Jubilant Food works (JUBI IN) Focus shifts to revenue maximization from cost optimization

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1 INSTITUTIONAL EQUITY RESEARCH Jubilant Food works (JUBI IN) Focus shifts to revenue maximization from cost optimization INDIA Retail Company Update We believe Jubilant is poised to deliver 20%+ SSS growth in 1QFY19 based on the following: (1) its high-decibel advertising campaign has boosted volumes during the IPL season, (2) weighted average hike (in early May 2018) of % by rejigging its EDV portfolio; mid-single-digit hikes in top-selling variants of Pizza Mania, (3) its customers are upgrading to the EDV (Everyday Value) offers for regular-sized pizzas from Pizza Mania (a mass-market product), and (4) expectations of a strong June month due to the FIFA World Cup being telecasted in the evening prime-time for pizza consumption. Set for 20%+ SSS growth in 1QFY19: Our channel checks suggest that April and May 2018 saw 20%+ SSS growth on strong advertising in the IPL season (7 th April to 27 th May 2018). Media reports suggest that IPL viewership grew 40% yoy as broadcaster telecasted matches in four regional languages (Tamil, Telugu, Kannada, and Bengali), apart from English and Hindi. Women s viewership (40% of overall) grew 18% yoy. We believe higher women s viewership is positive for all QSR/delivery players, as more women engagement usually leads to less time for cooking, ergo ordering food. We expect Jubilant s healthy momentum to continue in June with FIFA starting from 14 th June 2018 (host country is Russia) and matches to be telecast in the evening (5.30 and 8.30 PM; AM) for India. Making smart moves within EDV: Domino s has moved certain high-in-demand variants within EDV to a higher price bucket; for example it moved Paneer Makhani/Chicken Tikka variants to Rs 249/299 from Rs 199/249. Jubilant has also hiked prices of top-selling variants (by 7-8%) within the Pizza Mania range. Our rough calculations suggest that these moves constitute a % price hike at the company level. What is the management doing to drive revenue maximization? Our channel checks suggest the following moves: (1) In some of its stores, Domino s is incentivizing delivery personnel to collect feedback from customers. They get a Golden Corn Pizza (worth Rs 75) free, if they collect feedback from 50% of their deliveries, (2) Domino s has started giving variable incentive (weekdays/weekend Rs 5/15 per delivery ) since January 2018 to to retain personnel and avoid poaching from Zomato/Swiggy, who are going all out to boost their delivery businesses, (3) most stores that we visited had put up vacancy signs, and our discussion with ground staff suggested that this was to serve incremental demand and not due to above-normal attrition, and (4) minimum threshold per order for night delivery reduced to Rs 300 from Rs 500 What can go wrong with our SSS/profitability assumptions for 1QFY19? We expect the 1) media blitzkrieg in IPL season to be within annual threshold limits (spends account for 5-6% of sales), so any over-spending may hurt profitability. 2) Higher petrol prices (up 18% yoy since April 2017) may spoil the show as power and fuel costs are 5-6% of sales. 3) Sales not picking up as desired in June 2018 (despite intensive sporting season) are another risk. Also, higher new store additions (vs. our expectation in 1QFY19) are a risk as these tend to have lower-than-average sales (per store basis). Poised to deliver: We believe that the management has shifted focus on revenue maximisation, as most of the benefits of cost optimisation have already been captured. We have increased our EBITDA estimate for FY19/20 by 3%, as we increase our SSS estimate for FY19 to 16% (vs.15% earlier) due to price hikes taken in May We have also increased our target multiple to 25x from 24x, on improving visibility. We raise our target to Rs 3,320 (25x June 2020 EV/EBITDA) from Rs 3,100 (24x June 2020 EV/EBITDA). Key risks: Promoter stake sale (has come down to 45% from 62% at the time of the IPO). Irrational exuberance among online delivery players to grab market share. 4 June 2018 BUY (Maintain) CMP RS 2501 TARGET RS 3320 (+33%) COMPANY DATA O/S SHARES (MN) : 66 MARKET CAP (RSBN) : MARKET CAP (USDBN) : WK HI/LO (RS) : 2748 / 905 LIQUIDITY 3M (USDMN) : 41.0 PAR VALUE (RS) : 10 SHARE HOLDING PATTERN, % Mar 18 Dec 17 Sep 17 PROMOTERS : FII / NRI : FI / MF : NON PRO : PUBLIC & OTHERS : PRICE PERFORMANCE, % 1MTH 3MTH 1YR ABS REL TO BSE PRICE VS. SENSEX Apr/16 Apr/17 Apr/18 Jubilant Food Source: Phillip Capital India Research KEY FINANCIALS Rs mn FY18 FY19E FY20E FY21E Net Sales 29,805 35,773 41,178 47,126 EBITDA 4,460 6,278 7,952 9,556 Net Profit 2,064 3,128 4,147 5,163 EPS, Rs PER, x EV/EBIDTA, x P/BV, x ROE, % Source: PhillipCapital India Research Est. Vishal Gutka ( ) vgutka@phillipcapital.in Naveen Kulkarni & Preeyam Tolia BSE Sensex Page 1 PHILLIPCAPITAL INDIA RESEARCH

2 Blockbuster performance expected in 1QFY19 (Rs mn) 1QFY18 1QFY19 % YoY Net Sales 6,788 8, Operating Costs (5,992) (6,938) 15.8 EBITDA 796 1, EBITDA Margin (%) bps Depreciation (462) (400) Interest and Finance Expenses - - Other Income PBT 364 1, Provision for Tax (125) (400) Tax Rate (%) bps Adj Profit Adj Profit Margin (%) bps Exceptional costs - - NM Reported PAT Adj Profit Margin (%) bps Cost Details 1QFY18 1QFY19 % YoY Raw Material Consumption 1,605 2, As a % of sales bps Employees cost 1,471 1, As a % of sales bps Rent As a % of sales bps Other expenditure 2,127 2, As a % of sales bps Gross Margin (%) bps Source: Company, PhillipCapital India Research Estimates Making smart move within the EDV portfolio Everyday value offer (customer has to buy minimum two pizza's Old New % change within the same bucket) Regular Medium Regular Medium Regular Medium Paneer Makhani Chicken Tikka % 29% 25% 20% Source: Domino Pizza Pizza mania Within Pizza mania range, it has hikes priced of top selling variants by 7-8% Pizza Mania Old New % change Loaded Veg % Loaded Non Veg % Source: Domino Pizza Page 2 PHILLIPCAPITAL INDIA RESEARCH

3 16/Aug/16 16/Sep/16 16/Oct/16 16/Nov/16 16/Dec/16 16/Jan/17 16/Feb/17 16/Mar/17 16/Apr/17 16/May/17 16/Jun/17 16/Jul/17 16/Aug/17 16/Sep/17 16/Oct/17 16/Nov/17 16/Dec/17 16/Jan/18 16/Feb/18 16/Mar/18 16/Apr/18 16/May/18 JUBILANT FOODWORKS COMPANY UPDATE Details (Rates applicable when customer buys single pizza) Old New % change Regular Medium Large Regular Medium Large Regular Medium Large Paneer Makhani % 26% 20% Chicken Tikka % 17% 17% Source: Domino Pizza Hiring boom at Dominos Source: PhillipCapital India Petrol prices is on fire 90 Mumbai Petrol (Rs/ltr) Source: IOC Page 3 PHILLIPCAPITAL INDIA RESEARCH

4 FIFA World Cup Schedule 2018 Group Stage Matches 1 Russia vs Saudi Arabia A 14 June 2018 Thursday 8:30 PM 2 Egypt vs Uruguay A 15 June 2018 Friday 5:30 PM 3 Morocco vs Iran B 15 June 2018 Friday 8:30 PM 4 Portugal vs Spain B 15 June 2018 Friday 11:30 PM 5 France vs Australia C 16 June 2018 Saturday 3:30 PM 6 Argentina vs Iceland D 16 June 2018 Saturday 6:30 PM 7 Peru vs Denmark C 16 June 2018 Saturday 9:30 PM 8 Croatia vs Nigeria D 17 June 2018 Sunday 12:30 AM 9 Costa Rica vs Serbia E 17 June 2018 Sunday 5:30 PM 10 Germany vs Mexico F 17 June 2018 Sunday 8:30 PM 11 Brazil vs Switzerland E 17 June 2018 Sunday 11:30 PM 12 Sweden vs Korea Republic F 18 June 2018 Monday 5:30 PM 13 Belgium vs Panama G 18 June 2018 Monday 8:30 PM 14 Tunisia vs England G 18 June 2018 Monday 11:30 PM 15 Colombia vs Japan H 19 June 2018 Tuesday 5:30 PM 16 Poland vs Senegal H 19 June 2018 Tuesday 8:30 PM 17 Russia vs Egypt A 19-Jun-18 Tuesday 11:30 PM 18 Portugal vs Morocco B 20 June 2018 Wednesday 5:30 PM 19 Uruguay vs Saudi Arabia A 20 June 2018 Wednesday 8:30 PM 20 Iran vs Spain B 20 June 2018 Wednesday 11:30 PM 21 Denmark vs Australia C 21 June 2018 Thursday 5:30 PM 22 France vs Peru C 21 June 2018 Thursday 8:30 PM 23 Argentina vs Croatia D 21 June 2018 Thursday 11:30 PM 24 Brazil vs Costa Rica E 22 June 2018 Friday 5:30 PM 25 Nigeria vs Iceland D 22 June 2018 Friday 8:30 PM 26 Serbia vs Switzerland E 22 June 2018 Friday 11:30 PM 27 Belgium vs Tunisia G 23 June 2018 Saturday 5:30 PM 28 Korea Republic vs Mexico F 23 June 2018 Saturday 8:30 PM 29 Germany vs Sweden F 23-Jun-18 Saturday 11:30 PM 30 England vs Panama G 24 June 2018 Sunday 5:30 PM 31 Japan vs Senegal H 24 June 2018 Sunday 8:30 PM 32 Poland vs Colombia H 24-Jun-18 Sunday 11:30 PM 33 Uruguay vs Russia A 25 June 2018 Monday 7:30 PM 34 Saudi Arabia vs Egypt A 25 June 2018 Monday 7:30 PM 35 Iran vs Portugal B 25 June 2018 Monday 11:30 PM 36 Spain vs Morocco B 25-Jun-18 Monday 11:30 PM 37 Denmark vs France C 26 June 2018 Tuesday 7:30 PM 38 Australia vs Peru C 26-Jun-18 Tuesday 7:30 PM 39 Nigeria vs Argentina D 26-Jun-18 Tuesday 11:30 PM 40 Iceland vs Croatia D 26-Jun-18 Tuesday 11:30 PM 41 Mexico vs Korea Republic F 27 June 2018 Wednesday 5:30 PM 42 South Republic vs Germany F 27-Jun-18 Wednesday 7:30 PM 43 Serbia vs Brazil E 27-Jun-18 Wednesday 11:30 PM 44 Switzerland vs Costa Rica E 27-Jun-18 Wednesday 11:30 PM 45 Japan vs Poland H 28-Jun-18 Thursday 7:30 PM 46 Senegal vs Colombia H 28-Jun-18 Thursday 7:30 PM 47 Panama vs Tunisia G 28-Jun-18 Thursday 11:30 PM 48 England vs Belgium G 28-Jun-18 Thursday 11:30 PM JUBILANT FOODWORKS COMPANY UPDATE Round of 16 Matches 49 1C vs 2D 30-Jun-18 Saturday 7:30 PM 50 1A vs 2B 30-Jun-18 Saturday 11:30 PM 51 1B vs 2A 1-Jul-18 Sunday 7:30 PM 52 1D vs 2C 1 July 2018 Sunday 11:30 PM 53 1E vs 2F 2 July 2018 Monday 7:30 PM 54 1G vs 2H 2 July 2018 Monday 11:30 PM 55 1F vs 2E 3 July 2018 Tuesday 7:30 PM 56 1H vs 2G 3 July 2018 Tuesday 11:30 PM Page 4 PHILLIPCAPITAL INDIA RESEARCH

5 Quarter-finals 57 W49 vs W50 6 July 2018 Friday 7:30 PM 58 W53 vs W54 6 July 2018 Friday 11:30 PM 59 W55 vs W56 7 July 2018 Saturday 7:30 PM 60 W51 vs W52 7 July 2018 Saturday 11:30 PM Semi-finals 61 W57 vs W58 10 July 2018 Tuesday 11:30 PM 62 W59 vs W60 11 July 2018 Wednesday 11:30 PM Third Place Tie 63 L61 vs L62 14 July 2018 Saturday 7:30 PM Final 64 W61 vs W62 15 July 2018 Sunday 8:30 PM Source: Firstpost Indians are supporting the football teams listed below, and if these go thorough to the play-offs stage (30th June 14th July) Pizza demand should rise sharply in 2QFY19 BRAZIL ARGENTINA ENGLAND GERMANY PORTUGAL SPAIN Source: PhillipCapital India Survey Page 5 PHILLIPCAPITAL INDIA RESEARCH

6 Financials Income Statement Y/E Mar, Rs mn FY18 FY19e FY20e FY21e Net sales 29,805 35,773 41,178 47,126 Growth, % Raw material expenses -7,519-9,283-10,686-12,229 Employee expenses -6,041-6,796-7,612-8,525 Rent -3,157-3,946-4,439-4,994 Other Operating expenses -8,628-9,469-10,489-11,822 EBITDA (Core) 4,460 6,278 7,952 9,556 Growth, % Margin, % Depreciation -1,558-1,778-1,993-2,208 EBIT 2,902 4,500 5,958 7,347 Growth, % Margin, % Interest paid Other Non-Operating Income Non-recurring Items Pre-tax profit 3,130 4,761 6,311 7,859 Tax provided -1,066-1,633-2,165-2,696 Profit after tax 2,064 3,128 4,147 5,163 Others (Minorities, Associates) Net Profit 2,064 3,128 4,147 5,163 Growth, % Net Profit (adjusted) 2,064 3,128 4,147 5,163 Unadj. shares (m) Wtd avg shares (m) Balance Sheet Y/E Mar, Rs mn FY18 FY19e FY20e FY21e Cash & bank 2,555 5,148 8,756 13,417 Debtors Inventory ,033 Loans & advances 1,796 2,156 2,482 2,840 Other current assets Total current assets 5,496 8,611 12,693 17,876 Investments 1,757 1,957 2,157 2,357 Gross fixed assets 11,794 13,329 14,864 16,399 Less: Depreciation -4,099-5,877-7,871-10,079 Add: Capital WIP Net fixed assets 8,293 8,050 7,592 6,919 Total assets 14,853 17,925 21,749 26,459 Current liabilities 4,462 5,198 5,865 6,598 Provisions Total current liabilities 4,663 5,399 6,065 6,799 Total liabilities 4,663 5,399 6,065 6,799 Paid-up capital Reserves & surplus 9,531 11,867 15,024 19,001 Shareholders equity 10,190 12,527 15,684 19,660 Total equity & liabilities 14,853 17,925 21,749 26,459 Cash Flow Y/E Mar, Rs mn FY18 FY19e FY20e FY21e Pre-tax profit 3,130 4,761 6,311 7,859 Depreciation 1,558 1,778 1,993 2,208 Chg in working capital Total tax paid -1,066-1,633-2,165-2,696 Cash flow from operating activities 3,844 5,119 6,332 7,583 Capital expenditure -1,140-1,535-1,535-1,535 Chg in investments Cash flow from investing activities -1,217-1,735-1,735-1,735 Free cash flow 2,627 3,384 4,597 5,848 Equity raised/(repaid) Dividend (incl. tax) ,187 Cash flow from financing activities ,187 Net chg in cash 2,231 2,592 3,608 4,661 Valuation Ratios FY18 FY19e FY20e FY21e Per Share data EPS (INR) Growth, % Book NAV/share (INR) FDEPS (INR) CEPS (INR) CFPS (INR) DPS (INR) Return ratios Return on assets (%) Return on equity (%) Return on capital employed (%) Turnover ratios Asset turnover (x) Sales/Total assets (x) Sales/Net FA (x) Working capital/sales (x) (0.1) (0.0) (0.0) (0.0) Fixed capital/sales (x) Receivable days Inventory days Payable days Working capital days (18.6) (17.7) (17.1) (16.6) Liquidity ratios Current ratio (x) Quick ratio (x) Total debt/equity (%) Net debt/equity (%) (25.1) (41.1) (55.8) (68.2) Valuation PER (x) PEG (x) - y-o-y growth Price/Book (x) EV/Net sales (x) EV/EBITDA (x) EV/EBIT (x) Source: Company, PhillipCapital India Research Estimates Page 6 PHILLIPCAPITAL INDIA RESEARCH

7 Stock Price, Price Target and Rating History B (TP 3100) 2000 B (TP 2800) B (TP 2800) 1500 J-15 A-15 S-15 N-15 N (TP 1200) B (TP 2300) N (TP 1700) 1000 F-16 B (TP 1300) N (TP 1065) N (TP 1030) S (TP 800) 500 M- 15 J-15 A-15 S-15 N-15 D-15 F-16 M- 16 M- 16 J-16 A-16 S-16 N-16 D-16 J-17 M- 17 M- 17 J-17 J-17 S-17 O-17 D-17 J-18 M- 18 A-18 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%. Page 7 PHILLIPCAPITAL INDIA RESEARCH

8 RESEARCH Automobiles Dhawal Doshi Nitesh Sharma, CFA Agro Chemicals Varun Vijayan Banking, NBFCs Manish Agarwalla Pradeep Agrawal, Sujal Kumar Consumer Naveen Kulkarni, CFA, FRM Preeyam Tolia, Vishal Gutka Cement Vaibhav Agarwal Engineering, Capital Goods Jonas Bhutta Vikram Rawat Economics Anjali Verma Raag Haria IT Services Vibhor Singhal Shyamal Dhruve Infrastructure Vibhor Singhal Logistics, Transportation & Midcap Vikram Suryavanshi Media Naveen Kulkarni, CFA, FRM Vishal Gutka Metals Dhawal Doshi Vipul Agrawal Midcaps Deepak Agarwal Akshay Mokashe MANAGEMENT Vineet Bhatnagar (Managing Director) Kinshuk Bharti Tiwari (Head Institutional Equity) Jignesh Shah (Head Equity Derivatives) Pharma & Specialty Chem Surya Patra Mehul Sheth, Rishita Raja Retail & Real Estate Vishal Gutka Dhaval Somaiya Strategy Naveen Kulkarni, CFA, FRM Neeraj Chadawar Telecom Naveen Kulkarni, CFA, FRM Technicals Subodh Gupta, CMT Production Manager Ganesh Deorukhkar Editor Roshan Sony Sr. Manager Equities Support Rosie Ferns SALES & DISTRIBUTION Kishor Binwal Ashvin Patil Bhavin Shah Ashka Gulati Archan Vyas Asia Sales Dhawal Shah Sales Trader Dilesh Doshi Suniil Pandit Execution Mayur Shah CORPORATE COMMUNICATIONS Zarine Damania REGIONAL MEMBER COMPANIES INDIA PhillipCapital (India) Private Limited SINGAPORE Phillip Securities Pte Ltd JAPAN Phillip Securities Japan, Ltd THAILAND Phillip Securities (Thailand) Public Co. Ltd. UNITED STATES Phillip Futures Inc. MALAYSIA Phillip Capital Management Sdn Bhd INDONESIA PT Phillip Securities Indonesia FRANCE King & Shaxson Capital Ltd. AUSTRALIA PhillipCapital Australia HONG KONG Phillip Securities (HK) Ltd CHINA Phillip Financial Advisory (Shanghai) Co. Ltd. UNITED KINGDOM King & Shaxson Ltd. SRI LANKA Asha Phillip Securities Limited Page 8 PHILLIPCAPITAL INDIA RESEARCH

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