Emkay
India Equity Research | Consumers
September 23, 2016
Management Meet Update
Jubilant FoodWorks
©
Your success is our success
CMP
Demand revival holds the key;
Maintain Hold
Target Price
Rs976
Rs1,000 ()
Rating
Upside
HOLD ()
 Confident of clocking a positive SSG in Q2FY17, and is hopeful that H2FY17 should see
increase in discretionary spend on back of good monsoons, seventh pay commission
and pay back of initiatives taken by the government
 Vendor consolidation, benign input cost and efficiency in supply chain has led to healthy
gross margin improvement over last year. Management expects an input cost inflation of
~5-6%, as input prices are benign and they are also renegotiating rental contract with
many landlords as real estate demand is subdued, however increase in minimum wage
as proposed by few states can impact this input cost inflation
 While, long term story of food service industry is in place and JFL is likely to be key
beneficiary of demand revival, but unless demand/SSG improves, margins & earnings
may remain suppressed. SSG revival remains the key trigger for stock re-rating, till then
we continue to maintain HOLD with price target of Rs 1,000/share
2.4 %
Change in Estimates
EPS Chg FY17E/FY18E (%)
NA/NA
Target Price change (%)
NA
Previous Reco
HOLD
Emkay vs Consensus
EPS Estimates
FY17E
FY18E
Emkay
19.4
30.3
Consensus
19.5
26.6
Mean Consensus TP
Rs 1,130
Stock Details
We met with the CFO – Mr. Sachin Sharma and Senior Vice President and Chief IR officer –
Mr. Arvind Vats of Jubilant FoodWorks ltd to take a gauge on current demand scenario and
strategy of the company going forward.
Bloomberg Code
JUBI IN
Face Value (Rs)
10
SSG recovery underway; Company is hopeful of demand recovery in H2FY17
52 Week H/L
Management is confident of clocking a positive SSG in Q2FY17, and is hopeful that H2FY17
should see good traction on back of good monsoons, seventh pay commission and pay back of
initiatives taken by the government. New products launches Pizza Burger and Pizza Mania
Extremes is seeing healthy traction which would aid SSG growth. We expect a 3%/6% SSG for
FY17/18E.
Gross margin healthy; but increase in minimum wage remains a concern
Vendor consolidation, benign input cost and efficiency in supply chain has led to healthy gross
margin improvement 120 bps over last year and management is confident of maintaining the
gross margins at this levels. Management expects an input cost inflation of ~5-6%, as input
prices are benign and they are also renegotiating rental contract with many landlords as real
estate demand is subdued, however increase in minimum wage as proposed by few states
can impact cost inflation. We expect EBITDA margins of 11.4%/13% in FY17/18E, SSG uptick
and break-even in Dunkin (assuming size of 120 stores by FY19) are levers to margin uptick.
Demand revival holds the key; Maintain Hold
While, long term story of food service industry is in place and JFL is likely to be key beneficiary
of demand revival, but unless demand/SSG improves, margins & earnings may remain
suppressed. Triggers for SSG revival are likely uptick in urban sentiments and sustained efforts
via promotion & new offerings. Sustenance of SSG revival remains the key trigger for stock rerating, till then we continue to maintain HOLD with price target of Rs 1,000/share.
Financial Snapshot (Standalone)
(Rs mn)
FY14
FY15
FY16
FY17E
FY18E
Revenue
17,235
20,745
24,102
27,935
34,127
EBITDA
2,551
2,628
2,718
3,188
4,441
14.8
12.7
11.3
11.4
13.0
EBITDA Margin (%)
APAT
1,258
1,233
1,066
1,278
1,992
EPS (Rs)
19.2
18.8
16.2
19.4
30.3
EPS (% chg)
(7.1)
(2.4)
(13.7)
19.9
55.8
ROE (%)
25.2
20.0
14.9
15.7
21.0
P/E (x)
50.8
52.0
60.3
50.3
32.3
EV/EBITDA (x)
25.0
24.3
23.6
20.2
14.4
P/BV (x)
11.3
9.6
8.5
7.4
6.3
Shares outstanding (mn)
66
1,690 / 887
M Cap (Rs bn/USD bn)
64 / 0.96
Daily Avg Volume (nos.)
6,97,129
Daily Avg Turnover (US$ mn)
11.7
Shareholding Pattern Jun '16
Promoters
45.0%
FIIs
31.7%
DIIs
12.2%
Public and Others
11.1%
Price Performance
(%)
1M
3M
6M
12M
(21)
(7)
(21)
(38)
Rel. to Nifty (23)
(13)
(30)
(45)
Absolute
Relative price chart
1675
Rs
% 10
1520
-2
1365
-14
1210
-26
1055
-38
900
Sep-15
Nov-15
Jan-16
Mar-16
Jubilant FoodWorks (LHS)
May-16
Jul-16
-50
Sep-16
Rel to Nifty (RHS)
Source: Bloomberg
Dhaval Mehta
[email protected]
+91 22 66121284
Amit Purohit
[email protected]
+91 22 66121340
Source: Company, Emkay Research
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES.
Emkay Global Financial Services Ltd.
Jubilant FoodWorks (JUBI IN)
India Equity Research | Management Meet Update
Key highlights of Jubilant FoodWorks Management meet Update

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






Emkay Research | September 23, 2016
Management is confident of clocking a positive SSG in Q2FY17, and is hopeful that
H2FY17 will see turnaround in business in terms of increase in discretionary spend on back
of good monsoon’s, seventh pay commission and pay back of initiatives taken by the
government. Even the new products launch by the company the Pizza Burger and Pizza
Mania Extremes is seeing healthy traction which would aid SSG.
Change in senior management team will not have any impact or changes in the strategy of
the company. They will continue their store expansion at the same pace which they had
planned earlier.
Competitive intensity from food aggregators like Swiggy, Zomato and others they are of the
opinion that this players are not a threat as they are seeing healthy growth in the delivery
business where this players are predominantly present. And in the long term this players
are helping in increasing the addressable market size and the number of times eating out
habit in India which is still the lowest among many countries.
Management admitted that their value for money quotient has come down marginally the
reason they have taken a constant decision not to increase prices further atleast in this
calendar year. Even price increases which they have taken in the past has been selectively
on particular products like the price of Pizza Mania have not seen any increase.
In last 2 year customer addition has happened at the same rate of earlier however the
frequency of visits of existing customer has come down impacting the overall sales of the
company. Even the average bill amount has not grown with the same pace as price
increase which means we have seen some downtrading.
The pay-back period of new stores has increased marginally to ~3.5 years, and the new
stores which is being opened is opening at ~70% of system average sales which was earlier
at ~80% of system average sales which is impacting there margin performance.
In terms of discount they are of the view that it has a critical role to play in this industry and
countries like US the discounted order constitutes ~90% of the overall sales.
In this challenging environment management is taking initiative to make the organization
leaner and meaner to protect their margins. Management have consolidated vendors and
improved supply chain and sourcing efficiency which has helped improving the gross
margins of the company. They are in constant discussion to renegotiate the rental
agreement with the landlord as real estate market is subdued. It currently have a 5%-6%
of input cost inflation, however considering the expectation of increase in minimum wage
inflation by many state government this can increase further as many of their employees
are as per the minimum wage of the existing states.
The number of stores in top 10 cities has come down from 50%-55% earlier to 45%-50%
as of now as more stores are opened in tier 2-3 cities. For FY17 management expects a
capex of Rs 2.5bn on new stores addition (130 Dominos stores & 15 Dunkin stores) and
on Greater Noida commissary which will be commissioned in March’2017.
2
Jubilant FoodWorks (JUBI IN)
India Equity Research | Management Meet Update
Exhibit 1: SSG trend of Peers
SSG
Yum India*
Jubilant
Q212
10.0%
26.7%
McDonalds
Q312
7.0%
30.1%
Q412
8.5%
26.0%
Q113
8.0%
22.0%
Q213
7.0%
19.8%
10.0%
Q313
1.0%
16.1%
2.5%
Q413
-3.5%
7.7%
1.5%
Q114
1.5%
6.3%
0.0%
Q214
0.0%
6.6%
-5.0%
Q314
-3.0%
-2.6%
-10.0%
Q414
-1.0%
-3.4%
-10.5%
Q115
-2.0%
-2.4%
-9.0%
Q215
-3.5%
-5.3%
-8.1%
Q315
-10.0%
1.9%
-0.4%
Q415
-11.0%
6.6%
-4.8%
Q116
-11.0%
4.6%
-4.9%
Q216
-18.0%
3.2%
1.7%
Q316
-13.0%
2.0%
3.1%
Q416**
-6.0%
2.9%
8.4%
Q117**
-7.0%
-3.2%
3.4%
NOTE: *Calendar year; ** From CY16 (Q4FY16) for Yum Foods it consists of only Pizza Hut data
Source: Company, Emkay Research
Exhibit 2: Key Growth Assumptions
SSG
FY14
FY15
FY16
FY17E
FY18E
1.7%
1.0%
3.2%
3.0%
6.0%
Source: Company, Emkay Research
Emkay Research | September 23, 2016
3
Jubilant FoodWorks (JUBI IN)
India Equity Research | Management Meet Update
Key Financials (Standalone)
Income Statement
Y/E Mar (Rs mn)
FY14
FY15
FY16
FY17E
FY18E
Revenue
17,235
20,745
24,102
27,935
34,127
Expenditure
14,684
18,117
21,384
24,747
29,686
2,551
2,628
2,718
3,188
4,441
767
982
1,243
1,402
1,599
1,784
1,647
1,475
1,785
2,842
93
74
113
119
125
EBITDA
Depreciation
EBIT
Other Income
Interest expenses
PBT
Tax
Extraordinary Items
Minority Int./Income from Assoc.
0
0
0
0
0
1,877
1,721
1,588
1,904
2,967
619
488
522
626
975
0
0
0
0
0
0
0
0
0
0
Reported Net Income
1,258
1,233
1,066
1,278
1,992
Adjusted PAT
1,258
1,233
1,066
1,278
1,992
FY17E
FY18E
Balance Sheet
Y/E Mar (Rs mn)
FY14
FY15
FY16
Equity share capital
655
657
658
658
658
Reserves & surplus
4,980
6,055
6,943
7,991
9,623
Net worth
5,635
6,712
7,601
8,649
10,281
0
0
0
0
0
Minority Interest
Loan Funds
0
0
0
0
0
371
558
678
678
678
Total Liabilities
6,006
7,270
8,279
9,327
10,959
Net block
5,288
7,164
8,126
9,137
10,010
Investment
1,286
1,303
1,537
1,537
1,537
Current Assets
1,964
2,292
2,632
2,761
3,896
228
304
234
(143)
456
Net deferred tax liability
Cash & bank balance
Other Current Assets
6
22
3
3
3
Current liabilities & Provision
2,715
3,670
4,197
4,289
4,665
Net current assets
(751)
(1,378)
(1,564)
(1,528)
(769)
0
0
0
0
0
6,006
7,270
8,279
9,327
10,959
Misc. exp
Total Assets
Cash Flow
Y/E Mar (Rs mn)
FY14
FY15
FY16
FY17E
FY18E
PBT (Ex-Other income) (NI+Dep)
2,842
1,784
1,647
1,475
1,785
Other Non-Cash items
(44)
(2)
120
0
0
Chg in working cap
279
890
237
(413)
(161)
2,309
2,833
2,433
2,149
3,304
(2,326)
(2,856)
(2,205)
(2,414)
(2,471)
(17)
(23)
228
(265)
833
(135)
(17)
(233)
0
0
Operating Cashflow
Capital expenditure
Free Cash Flow
Investments
Other Investing Cash Flow
43
62
233
0
0
(2,325)
(2,737)
(2,091)
(2,295)
(2,346)
Equity Capital Raised
2
2
1
0
0
Loans Taken / (Repaid)
0
0
0
0
0
Dividend paid (incl tax)
0
0
(193)
(231)
(360)
13
6
14
0
0
(360)
Investing Cashflow
Other Financing Cash Flow
Emkay Research | September 23, 2016
Financing Cashflow
15
9
(177)
(231)
Net chg in cash
(2)
104
164
(377)
599
Opening cash position
371
228
304
234
(143)
Closing cash position
230
332
468
(143)
456
4
Jubilant FoodWorks (JUBI IN)
India Equity Research | Management Meet Update
Key Ratios
Profitability (%)
FY14
FY15
FY16
FY17E
FY18E
EBITDA Margin
14.8
12.7
11.3
11.4
13.0
EBIT Margin
10.4
7.9
6.1
6.4
8.3
Effective Tax Rate
33.0
28.4
32.9
32.9
32.9
Net Margin
7.3
5.9
4.4
4.6
5.8
ROCE
35.5
25.9
20.4
21.6
29.3
ROE
25.2
20.0
14.9
15.7
21.0
RoIC
49.1
33.6
25.0
25.4
34.4
FY14
19.2
FY15
18.8
FY16
16.2
FY17E
19.4
FY18E
30.3
CEPS
30.9
33.7
35.1
40.7
54.5
BVPS
86.1
102.2
115.5
131.4
156.2
0.0
2.9
2.9
3.5
5.5
FY14
50.8
FY15
52.0
FY16
60.3
FY17E
50.3
FY18E
32.3
P/CEPS
31.6
29.0
27.8
24.0
17.9
P/BV
11.3
9.6
8.5
7.4
6.3
3.7
3.1
2.7
2.3
1.9
Per Share Data (Rs)
EPS
DPS
Valuations (x)
PER
EV / Sales
EV / EBITDA
25.0
24.3
23.6
20.2
14.4
Dividend Yield (%)
0.0
0.3
0.3
0.4
0.6
Gearing Ratio (x)
FY14
FY15
FY16
FY17E
FY18E
0.0
0.0
0.0
0.0
0.0
(0.1)
(0.1)
(0.1)
0.0
(0.1)
Working Cap Cycle (days)
(20.7)
(29.6)
(27.2)
(18.1)
(13.1)
Growth (%)
Net Debt/ Equity
Net Debt/EBIDTA
FY14
FY15
FY16
FY17E
FY18E
Revenue
22.4
20.4
16.2
15.9
22.2
EBITDA
4.4
3.0
3.4
17.3
39.3
EBIT
(6.0)
(7.7)
(10.4)
21.0
59.2
PAT
(6.9)
(2.0)
(13.5)
19.9
55.8
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
5,707
5,875
6,339
6,180
6,089
EBITDA
673
637
759
713
577
EBITDA Margin (%)
11.8
10.8
12.0
11.5
9.5
PAT
276
239
317
278
190
EPS (Rs)
4.2
3.6
4.8
4.2
2.9
Jun-15
Sep-15
Dec-15
Mar-16
Jun-16
Promoters
48.8
48.8
48.7
48.7
45.0
FIIs
41.5
41.5
36.3
34.3
31.7
DIIs
4.5
4.0
7.1
8.9
12.2
Public and Others
5.2
5.8
7.9
8.1
11.1
Quarterly (Rs mn)
Revenue
Shareholding Pattern (%)
Emkay Research | September 23, 2016
5
Jubilant FoodWorks (JUBI IN)
India Equity Research | Management Meet Update
Emkay Rating Distribution
BUY
ACCUMULATE
HOLD
REDUCE
SELL
Expected total return (%) (Stock price appreciation and dividend yield) of over 25% within the next 12-18 months.
Expected total return (%) (Stock price appreciation and dividend yield) of over 10% within the next 12-18 months.
Expected total return (%) (Stock price appreciation and dividend yield) of upto 10% within the next 12-18 months.
Expected total return (%) (Stock price depreciation) of upto (-) 10% within the next 12-18 months.
The stock is believed to underperform the broad market indices or its related universe within the next 12-18 months.
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Emkay Research | September 23, 2016
www.emkayglobal.com
7