institutional equity research jubilant foodworks (jubi...

INSTITUTIONAL EQUITY RESEARCH

Page | 1 | PHILLIPCAPITAL INDIA RESEARCH Please see penultimate page for additional important disclosures. PhillipCapital (India) Private Limited. (“PHILLIPCAP”) is a foreign broker-dealer unregistered in the USA. PHILLIPCAP research is prepared by research analysts who are not registered in the USA. PHILLIPCAP research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities Inc, an SEC registered and FINRA-member broker-dealer.

Jubilant Foodworks (JUBI IN)

SSS trends remain buoyant

INDIA | RETAIL | COMPANY UPDATE

2 April 2019

Jubilant SSSG is expected to moderate (11%) from 15%+ seen in the past few quarters. Considering a higher base in 4QFY18 of +27% SSSG, growth in 4QFY19 has been encouraging due to the following:

1. Launch of 10 new pizzas, combo offers, and express 20-minute delivery in 4Q19 2. Continued traction in making train deliveries (additional source of revenue). 3. IPL being in the last week of March in 2019 (usually it happens in the first-second

week of April). 4. Weighted average hike of 2.0-2.5% in early May 2018 by rejigging EDV portfolio;

mid-single-digit hikes in top-selling variants of Pizza Mania. Subway India 4QFY19 SSSG growth was at 11% on price hikes of 2.0-2.5% in Feb 2019 on back of continued traction in core offerings; rising salience from online food aggregators.

Launch of 10 new pizzas, combo offers, and express 20-minute delivery

Domino’s has recently launched 10 new pizzas (exhibit 2) under its World Pizza League to capitalise on the cricket season – IPL + Cricket World Cup in England in June 2019.

Most offerings were mid-to-premium range and will be made available under EDV. India will be playing nine matches, highest so far World Cup event in group stages and match timings are ideal for pizza consumption (exhibit 4 for World Cup schedule).

Combo offers (exhibit 3) help to maintain excitement and retain single-serve customers; EDV targets groups. Rigorous efforts to cut delivery time to 20 minutes from 30 earlier will provide a competitive edge over online food aggregators (who generally take twice the time) and help to serve relatively fresher warmer food, which customers appreciate.

Pepsi in - Coke out (Yeh hi Right Choice Baby aha – Pepsi classic jingle perfectly fits in for Jubilant Foodworks)

Only partial benefits of the Pepsi beverage-partner tie-up were visible in 3QFY19 results as the contract was executed mid-November; full impact will be visible in 4QFY19.

We expect more than 50bps out of the 120bps gross margin expansion to come from: 1. Pepsi offering more favourable terms vs. Coke in India. 2. Installation of high-margin beverage vending machines (fountains) in fine-

dining restaurants (our checks show that per glass cost from fountains is significantly lower than bottled beverages, since the former is a mixture of concentrate and water).

3. Availability of the entire range of Pepsico products (in the first leg; only Pepsi was available).

Competitive intensity rising

Competition from Pizza Hut will intensify as it has started aggressively advertising its offer of 50% off on purchase of two medium-sized pizzas, even for home delivery (not just for takeaways as was the case earlier – which is why Domino’s wasn’t, affected much). Factors limiting Pizza hut are its limited reach and brand recall value vs. Domino’s and that its offer is available only for medium pizzas (Domino’s offer is on all).

Rebel Foods (cloud kitchen, food aggregator which owns Fasoos, Oven Story Pizza) recently raised Rs 1.1bn from Sequoia Capital and plans to aggressively advertise on the digital platform during IPL and World Cup .

Poised to deliver

We believe focus will shift back to its business, as concerns relating to promoter stake sale are behind us. JUBI offers favourable risk-rewards to long-term investors, given 37% EPS CAGR over FY18-21 and sharp improvement in ROIC (to move up to 59% in FY21 from 24% in FY18).

We reiterate our high-conviction BUY within the consumer discretionary space with a target of Rs 1,850. We have not accounted for JUBI’S recent entry into Chinese cuisine (Hong’s Kitchen) and Bangladesh into our estimates, which provide long-term optionality value, if executed successfully.

BUY (Maintain) CMP RS 1440 TARGET RS 1850 (+28%) COMPANY DATA

O/S SHARES (MN) : 132

MARKET CAP (RSBN) : 195

MARKET CAP (USDBN) : 2.8

52 - WK HI/LO (RS) : 1575 / 982

LIQUIDITY 3M (USDMN) : 47.4

PAR VALUE (RS) : 10

SHARE HOLDING PATTERN, %

Dec 18 Sep 18 Jun 18

PROMOTERS : 44.9 44.9 44.9

FII / NRI : 39.8 39.4 37.8

FI / MF : 6.8 7.1 8.2

NON PRO : 1.9 1.8 1.6

PUBLIC & OTHERS : 6.6 6.8 7.5

PRICE PERFORMANCE, %

1MTH 3MTH 1YR

ABS 15.7 18.0 27.1

REL TO BSE 7.3 10.3 8.6

PRICE VS. SENSEX

KEY FINANCIALS

Rs mn FY18 FY19E FY20E FY21E

Net Sales 29,804 35,635 41,762 47,835

EBIDTA 4,464 6,066 7,760 9,247

Net Profit 2,064 3,299 4,365 5,313

EPS, Rs 15.6 25.0 33.1 40.3

PER, x 94.4 59.1 44.7 36.7

EV/EBIDTA, x 43.4 31.5 24.1 19.7

PBV, x 18.7 14.8 11.6 9.2

ROE, % 19.8 25.0 25.9 25.0

Source: Phillip Capital India Research Vishal Gutka (+ 9122 6246 4118) [email protected] Preeyam Tolia (+ 9122 6246 4129) [email protected]

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Jubilant Food BSE Sensex

http://backoffice.phillipcapital.in/Backoffice/Researchfiles/PC_-_Jubilant_Foods_Co_Update_-_Feb_2019_20190221104850.pdf

https://www.vccircle.com/sequoia-india-leads-fresh-investment-in-faasos-parent-rebel-foods/



Page | 2 | PHILLIPCAPITAL INDIA RESEARCH

JUBILANT FOODWORKS COMPANY UPDATE

Exhibit 1 Steady performance expected in 4QFY19 as well

(Rs mn) 4QFY18 4QFY19E % YoY

Net Sales 7,798 8,935 14.6

Operating Costs (6,521) (7,354) 12.8

EBITDA 1,278 1,580 23.7

EBITDA Margin (%) 16.4 17.7 130bps

Depreciation (378) (391) 3.5

Other Income 127 159 24.6

PBT 1,027 1,348 31.2

Provision for Tax (346) (464) 33.9

Tax Rate (%) 33.7 34.4 69bps

Adj Profit 681 884 29.9

Adj Profit Margin (%) 8.7 9.9 117bps

Exceptional costs - - NM

Reported PAT 681 884 29.9

Adj Profit Margin (%) 8.7 9.9 117bps

Cost Details 4QFY18 4QFY19E % YoY

Raw Material Consumption 2,004 2,189 9.2

As a % of sales 25.7 24.5 -120bps

Employees cost 1,421 1,597 12.4

As a % of sales 18.2 17.9 -35bps

Rent 857 927 8.2

As a % of sales 11.0 10.4 -61bps

Other expenditure 2,239 2,642 18.0

As a % of sales 28.7 29.6 86bps

Gross Profit 5794 6746 16.4

(% margin) 74.3 75.5 120bps

Source: Company, PhillipCapital India Research Estimates

Exhibit 2 Launch of 10 new pizzas under World Pizza League

Price

Pizza Type Regular Medium Large

Indi chicken Tikka Non veg 295 555 835

Jamaican Jerk Chicken

295 555 835

Aussie Barbecue Chicken

295 555 835

English Cheddar & Chicken

235 450 695

African Peri Peri chicken

235 450 695

Indi Tandoori Paneer Veg 235 450 695

Aussie Barbecue Veg

235 450 695

English Cheddar & Vegies

205 385 595

Jamaigcan Jerk Veg

205 385 595

African Peri Peri veg 205 385 595


Exhibit 3 Combo offers will help to serve single customers since EDV offerings are meant for groups

Combo offers SOTP price Offer price % discount For

smarties**

% discount

Classic combo - Veg 225 199 -12%

Cheese and Corn Pizza - Regular + Pepsi

Classic combo - Non Veg 225 199 -12%

Pepper BBQ Chicken - Regular + Pepsi

Meal for 1 - Veg 320 269 -16%

Fresh Veggie Pizza - Regular + Garlic bread + Pepsi

Meal for 1 - Non Veg 320 269 -16%

Pepper BBQ chicken - Regular + Garlic bread + Pepsi

Meal for 2 - Veg - Farmhouse 540 449 -17%

Farmhouse Pizza - Medium + Garlic Bread + Pepsi



Meal for 2 - Veg - Peppy Paneer 540 449 -17%

Peppy Paneer Pizza - Medium + Garlic Bread + Pepsi

Meal for 2 - Non Veg 540 449 -17%

Pepper BBQ chicken - Medium + Garlic bread + Pepsi

Pizza Feast - Veg 1080 849 -21% 808 -25%

Farmhouse - Medium + Peppy Paneer - medium + Pepsi - 2 Qty + Garlic bread - 2 Qty

Pizza Feast -Non veg 1080 849 -21% 808 -25%

Pepper BBQ - Medium + Peri Peri Chicken - medium + Pepsi - 2 Qty + Garlic bread - 2 Qty


Exhibit 4: We expect India to repeat its 2011 WC performance Cricket World Cup schedule 2019

Sr No Date Match Time (IST) Venue

Match 1 May 30, Thu England vs South Africa 3:00 PM Kennington Oval, London

Match 2 May 31, Fri Windies vs Pakistan 3:00 PM Trent Bridge, Nottingham

Match 3 Jun 01, Sat New Zealand vs Sri Lanka 3:00 PM Sophia Gardens, Cardiff

Match 4 Afghanistan vs Australia 6:00 PM County Ground, Bristol

Match 5 Jun 02, Sun South Africa vs Bangladesh 3:00 PM Kennington Oval, London

Match 6 Jun 03, Mon England vs Pakistan 3:00 PM Trent Bridge, Nottingham

Match 7 Jun 04, Tue Afghanistan vs Sri Lanka 3:00 PM Sophia Gardens, Cardiff

Match 8 Jun 05, Wed South Africa vs India 3:00 PM The Rose Bowl, Southampton

Match 9 Bangladesh vs New Zealand 6:00 PM Kennington Oval, London

Match 10 Jun 06, Thu Australia vs Windies 3:00 PM Trent Bridge, Nottingham

Match 11 Jun 07, Fri Pakistan vs Sri Lanka 3:00 PM County Ground, Bristol

Match 12 Jun 08, Sat England vs Bangladesh 3:00 PM Sophia Gardens, Cardiff

Match 13 Afghanistan vs New Zealand 6:00 PM The Cooper Associates County Ground, Taunton

Match 14 Jun 09, Sun India vs Australia 3:00 PM Kennington Oval, London

Match 15 Jun 10, Mon South Africa vs Windies 3:00 PM The Rose Bowl, Southampton

Match 16 Jun 11, Tue Bangladesh vs Sri Lanka 3:00 PM County Ground, Bristol

Match 17 Jun 12, Wed Australia vs Pakistan 3:00 PM The Cooper Associates County Ground, Taunton

Match 18 Jun 13, Thu India vs New Zealand 3:00 PM Trent Bridge, Nottingham

Match 19 Jun 14, Fri England vs Windies 3:00 PM The Rose Bowl, Southampton

Match 20 Jun 15, Sat Sri Lanka vs Australia 3:00 PM Kennington Oval, London

Match 21 South Africa vs Afghanistan 6:00 PM Sophia Gardens, Cardiff

Match 22 Jun 16, Sun India vs Pakistan 3:00 PM Old Trafford, Manchester

Match 23 Jun 17, Mon Windies vs Bangladesh 3:00 PM The Cooper Associates County Ground, Taunton

Match 24 Jun 18, Tue England vs Afghanistan 3:00 PM Old Trafford, Manchester

Match 25 Jun 19, Wed New Zealand vs South Africa 3:00 PM Edgbaston, Birmingham

Match 26 Jun 20, Thu Australia vs Bangladesh 3:00 PM Trent Bridge, Nottingham

Match 27 Jun 21, Fri England vs Sri Lanka 3:00 PM Headingley, Leeds

Match 28 Jun 22, Sat India vs Afghanistan 3:00 PM The Rose Bowl, Southampton

Match 29 Windies vs New Zealand 6:00 PM Old Trafford, Manchester

Match 30 Jun 23, Sun Pakistan vs South Africa 3:00 PM Lord’s, London

Match 31 Jun 24, Mon Bangladesh vs Afghanistan 3:00 PM The Rose Bowl, Southampton

Match 32 Jun 25, Tue England vs Australia 3:00 PM Lord’s, London

Match 33 Jun 26, Wed New Zealand vs Pakistan 3:00 PM Edgbaston, Birmingham

Match 34 Jun 27, Thu Windies vs India 3:00 PM Old Trafford, Manchester

Match 35 Jun 28, Fri Sri Lanka vs South Africa 3:00 PM Riverside Ground, Chester-le-Street

Match 36 Jun 29, Sat Pakistan vs Afghanistan 3:00 PM Headingley, Leeds

Match 37 New Zealand vs Australia 6:00 PM Lord’s, London

Match 38 Jun 30, Sun England vs India 3:00 PM Edgbaston, Birmingham

Match 39 Jul 01, Mon Sri Lanka vs Windies 3:00 PM Riverside Ground, Chester-le-Street

Match 40 Jul 02, Tue Bangladesh vs India 3:00 PM Edgbaston, Birmingham

Match 41 Jul 03, Wed England vs New Zealand 3:00 PM Riverside Ground, Chester-le-Street

Match 42 Jul 04, Thu Afghanistan vs Windies 3:00 PM Headingley, Leeds

Match 43 Jul 05, Fri Pakistan vs Bangladesh 3:00 PM Lord’s, London

Match 44 Jul 06, Sat Sri Lanka vs India 3:00 PM Headingley, Leeds

Match 45 Australia vs South Africa 6:00 PM Old Trafford, Manchester

Source: ICC



Exhibit 5: Pepsi fountain machines being installed across outlets

Exhibit 6 Making smart moves within its EDV portfolio

Everyday value offer (customer

has to buy minimum two pizza's

within the same bucket)

______Old______ ______New______ ____% change____

Regular Medium Regular Medium Regular Medium Paneer Makhani 99 199 139 249 40% 25% Chicken Tikka 139 249 179 299 29% 20% Source: Domino Pizza

Exhibit 7

Pizza mania – Within the Pizza Mania range, it has hikes priced of top-selling variants by 7-8%

Pizza Mania Old New % change

Loaded Veg 119 129 8%

Loaded Non Veg 139 149 7%

Source: Domino Pizza



Financials

Income Statement Y/E Mar, Rs mn FY18 FY19e FY20e FY21e

Net sales 29,804 35,635 41,762 47,835

Growth, % 17 20 17 15

Raw material expenses -8,425 -10,013 -11,526 -13,202

Employee expenses -6,041 -6,645 -7,642 -8,597

Rent -3,157 -3,488 -3,942 -4,454

Other Operating expenses -7,718 -9,422 -10,892 -12,334

EBITDA (Core) 4,464 6,066 7,760 9,247

Growth, % 81.0 35.9 27.9 19.2

Margin, % 15.0 17.0 18.6 19.3

Depreciation -1,559 -1,510 -1,699 -1,888

EBIT 2,905 4,556 6,061 7,359

Growth, % 204.4 56.8 33.1 21.4

Margin, % 9.7 12.8 14.5 15.4

Other Non-Operating Income 227 466 582 728

Pre-tax profit 3,132 5,021 6,644 8,087

Tax provided -1,068 -1,722 -2,279 -2,774

Profit after tax 2,064 3,299 4,365 5,313

Net Profit 2,064 3,299 4,365 5,313

Growth, % 159.9 59.8 32.3 21.7

Net Profit (adjusted) 2,064 3,299 4,365 5,313

Unadj. shares (m) 132 132 132 132

Wtd avg shares (m) 132 132 132 132

Net sales 29,804 35,635 41,762 47,835

Growth, % 17 20 17 15

Balance Sheet Y/E Mar, Rs mn FY18 FY19e FY20e FY21e

Cash & bank 1,266 3,746 7,580 12,392

Debtors 151 195 229 262

Inventory 626 781 915 1,048

Loans & advances 2,038 2,148 2,517 2,883

Other current assets 320 320 320 320

Total current assets 4,401 7,190 11,562 16,906

Investments 3,453 3,909 4,109 4,309

Gross fixed assets 11,408 12,943 14,478 16,013

Less: Depreciation -3,729 -5,239 -6,938 -8,825

Add: Capital WIP 127 127 127 127

Net fixed assets 7,807 7,832 7,668 7,315

Total assets 15,110 18,380 22,789 27,980

Current liabilities 4,509 5,034 5,789 6,538

Provisions 163 163 163 163

Total current liabilities 4,671 5,196 5,952 6,700

Total liabilities 4,671 5,196 5,952 6,700

Paid-up capital 659 659 659 659

Reserves & surplus 9,779 12,524 16,177 20,620

Shareholders’ equity 10,439 13,184 16,836 21,279

Total equity & liabilities 15,110 18,380 22,788 27,979


Cash Flow Y/E Mar, Rs mn FY18 FY19e FY20e FY21e

Pre-tax profit 3,132 5,021 6,644 8,087

Depreciation 1,559 1,510 1,699 1,888

Chg in working capital 375 215 218 216

Total tax paid -1,212 -1,722 -2,279 -2,774

Cash flow from operating activities 3,855 5,025 6,282 7,417

Capital expenditure -985 -1,535 -1,535 -1,535

Chg in investments -1,773 -456 -200 -200

Cash flow from investing activities -2,758 -1,991 -1,735 -1,735

Free cash flow 1,097 3,034 4,547 5,682

Dividend (incl. tax) -398 -554 -712 -871

Cash flow from financing activities -398 -554 -712 -871

Net chg in cash 699 2,480 3,835 4,812

Valuation Ratios

FY18 FY19e FY20e FY21e

Per Share data

EPS (INR) 15.6 25.0 33.1 40.3

Growth, % 159.9 59.8 32.3 21.7

Book NAV/share (INR) 79.1 100.0 127.6 161.3

FDEPS (INR) 15.6 25.0 33.1 40.3

CEPS (INR) 27.5 36.5 46.0 54.6

CFPS (INR) 27.5 34.6 43.2 50.7

DPS (INR) 2.5 3.5 4.5 5.5

Return ratios

Return on assets (%) 14.9 19.7 21.2 20.9

Return on equity (%) 19.8 25.0 25.9 25.0

Return on capital employed (%) 21.4 27.6 28.8 27.6

Turnover ratios

Asset turnover (x) 4.3 5.6 6.9 8.6

Sales/Total assets (x) 2.1 2.1 2.0 1.9

Sales/Net FA (x) 3.7 4.6 5.4 6.4

Working capital/Sales (x) (0.0) (0.0) (0.0) (0.0)

Receivable days 1.8 2.0 2.0 2.0

Inventory days 7.7 8.0 8.0 8.0

Payable days 56.6 55.0 55.9 56.4

Working capital days (16.8) (16.3) (15.8) (15.4)

Liquidity ratios

Current ratio (x) 1.0 1.4 2.0 2.6

Quick ratio (x) 0.8 1.3 1.8 2.4

Net debt/Equity (%) (12.1) (28.4) (45.0) (58.2)

Valuation

PER (x) 94 59 45 37

PEG (x) - y-o-y growth 0.6 1.0 1.4 1.7

Price/Book (x) 18.7 14.8 11.6 9.2

EV/Net sales (x) 6.5 5.4 4.5 3.8

EV/EBITDA (x) 43.4 31.5 24.1 19.7

EV/EBIT (x) 66.7 42.0 30.9 24.8

Per Share data

EPS (INR) 15.6 25.0 33.1 40.3



Stock Price, Price Target and Rating History

Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year.

Rating Criteria Definition

BUY >= +15% Target price is equal to or more than 15% of current market price

NEUTRAL -15% > to < +15% Target price is less than +15% but more than -15%

SELL <= -15% Target price is less than or equal to -15%.

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B (TP 650) N (TP 532) N (TP 515) S (TP 400)

N (TP 600)

N (TP 850) B (TP 1150)

B (TP 1400) B (TP 1400)

B (TP 1550) B (TP 1660)

B (TP 1720) B (TP 1780)

B (TP 1760)

B (TP 1845)

B (TP 1800)

B (TP 1850)

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F-16 A-16 M-16 J-16 A-16 O-16 N-16 J-17 F-17 A-17 M-17 J-17 A-17 S-17 N-17 D-17 F-18 M-18 B (TP 1550) J-18 J-18 S-18 O-18 D-18 J-19



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