the board, driven largely by aggregators - Media spend by aggregators has seen an increase in order to drive customer acquisition

- Weak consumer sentiment and inflationary pressure is a drag on the margins in the industry - Expect organized food services industry to delivery sustained growth

- Demand environment remained challenging - Dine-in remained under pressure across the industry - Part of the impact on dine-in was due to a structural shift observed from dine-in towards delivery driven by aggregator push - Civil disturbances (protest)in various parts of the country also impacted industry - Food inflation was unprecedented, dairy inflation is still high but veg inflation has moderated

Revenue Dominos - OLO is now 75% of delivery

- Launched cricket themed pizzas under the 'World Pizza League' offering - Improved the beverage offerings through the launch of Fountains with new partner, Pepsi - Brought back international launches by launching in Bangladesh. Co intends to grow international business in Bangladesh and Sri Lanka - Launched a new store design to improve dining-in experience - 3 stores in Sri Lanka were closed as they were loss making and had no visibility on the turnaround period - Co has started the process of creating a 'Strategy and Insights Team' to make use of customer data in a meaningful way

- OLO contribution to delivery sales is now 81% - Begun rolling out a new store design with digital kiosks. 9 out of 26 stores opened used this design - Undertook a small price increase towards the end of the quarter - Launched a new range of pizzas under 'World Pizza League' - Dominos in Bangladesh continued to see encouraging response, on track to open 5 stores by end of FY20 - Willing to look at alternative models but the delco store model is better than the cloud kitchen model for Dominos due to its brand equity - Fortressing of markets in order to improve customer service levels will be the strategy going forward - Co is focusing on incurring expenses to set up the infrastructure and use tech to drive process efficiencies

- OLO contribution to delivery increased to 85% - All stores opened used the new store design - Dominos opened 2nd store in Bangladesh - Reduction in delivery time is a sharp area of focus and the co has tried a 20 min delivery pilot in a few stores - Fortressing markets and splitting stores has helped improve customer experience - Growth in delivery compensated for the headwinds in dine-in - Beverages have been launched by creating fountain infrastructure and are seeing a positive response - Co views aggregators as partners but the entire delivery fleet will be Dominos - There was a moderation of growth in smaller towns - Co does not have any plans to opt for sub franchising

- OLO contribution to delivery sales stood at 87.4% - Growth in delivery was much higher than the co, driven mainly by metros and tier 1 cities - MGT gives a guidance of a total 140-150 new stores in FY20 (98 opened in 9M). Store opening trajectory will continue in FY21 - Refurbished stores (improved ambience and modern look) have witnessed better growth in Dine-in - Fountain rollout will start showing result from upcoming season - A new range of Masala Pizzas and a new marketing campaign was supporting - The co does not have any plans for a price hike in the near future - Civil disturbances had an impact of <100bps on SSG - Domino's app is the highest rated food app in India. The co has made digital investment that will help personalise promotions and payment & ordering experience. Also launched a chatbot - Bulk of OLO are still on Domino's app - Domino's gained market share at Pan-India level


Page | 3

4QFY19 1QFY20 2QFY20 3QFY20

Others - Launched first own brand 'Hong's Kitchen' to enter the Chinese Food segment - Hong's will help make efficient use of delivery resources from Dominos due to the possibility of cross using manpower, platforms and technologies - Dunkin Donuts reached breakeven on the back of healthy growth, shutting of unprofitable stores and cost reduction - Closed 1 store in Dunkin' - Dunkin' expansion will not happen atleast for 12 months

- Hong's got off to a good start, plan is to open 10 stores by the end of FY20 - Close one store in Dunkin

- Continue to witness encouraging response on Hong's Kitchen - There was no change in number of stores for Dunkin - Focus on building a profitable business in Dunkin by finding the right balance of food, beverage and donuts

- Co opened 2 new Dunkin' stores opened, both are smaller format stores (100 sqft) to see effectiveness of such format (pilot). - Hong's will see more store opening in the coming quarters, Hong's has seen high repeat customer rate

Margin GM - GM expansion was strong and robust

due to soft dairy inflation and beverage margins providing a boost - Headwinds expected in commodity prices but those will be mitigated through beverage margin improvement and management of inefficiencies - SSG was low due to extraordinarily high base - Price hike will be taken at some point in this year

- Price hike was taken towards the end of the quarter to offset the inflation in RM, especially dairy - However, impact of price increase on GM will be seen from next quarter - Beverages will be a key driver of GMs in the upcoming quarters

- Inflation on dairy was significant but it was mitigated partly by price increase - Inflation has now flattened and it expected to moderate over the upcoming quarters

- Dairy and veg inflation were high during the qtr. Veg inflation has moderated while dairy inflation remained firm. Dairy prices were the highest in Oct-Nov in more than 7 years. Dairy inflation (cheese) on impacted GM by 220bps YoY.

EBITDA Margin

- Focus is on driving oplev by increasing SSG and cost optimisation at all stages - Employee cost has seen an increase due to revision of minimum wage in multiple states. However, efforts have been taken to mitigate the impact of the same by improving efficiencies of manpower

- Co has shifted to reporting under IndAS 116 from 1QFY20 - Increase in personnel cost was due to minimum wage inflation, annual increment and new stores - Large part of increase in expenses was due to A&P

- EBITDA margin improved despite steep inflation in commodity prices led by the price increase, targeted promotions, delivery efficiencies and manpower productivity

- Targeted promotions helped the co maintain margins - Inflation on manpower (for delivery) per order has gone down. Lower attrition at industry and JFL level is supporting the manpower cost - Promotion and discounts carried out by the co were done without impacting SSG adversely - Other expenses increased mainly due to higher delivery mix, increase in investment in digital and new marketing campaign


Page | 4

Quarterly Financials (Standalone) Year to March (Rs mn) 3QFY20 3QFY19 YoY (%) 2QFY20 QoQ (%) 9MFY20 9MFY19 YoY (%) Net Revenue 10,596 9,291 14.1 9,882 7.2 29,879 26,655 12.1 Material Cost 2,659 2,271 17.1 2,443 8.8 7,410 6,688 10.8 Employee Expenses 2,072 1,771 17.0 1,972 5.1 5,886 5,036 16.9 Rent Expenses 967 866 11.6 930 4.0 2,818 2,536 11.1 Other Expenses 3,129 2,676 16.9 2,911 7.5 8,890 7,794 14.1 EBITDA 2,536 1,706 48.7 2,351 7.9 7,077 4,602 53.8 Adj EBITDA (IND AS) 1,775 1,706 4.1 1,619 9.7 4,867 4,602 5.8 Depreciation 880 373 136.0 838 5.0 2,525 1,123 124.9 EBIT 1,656 1,333 24.2 1,513 9.5 4,552 3,479 30.8 Interest 426 - na 404 na - - na Other Income 159 138 15.3 172 (7.6) 484 318 52.3 PBT before exceptional 1,389 1,471 (5.6) 1,685 (17.5) 5,036 3,797 32.6 Exceptional item - - na 125 na 125 - na PBT 1,389 1,471 (5.6) 1,560 (10.9) 4,911 3,797 29.3 Tax 352 506 (30.4) 396 (11.1) 1,141 1,308 (12.8) RPAT 1,037 965 7.5 1,164 (10.9) 3,770 2,489 51.5 Adj (IND AS, Exceptional & one time tax) 86 - na (118) na (785) - na

APAT 1,123 965 16.3 1,046 7.3 2,984 2,489 19.9 As % Of Net Revenue 3QFY20 3QFY19 YoY (bps) 2QFY20 QoQ (bps) 9MFY20 9MFY19 YoY (bps) Material Cost 25.1 24.4 65 24.7 37 24.8 25.1 (29) Employee Expenses 19.6 19.1 49 20.0 (40) 19.7 18.9 81 Rent Expenses 9.1 9.3 (20) 9.4 (29) 9.4 9.5 (8) Other Expenses 29.5 28.8 72 29.5 7 29.8 29.2 51 EBITDA 23.9 18.4 557 23.8 15 23.7 17.3 642 Adj EBITDA (IND AS) 16.8 18.4 (161) 16.4 37 16.3 17.3 (97) Tax Rate 25.4 34.4 (904) 25.4 (4) 23.2 34.5 (1,121) APAT 10.6 10.4 21 10.6 1 10.0 9.3 65 Source: Company, HDFC sec Inst Research

Revenue saw strong growth supported by the opening of new stores Like-like SSG was at 7.2% vs. exp of 7.5% GM saw a contraction of 65bps to 74.9% (vs. exp 76%) driven by dairy and onion inflation and partially offset by price hike taken in June Employee costs grew by 17% (in-line) store expansion and investments in tech team. Other expense saw a sharp increase of 17% (exp. 12%) owing to (1) Delivery mix, (2) Investment in digital infrastructure and (3) New marketing campaign Adj EBITDAM declined by 161bps to 16.8%. We adjusted APAT with IND-AS 116 impact


Page | 5

Net Revenue Same Store Sales Growth (Reported)

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research EBITDA Performance EBITDA Margin

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

SSG is now expected to pickup as a result of a moderating base Higher spends on technology to drive growth in digital assets led to margin pressure in 3QFY20

0

8

16

24

32

40

48

2,000

4,000

6,000

8,000

10,000

3QFY

144Q

FY14

1QFY

152Q

FY15

3QFY

154Q

FY15

1QFY

162Q

FY16

3QFY

164Q

FY16

1QFY

172Q

FY17

3QFY

174Q

FY17

1QFY

182Q

FY18

3QFY

184Q

FY18

1QFY

192Q

FY19

3QFY

194Q

FY19

1QFY

202Q

FY20

3QFY

20

Net Sales Growth - RHS

Rs mn%

(30)(15)0 15 30 45 60 75 90 105 120 135

0

400

800

1,200

1,600

3QFY

144Q

FY14

1QFY

152Q

FY15

3QFY

154Q

FY15

1QFY

162Q

FY16

3QFY

164Q

FY16

1QFY

172Q

FY17

3QFY

174Q

FY17

1QFY

182Q

FY18

3QFY

184Q

FY18

1QFY

192Q

FY19

3QFY

194Q

FY19

1QFY

202Q

FY20

3QFY

20

EBITDA Growth - RHS

Rs mn%

14.8

12.8

12.4

12.2 13

.112

.911

.810

.3 11.5

11.5

9.5 9.7

9.7

9.9 11

.7 14.1

17.2

16.4

16.6

16.7 18

.417

.115

.7 16.4

16.8

-

5.0

10.0

15.0

20.0

3QFY

144Q

FY14

1QFY

152Q

FY15

3QFY

154Q

FY15

1QFY

162Q

FY16

3QFY

164Q

FY16

1QFY

172Q

FY17

3QFY

174Q

FY17

1QFY

182Q

FY18

3QFY

184Q

FY18

1QFY

192Q

FY19

3QFY

194Q

FY19

1QFY

202Q

FY20

3QFY

20

%

-3 -3 -2-5

27 5 3 2 3

-3

4

-3-8

76

18

272621

15

6 4 5 6

(14.0)

(5.0)

4.0

13.0

22.0

31.0

3QFY

144Q

FY14

1QFY

152Q

FY15

3QFY

154Q

FY15

1QFY

162Q

FY16

3QFY

164Q

FY16

1QFY

172Q

FY17

3QFY

174Q

FY17

1QFY

182Q

FY18

3QFY

184Q

FY18

1QFY

192Q

FY19

3QFY

194Q

FY19

1QFY

202Q

FY20

3QFY

20

%


Page | 6

Domino’s Quarterly Store Additions Cities Covered

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research OLO And Mobile Ordering Performance Download of Mobile Ordering App

Source: Company, HDFC sec Inst Research, OLO - Online Ordering Source: Company, HDFC sec Inst Research

Domino’s 42 stores were added (net) during the quarter JFL entered in 6 new cities during the quarter Dunkin Donuts’ added two stores (net) taking the total to 32 stores There is a significant bump up in online ordering (OLO) particularly from mobile handsets App downloads grew by 92/16% YoY/QoQ (29.4mn downloads) led by in-store activations. This highlights JFL’s success in new customer acquisition. JFL made investments to improve the app, introducing features like a Chatbot and saving card info to make payments easier

0

10

20

30

40

50

0

270

540

810

1,080

1,350

3QFY

144Q

FY14

1QFY

152Q

FY15

3QFY

154Q

FY15

1QFY

162Q

FY16

3QFY

164Q

FY16

1QFY

172Q

FY17

3QFY

174Q

FY17

1QFY

182Q

FY18

3QFY

184Q

FY18

1QFY

192Q

FY19

3QFY

194Q

FY19

1QFY

202Q

FY20

3QFY

20

Number Of Stores At The End Store Addition - RHS

Nos Nos

142 150

154 16

7 184 19

6 208 21

822

5 235 24

825

1 260

264

264

264

265

266

266

267

271

273

276

276

282

0

50

100

150

200

250

300

3QFY

144Q

FY14

1QFY

152Q

FY15

3QFY

154Q

FY15

1QFY

162Q

FY16

3QFY

164Q

FY16

1QFY

172Q

FY17

3QFY

174Q

FY17

1QFY

182Q

FY18

3QFY

184Q

FY18

1QFY

192Q

FY19

3QFY

194Q

FY19

1QFY

202Q

FY20

3QFY

20

41%

36%

41%

47%

47% 51

%51

%57

% 60% 63

%65

%68

% 73%

75% 81

%85

% 87%

38%

38%

38%

54%

56%

68%

69% 69

%71

% 78% 83

%85

%85

%88

%89

% 93% 95

%

0%

20%

40%

60%

80%

100%

3QFY

164Q

FY16

1QFY

172Q

FY17

3QFY

174Q

FY17

1QFY

182Q

FY18

3QFY

184Q

FY18

1QFY

192Q

FY19

3QFY

194Q

FY19

1QFY

202Q

FY20

3QFY

20

OLO to Delivery Sales % Mobile Ordering sales to OLO (%)

2 2 2 2 3 3 4 4 4 4 5 5 6 8 8 9 101113

1518

2225

29

0

5

10

15

20

25

30

35

4QFY

141Q

FY15

2QFY

153Q

FY15

4QFY

151Q

FY16

2QFY

163Q

FY16

4QFY

161Q

FY17

2QFY

173Q

FY17

4QFY

171Q

FY18

2QFY

183Q

FY18

4QFY

181Q

FY19

2QFY

193Q

FY19

4QFY

191Q

FY20

2QFY

203Q

FY20

Downloads of mobile ordering app (Mn)


Page | 7

Domino’s Yearly Store Additions Domino’s Yearly SSG (Reported)

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research Domino’s City Coverage Dunkin’ Stores


We expect store expansion of -140-150 stores over FY20. Store opening trajectory expected to continue in FY21

90105

123150

196

235264 266 273

0

50

100

150

200

250

300

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

No. of cities covered (India)

378 46

5 576 72

6 876 1,

026

1,11

7

1,13

4

1,22

7 1,37

2

1,49

2

1,60

2

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

E

FY21

E

FY22

E

37.2

%

29.7

%

16.2

%

1.6%

0.1% 3.

2%

-2.4

%

13.9

%

16.4

%

5.6% 8.

8%

8.3%

-8.0%

0.0%

8.0%

16.0%

24.0%

32.0%

40.0%

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

E

FY21

E

FY22

E

10

26

54

7163

3731 33

4149

0

10

20

30

40

50

60

70

80

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

E

FY21

E

FY22

E


Page | 8

Gross Margin Trend EBITDA Margin Trend


74.9

%

74.3

%

73.8

%

73.9

%

74.8

%

76.2

%

75.6

%

74.6

% 75.1

%

75.2

%

76.1

%

76.4

%

73%

74%

75%

76%

77%

78%

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

E

FY21

E

FY22

E

17.7

%

18.4

%

17.1

%

14.4

%

12.2

%

10.8

%

9.3%

14.6

% 16.8

%

16.1

%

17.0

%

17.9

%

0%

6%

11%

17%

22%

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

E

FY21

E

FY22

E


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Assumptions Particulars FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E Revenue Stores at beginning 465 576 726 876 1,026 1,117 1,134 1,227 1,372 1,492 Additions 111 150 150 150 91 17 93 145 120 110 Stores at the end 576 726 876 1,026 1,117 1,134 1,227 1,372 1,492 1,602 Revenue Growth (%) 38.4% 22.4% 20.4% 16.2% 5.6% 17.1% 18.5% 13.3% 17.2% 14.7% SSG (%) 16.2% 1.6% 0.1% 3.2% -2.4% 13.9% 16.4% 5.6% 8.8% 8.3% Like-like SSG (%) 16.2% 1.6% 0.1% 3.2% -2.4% 13.9% 17.3% 7.1% 9.9% 9.0% Margin Gross Margin (%) 73.9% 74.0% 74.9% 76.3% 75.8% 74.8% 75.2% 75.3% 75.9% 76.2% Employee (% of sales) 19.1% 19.5% 21.2% 23.6% 23.0% 20.3% 19.0% 19.6% 19.6% 19.6% Rent (% of sales) 8.3% 9.0% 9.9% 10.5% 11.7% 10.6% 9.7% 2.1% 2.1% 2.0% Adj. Rent (% of sales) 8.3% 9.0% 9.9% 10.5% 11.7% 10.6% 9.7% 9.6% 9.4% 9.1% ASP (% of sales) 4.5% 5.1% 5.5% 5.2% 5.6% 4.8% 4.8% 5.2% 5.0% 5.1% Power & Fuel (% of sales) 5.2% 5.9% 5.8% 5.7% 5.6% 5.3% 4.7% 4.7% 4.7% 4.7% Franchisee Fee (% of sales) 3.4% 3.2% 3.3% 3.3% 3.3% 3.3% 3.5% 3.5% 3.5% 3.5% Others (% of sales) 16.1% 16.4% 16.6% 16.8% 16.9% 15.6% 16.2% 16.4% 16.0% 15.8% Margin Breakup EBITDA Margin (%) 17.4% 14.8% 12.7% 11.3% 9.7% 15.0% 17.2% 23.8% 25.0% 25.5% Adj EBITDA Margin (%) 17.4% 14.8% 12.7% 11.3% 9.7% 15.0% 17.2% 16.4% 17.3% 18.1% Employee (No) 19,734 24,969 27,108 27,719 26,604 27,539 29,184 32,290 34,592 37,142 Employee/store (No) 37.9 38.4 33.8 29.1 24.8 24.5 24.0 24.8 24.2 24.0 Tax Rate 32% 33% 28% 33% 31% 34% 35% 28% 25% 25% NPM (%) 9.3% 6.8% 5.3% 4.0% 2.6% 6.4% 8.9% 10.3% 11.2% 12.1%

Unit Level Economics Unit Level Economics FY13 FY14 FY15 FY16 FY17 FY18 FY19P FY20E FY21E FY22E Net Sales/Store 27.0 26.5 25.9 25.3 23.8 26.5 29.9 30.8 32.7 34.8 Gross Profit/Store 20.0 19.6 19.4 19.3 18.0 19.8 22.5 23.2 24.8 26.5 Employee/Store 5.2 5.2 5.5 6.0 5.5 5.4 5.7 6.0 6.4 6.8 Rent/Store 2.2 2.4 2.6 2.7 2.8 2.8 2.9 2.9 3.1 3.2 ASP/Store 1.2 1.3 1.4 1.3 1.3 1.3 1.4 1.6 1.6 1.8 Franchise/Store 0.9 0.9 0.8 0.8 0.8 0.9 1.1 1.1 1.2 1.2 Packaging material/Store 1.1 1.1 1.0 0.9 0.8 0.8 1.0 1.0 1.1 1.1 Freight/Store 0.8 0.8 0.8 0.7 0.7 0.8 0.9 0.9 1.0 1.0 Adj EBITDA/Store 4.7 3.9 3.3 2.9 2.3 4.0 5.1 5.0 5.7 6.3 Adj Depreciation/Store 1.1 1.2 1.2 1.3 1.4 1.4 1.3 1.3 1.3 1.3 PAT/Store 2.6 1.9 1.5 1.1 0.7 1.8 2.8 3.1 3.7 4.2 Source: Company, HDFC sec Inst Research


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Changes in Estimates

Rs Mn FY20E FY21E FY22E

Old New Chg (%) Old New Chg (%) Old New Chg (%) Net Revenue 40,045 40,355 0.8 46,214 47,279 2.3 52,186 54,213 3.9 EBITDA 9,606 9,484 (1.3) 11,578 11,671 0.8 13,351 13,639 2.2 Adj EBITDA 6,425 6,489 1.0 8,178 8,049 (1.6) 9,527 9,688 1.7 APAT 4,300 4,164 (3.2) 5,382 5,283 (1.8) 6,528 6,570 0.7 EPS 32.6 31.6 (3.2) 40.8 40.0 (1.8) 49.5 49.8 0.7 Peer Set Comparison

Company MCap (Rs bn)

CMP (Rs) Reco. TP

(Rs) EPS (Rs) P/E (x) EV/EBITDA (x) Core RoCE (%)

FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E HUL 4,395 2,060 NEU 2,021 33.8 41.3 46.1 61.0 49.9 44.7 42.3 34.9 31.1 37.5 27.5 31.6 ITC 2,570 231 BUY 366 12.9 13.8 15.2 17.9 16.7 15.2 12.6 11.3 9.9 46.1 48.6 51.5 Nestle 1,487 15,548 NR 13,842 233.3 277.4 317.7 66.6 56.1 48.9 46.0 39.4 34.2 112.2 128.8 162.2 Dabur 863 490 BUY 512 9.2 11.4 13.3 53.5 42.9 36.8 42.0 35.6 30.2 53.4 60.1 66.7 Britannia 764 3,181 BUY 3,678 58.9 70.8 85.4 54.0 44.9 37.3 39.5 32.5 26.9 42.7 48.7 55.3 Marico 432 335 NEU 370 8.1 9.5 11.1 41.1 35.2 30.1 28.9 25.6 22.6 44.4 49.6 55.2 United Spirits 475 654 BUY 759 12.3 16.1 19.2 53.0 40.7 34.1 30.7 26.0 22.3 18.3 21.7 23.8 Colgate 403 1,480 NEU 1,433 31.9 36.9 42.4 46.5 40.2 34.9 30.3 26.4 23.1 73.5 82.5 95.5 Jubilant Food 232 1,749 BUY 2,178 31.6 40.0 49.8 55.8 44.0 35.4 34.3 27.1 21.9 33.5 24.2 31.7 Emami 148 318 BUY 463 12.5 14.1 15.9 25.4 22.6 20.0 18.4 16.4 14.5 25.6 30.6 38.0 Radico Khaitan 53 395 BUY 527 16.4 21.4 24.8 24.0 18.5 15.9 14.5 11.8 10.1 15.1 15.5 16.7 Source: HDFC sec Inst Research

We cut our FY20 estimates by 3% to factor GM pressure in 2HFY20. While increase number of store opening in FY20/21/22


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Income Statement (Rs mn) FY18 FY19 FY20E FY21E FY22E Net Revenues 30,184 35,631 40,355 47,279 54,213 Growth (%) 16.8% 18.0% 13.3% 17.2% 14.7% Material Expenses 7,660 8,861 10,021 11,311 12,800 Employee Expense 6,140 6,818 7,848 9,210 10,541 A&P Expense 1,428 1,709 2,080 2,344 2,743 Rent 3,157 3,411 840 971 1,087 Other Expenses 7,399 8,835 10,083 11,771 13,404 EBITDA 4,401 5,998 9,484 11,671 13,639 EBITDA Growth (%) 82.5% 36.3% 58.1% 23.1% 16.9% EBITDA Margin (%) 14.6% 16.8% 23.5% 24.7% 25.2% Adj EBITDA 4,401 5,998 6,489 8,049 9,688 Adj. EBITDA Growth (%) 82.5% 36.3% 8.2% 24.0% 20.4% Adj. EBITDA Margin (%) 14.6% 16.8% 16.1% 17.0% 17.9% Depreciation 1,601 1,575 3,455 3,827 4,308 EBIT 2,800 4,423 6,028 7,844 9,330 Other Income (Including EO Items) 231 474 668 837 1,081 Interest - - 1,651 1,621 1,631 PBT 3,031 4,897 5,045 7,060 8,780 Total Tax 1,068 1,717 1,413 1,777 2,210 RPAT 1,962 3,180 3,633 5,283 6,570 Exceptional Gain/(loss) - net of taxes 44 - (531) - -

Adjusted PAT 1,918 3,180 4,164 5,283 6,570 APAT Growth (%) 189.3% 65.8% 30.9% 26.9% 24.4% Adjusted EPS (Rs) 14.5 24.1 31.6 40.0 49.8 EPS Growth (%) 189.2% 65.8% 30.9% 26.9% 24.4%

Source: Company, HDFC sec Inst Research Note: We adjust our APAT with IND-AS 116 impact

Balance Sheet (Rs mn) FY18 FY19 FY20E FY21E FY22E SOURCES OF FUNDS Share Capital - Equity 660 1,320 1,320 1,320 1,320 Reserves 9,017 11,140 12,816 17,355 23,043 Total Shareholders Funds 9,677 12,459 14,136 18,675 24,362 Minority Interest - 26 28 31 34 Long Term Debt - - - - - Short Term Debt - - - - - Total Debt - - - - - Net Deferred Taxes 550 500 500 500 500 Other Non-current Liabilities & Provns 5 5 14,742 13,827 12,434

TOTAL SOURCES OF FUNDS 10,232 12,990 29,406 33,033 37,331 APPLICATION OF FUNDS Net Block 7,527 7,712 8,578 8,952 9,163 CWIP 124 152 152 152 152 Other Non Current Assets 1,881 2,189 15,371 14,970 14,150 Intangible Assets 383 388 388 388 388 Total Non-current Assets 9,915 10,441 24,489 24,462 23,854 Inventories 642 771 873 1,023 1,173 Debtors 157 274 311 364 417 Other Current Assets 333 271 294 328 361 Cash & Equivalents 3,921 6,687 9,803 14,187 19,834 Total Current Assets 5,053 8,003 11,281 15,901 21,786 Creditors 3,890 4,167 4,975 5,829 6,684 Other Current Liabilities & Provns 845 1,287 1,389 1,501 1,624 Total Current Liabilities 4,735 5,454 6,364 7,330 8,308 Net Current Assets 318 2,549 4,917 8,571 13,477 TOTAL APPLICATION OF FUNDS 10,232 12,990 29,406 33,033 37,331



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Cash Flow Statement (Rs mn) FY18 FY19 FY20E FY21E FY22E Reported PBT 3,031 4,897 5,045 7,060 8,780 Non-operating & EO Items (25) 26 - - - Interest Expenses (Net) (166) (314) 983 784 550 Depreciation 1,601 1,575 3,455 3,827 4,308 Working Capital Change 912 (14) 749 729 741 Tax Paid (1,262) (1,779) (1,413) (1,777) (2,210) OPERATING CASH FLOW ( a ) 4,091 4,390 8,820 10,623 12,170 Capex (1,160) (1,657) (2,500) (2,200) (2,200) Free Cash Flow (FCF) 2,931 2,733 6,320 8,423 9,970 Investments (2,258) (3,134) (473) (600) (600) Non-operating Income 99 216 668 837 1,081 INVESTING CASH FLOW ( b ) (3,319) (4,575) (2,305) (1,962) (1,719) Debt Issuance/(Repaid) Interest Expenses - - (1,651) (1,621) (1,631) FCFE 2,931 2,733 4,669 6,802 8,339 Share Capital Issuance (150) 186 - - - Dividend (198) (397) (660) (858) (1,056) Others - - (1,288) (1,999) (2,316) FINANCING CASH FLOW ( c ) (347) (211) (3,599) (4,478) (5,003) NET CASH FLOW (a+b+c) 424 (396) 2,917 4,183 5,447 EO Items, Others (512) (3,985) (0) - - Closing Cash & Equivalents 1,290 4,879 7,796 11,979 17,426


Key Ratios Particulars FY18 FY19 FY20E FY21E FY22E PROFITABILITY (%) GPM 74.6 75.1 75.2 76.1 76.4 EBITDA Margin 14.6 16.8 23.5 24.7 25.2 EBIT Margin 9.3 12.4 14.9 16.6 17.2 APAT Margin 6.4 8.9 10.3 11.2 12.1 RoE 21.6 28.7 31.3 32.2 30.5 RoIC (or Core RoCE) 26.5 45.8 33.5 24.2 31.7 RoCE 20.2 27.4 25.2 20.8 22.1 EFFICIENCY Tax Rate (%) 35.3 35.1 28.0 25.2 25.2 Fixed Asset Turnover (x) 3.9 4.5 4.6 5.2 5.8 Inventory (days) 7.8 7.9 7.9 7.9 7.9 Debtors (days) 1.9 2.8 2.8 2.8 2.8 Other Current Assets (days) 4.0 2.8 2.7 2.5 2.4 Payables (days) 47.0 42.7 45.0 45.0 45.0 Other Current Liab & Provns (days) 10.2 13.2 12.6 11.6 10.9 Cash Conversion Cycle (days) (43.6) (42.4) (44.2) (43.4) (42.8) PER SHARE DATA (Rs) EPS 14.5 24.1 31.6 40.0 49.8 CEPS 26.7 36.0 57.7 69.0 82.4 Dividend 3.0 5.0 6.5 8.0 9.5 Book Value 73.3 94.4 107.1 141.5 184.6 VALUATION P/E (x) 121.1 73.0 55.8 44.0 35.4 P/BV (x) 24.0 18.6 16.4 12.4 9.5 EV/EBITDA (x) 51.9 37.6 34.3 27.1 21.9 EV/Revenues (x) 7.6 6.3 5.5 4.6 3.9 OCF/EV (%) 1.8 1.9 4.0 4.9 5.7 FCF/EV (%) 1.3 1.2 2.8 3.9 4.7 FCFE/Mkt Cap (%) 1.3 1.2 2.0 2.9 3.6 Dividend Yield (%) 0.2 0.3 0.4 0.5 0.5



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RECOMMENDATION HISTORY

Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Date CMP Reco Target 9-Jan-19 1,240 BUY 1,610

31-Jan-19 1,200 BUY 1,620 13-Feb-19 1,276 BUY 1,750 14-Mar-19 1,326 BUY 1,750 10-Apr-19 1,430 BUY 1,758 16-May-19 1,243 BUY 1,739

9-Jul-19 1,222 BUY 1,755 25-Jul-19 1,158 BUY 1,778 22-Sep-19 1,380 BUY 2,022 11-Oct-19 1,300 BUY 2,092 23-Oct-19 1,430 BUY 2,134 30-Dec-19 1,627 BUY 2,184 9-Jan-20 1,714 BUY 2,175

30-Jan-20 1,749 BUY 2,175

900

1,100

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1,500

1,700

1,900

2,100

Jan-

19

Feb-

19

Mar

-19

Apr-

19

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-19

Jun-

19

Jul-1

9

Aug-

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19

Oct

-19

Nov

-19

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Jan-

20

Jubilant FoodWorks TP

HDFC securities Institutional Equities Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park, Senapati Bapat Marg, Lower Parel,Mumbai - 400 013 Board : +91-22-6171 7330 www.hdfcsec.com


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buy weathering the storm with gusto industry fmcg cmp (as … foodworks... · 2020-01-30 ·...

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