INDUSTRY FMCG CMP (as on 17 Jul 17) Rs 1,273 Target Price Rs 1,45 Nifty 9,916 Sensex 32,75 KEY STOCK DATA Bloomberg JUBI IN No. of Shares (mn) 66 MCap (Rs bn)/(us$ mn) 84/1,35 6m avg traded value (Rs mn) 687 STOCK PERFORMANCE (%) 52 Week high / low Rs 1,299 / 761 3M 6M 12M Absolute (%) 28.8 52.9 11. Relative (%) 19.8 35.1 (4.2) SHAREHOLDING PATTERN (%) Promoters 44.96 FIs & Local MFs 12.41 FPIs 29.35 Public & Others 13.28 Source : BSE Naveen Trivedi naveen.trivedi@hdfcsec.com +91-22-6171-7324 Delivered on time JFL s net revenue was up 11.5% YoY at Rs 6.8bn, higher than our expectation of 7%. EBITDA and PAT increased by 38% and 26% YoY, respectively. JFL s strong performance has delivered on time after stock was under pressure on consistent weak performances. SSG at 6.5% (our expectation 3%) was much better than -7.5/-3.2% in / respectively. QSR industry growth was muted, but JFL s mgt is confident of sustaining healthy SSG, going ahead. The new CEO has been focussing on controlling store level costs, as against a focus on aggressive store expansion earlier. JFL opened only eight Domino s outlets (net) vs. the previous average of ~35 stores in a quarter. JFL also closed eight Dunkin Donuts stores (net) in 1Q. Cost control initiatives have been reflected in a 22bps EBITDA margin expansion in 1Q. The impact of losses incurred by Dunkin Donuts outlets on JFL s EBITDA margin has gone down to 15bps in vs. 25bps in. Mgt expects Dunkin would break even by FY19. Closure of loss-making stores could improve JFL s margin in the coming years. We expect efficient store expansion to result in improved SSG. We anticipate 6.5% SSG over FY18-19 (earlier expectation 5.5%). RESULTS REVIEW 18 JULY 217 Jubilant FoodWorks BUY JFL s EBITDA margin has dipped from 19% in FY12 to ~1% in FY17, owing to weak SSG and losses in Dunkin Donuts outlets (~2.5% impact on EBITDA margin). However, as the company is taking several cost-control initiatives, its EBITDA margin could expand in FY18-19. Reduction in Dunkin Donuts losses can also improve margins. We expect EBITDA margin of 13-14% during FY18-FY2. JFL is a strong player in the QSR industry, with >1,1 stores. Therefore, it commands a high valuation, despite its uninspiring performance in the past. We expect JFL s performance to improve in ensuing quarters. We upgrade the rating to BUY from NEUTRAL, with a TP of Rs 1,45 based on 45x June-19EPS. Highlights of the quarter Strong operational performance: JFL reported 11% revenue growth, with 6.5% SSG for Dominos. GM was down by 42bps to 76.4%, while EBITDA margin was up by 224bps to 11.7%. EBITDA grew by 38%, and resulted in 56% growth in APAT at Rs 297mn. Near-term outlook: We expect the stock to move upwards in the near term on promising outlook. Financial Summary (Rs mn) YoY (%) QoQ (%) FY16 FY17P FY18E FY19E FY2E Net Revenue 6,788 6,89 11.5 6,128 1.8 24,12 25,46 28,687 32,375 35,861 EBITDA 796 577 37.8 65 31.5 2,743 2,465 3,427 4,45 5,119 APAT 149 19 (21.8) 67 12.8 1,71 672 1,327 1,942 2,312 EPS (Rs) 3.6 2.9 25.6 2.9 26.2 16.5 1.2 2.2 29.5 35.1 P/E (x) 65.9 16.7 54.1 36.9 31. EV/EBITDA (x) 26. 28.8 2.4 15.4 13. ROE (%) 15.1 8.4 14.9 18.9 19.1 HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters
Revenue growth stood at 11.5% with 6.5% SSG (-3.2% in and -7.5% in ). We were expecting 7% revenue growth with 3% SSG GM declined was down by 42bps YoY to 76.4% EBITDA margin expanded by 22bps YoY to 11.7%, higher than our expectation of 1.2% Total number of employees stood at 27,369 in as compared to 27,662 in APAT was up by 56% YoY to Rs 298mn vs. expectation of Rs 22mn Quarterly Financials Year to March (Rs mn) YoY (%) QoQ (%) Net Revenue 6,788 6,89 11.5 6,128 1.8 Material Cost 1,65 1,414 13.5 1,418 13.2 Employee Expenses 1,471 1,4 5. 1,423 3.3 Rent Expenses 789 718 1. 88 (2.3) Other Expenses 2,127 1,979 7.5 1,874 13.5 EBITDA 796 577 37.8 65 31.5 Depreciation 462 326 41.7 438 5.5 EBIT 334 251 32.8 167 99.7 Other Income 3 31 (2.8) 36 (16.2) PBT before exceptional 364 282 28.9 23 79.3 Exceptional item 9-122 PBT 274 282 (3.) 81 237.2 Tax 125 92 35.8 14 8.7 RPAT 149 19 (21.8) 67 12.8 APAT 298 19 56.6 189 57.5 Adjusted EPS 3.6 2.9 25.6 2.9 26.2 As % Of Net Revenue Material Cost 23.6 23.2 4 23.1 5 Employee Expenses 21.7 23. (13) 23.2 (16) Rent Expenses 11.6 11.8 (2) 13.2 (16) Other Expenses 31.3 32.5 (12) 3.6 8 EBITDA 11.7 9.5 22 9.9 18 Tax Rate 45.7 32.7 1,31 17.1 2,86 APAT 4.4 3.1 13 3.1 13 Page 2
Much improved revenue performance driven by healthy 6.5% SSG Net Revenue 7, 6, 5, 4, 3, 2, 1, Net Sales Growth - RHS Rs mn % 48 4 32 24 16 8 Same Store Sales Growth % 31. 22. 13. 4. (5.) (14.) 22.3 19.8 16.1 7.7 6.3 6.6-2.6-3.4-2.4-5.3 1.9 6.6 4.6 3.2 2. 2.9-3.2 4.2-3.3-7.5 6.5 EBITDA margin was up by 22bps to 11.7% vs. expectation of 1.2%. Dunkin losses has come down to 1.5% of JFL EBITDA vs. 2.5% in Q1FY17 EBITDA Performance 1, 8 6 EBITDA Growth - RHS Rs mn % 45 3 15 EBITDA Margin % 2 15 1 18.2 17.2 17.4 16.7 16.8 14.9 14.8 12.8 12.4 12.2 13.1 12.9 11.8 1.3 11.5 11.5 9.5 9.7 9.7 9.9 11.7 4 JFL to add 4-5 new Dominos stores in FY18 compared to 91 stores in FY17 and 15 stores in FY16 2 (15) (3) 5 Page 3
13 new Domino s outlets were added during the quarter, and 5 were closed. Store expansion has slowed down as compared to previous years Domino s store count increased to 1,125 Dominos Store Additions Number Of Stores At The End 1,2 Nos 1, 8 6 4 Store Addition - RHS Nos 5 4 3 2 Cities Covered 3 25 2 15 1 11 112 118 123 128 132 142 15 154 167 184 196 28 218 225 235 248 251 26 264 264 Dunkin Donuts store addition was one, while it closed nine stores in. Total number of stores touched 55 vs. 71 stores in FY16 Management guiding for reducing losses in Dunkin by 5% in FY18 and breakeven by FY19 Domino s brand extended its reach to 264 cities, whereas Dunkin Donuts outlets were in 15 cities at the end of FY17 Online ordering (OLO) and mobile ordering will continue to remain an integral part of revenue generation 2 OLO And Mobile Ordering Performance 8% 7% 6% 5% 4% 3% 2% 1% % 27% 21% 27% 21% 29% 23% 33% 28% 36% 3% 41% 38% 36% 38% 41% 38% 44% 54% 47% 56% 51% Average OLO contribution to delivery sales Mobile Ordering sales contribution to overall OLO, OLO - Online Ordering 68% 51% 69% 1 5 Download of Mobile Ordering App 8. 7. 6. 5. 4. 3. 2. 1.. 1.8 Mn No. 2. 2.3 2.6 3.1 3.5 3.7 3.9 4.4 5. 5.3 6.4 7.5 Page 4
Assumptions FY16 FY17P FY18E FY19E FY2E Net Revenue Growth 16.2 5.6 12.7 12.9 1.8 Same Store Sales Growth 3.2 (2.4) 6.5 6. 5. Stores At The Beginning 876 1,26 1,117 1,167 1,232 Store Additions 15 91 5 65 7 Stores At The End 1,26 1,117 1,167 1,232 1,32 As % Of Sales COGS 23.7 24.2 23.7 23.3 23.4 Employee 23.6 23. 21.5 2. 19. Rent 1.5 11.6 11.3 1.8 1.2 Ad spends 5.2 5.7 6.2 7.2 8.2 P&F 5.7 5.6 5.4 5.3 5.3 Franchise fees 3.3 3.3 3.3 3.3 3.3 EBITDA 11.4 9.7 11.9 13.7 14.3 Change In Estimates Rs Mn FY18E FY19E New Old Chg (%) New Old Chg (%) Net Revenue 28,687 28,418.9 32,375 31,592 2.5 EBITDA 3,427 3,185 7.6 4,45 3,836 16. EBITDA Margin (%) 11.9 11.2 75 bps 13.7 12.1 164 bps PAT 1,327 1,247 6.4 1,942 1,637 18.6 EPS 2.2 19. 6.1 29.5 24.9 18.5 Source: HDFC sec Inst Research Page 5
Income Statement (Rs mn) FY16 FY17P FY18E FY19E FY2E Net Sales 24,12 25,46 28,687 32,375 35,861 Growth (%) 16.2 5.6 12.7 12.9 1.8 Material Expenses 5,71 6,158 6,794 7,535 8,381 Employee Expenses 5,685 5,845 6,16 6,464 6,818 A&P Expenses 1,253 1,451 1,779 2,331 2,941 Rent 2,539 2,947 3,228 3,493 3,674 Other Operating Expenses 6,181 6,594 7,299 8,12 8,928 EBIDTA 2,743 2,465 3,427 4,45 5,119 EBIDTA Margin (%) 11.4 9.7 11.9 13.7 14.3 EBIDTA Growth (%) 3.6 (1.1) 39. 29.8 15. Depreciation 1,243 1,511 1,627 1,773 1,933 EBIT 1,51 954 1,81 2,677 3,186 Other Income 9 23 179 221 264 PBT 1,591 977 1,98 2,898 3,451 Tax 52 35 653 956 1,139 RPAT 1,71 672 1,327 1,942 2,312 EO items (net of tax) (17) (122) - - - APAT 1,88 794 1,327 1,942 2,312 APAT Growth (%) (12.4) (27.) 67.1 46.4 19.1 EPS 16.5 1.2 2.2 29.5 35.1 EPS Growth (%) (12.7) (38.2) 97.4 46.4 19.1 Balance Sheet (Rs mn) FY16 FY17P FY18E FY19E FY2E SOURCES OF FUNDS Share Capital 658 658 658 658 658 Reserves 7,23 7,652 8,781 1,46 12,443 Total Shareholders Funds 7,681 8,31 9,439 11,118 13,11 Deferred Taxes 678 678 678 678 678 TOTAL SOURCES OF FUNDS 8,359 8,988 1,117 11,796 13,779 APPLICATION OF FUNDS Net Block 8,134 8,469 8,119 7,777 7,375 CWIP 174 174 174 174 174 LT Loans & Advances 1,477 1,561 1,758 1,984 2,198 Investments 1,524 1,68 2,18 2,68 3,18 Inventories 538 587 71 81 887 Trade Receivables 125 156 177 2 222 Cash & Equivalents 313 5 1,523 3,156 5,197 Other Current Assets 27 36 323 343 364 Current Assets 1,246 1,55 2,732 4,5 6,67 Creditors 3,253 3,117 3,512 3,964 4,391 Other Current Liabilities 944 1,327 1,334 1,355 1,427 Net current Assets (2,951) (2,895) (2,114) (819) 852 TOTAL APPLICATION OF FUNDS 8,359 8,988 1,117 11,796 13,779 Page 6
Cash Flow Statement (Rs mn) FY16 FY17P FY18E FY19E FY2E Reported PBT 1,67 1,99 1,98 2,898 3,451 Non-operating & EO items (11) 22 (179) (221) (264) Interest expenses (1) - - - - Depreciation 1,243 1,511 1,627 1,773 1,933 Working Capital Change (125) 48 44 112 156 Tax (59) (35) (653) (956) (1,139) OPERATING CASH FLOW ( a ) 2,184 2,574 2,818 3,65 4,137 Capex (2,22) (1,847) (1,277) (1,43) (1,531) Free Cash Flow (36) 727 1,541 2,175 2,65 Investments & Others 148 (155) (5) (5) (5) Non-operating Income 9 23 179 221 264 INVESTING CASH FLOW ( b ) 238 (132) (321) (279) (236) Interest 1 - - - - FCFE (37) 727 1,541 2,175 2,65 Share Capital Issuance 21 - - - - Dividend (197) (164) (197) (263) (329) FINANCING CASH FLOW ( c ) (175) (164) (197) (263) (329) EO items (17) (122) - - - NET CASH FLOW (a+b+c) 1 39 1,23 1,633 2,41 Closing Cash 314 622 1,645 3,278 5,319 Key Ratios FY16 FY17P FY18E FY19E FY2E PROFITABILITY (%) GPM 76.3 75.8 76.3 76.7 76.6 EBITDA Margin 11.4 9.7 11.9 13.7 14.3 EBIT Margin 6.2 3.7 6.3 8.3 8.9 APAT Margin 4.4 2.6 4.6 6. 6.4 RoE 15.1 8.4 14.9 18.9 19.1 RoIC 18.5 11.6 2.8 33.3 43.7 RoCE 22.3 13.7 22.3 28.2 28.5 EFFICIENCY Tax Rate (%) 32.7 31.2 33. 33. 33. Asset Turnover (x) 2.1 1.9 1.9 2. 2. Inventory (days) 8.1 8.4 8. 8. 8. Debtors (days) 1.9 2.2 2. 2. 2. Other Current Assets (days) 4.1 4.4 4.1 3.9 3.7 Creditors (days) 63.6 63.7 61.7 6. 59.2 Other Current Liab & Prove (days) 14.3 19. 17. 15.3 14.5 Cash Conversion Cycle (days) (63.7) (67.7) (64.5) (61.4) (6.) Net D/E (.) (.1) (.2) (.3) (.4) PER SHARE DATA EPS (Rs/sh) 16.5 1.2 2.2 29.5 35.1 CEPS (Rs/sh) 29.4 26.8 36.7 47.6 54.8 BV (Rs/sh) 116.7 126.3 143.5 169. 199.1 DPS (Rs/sh) 2.5 2.5 4. 5. 6. VALUATION P/E (x) 65.9 16.7 54.1 36.9 31. P/BV (x) 9.3 8.6 7.6 6.5 5.5 EV/EBITDA (x) 26. 28.8 2.4 15.4 13. OCF/EV (%) 3.1 3.6 4. 5.3 6.2 FCF/EV (%) (.) 1. 2.2 3.2 3.9 FCFE/mkt cap (%) (.) 1. 2.1 3. 3.6 Dividend Yield (%).2.2.3.4.5 Page 7
RECOMMENDATION HISTORY Jubilant FoodWorks 1,6 1,5 1,4 1,3 1,2 1,1 1, 9 8 7 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 TP Mar-17 Apr-17 May-17 Jun-17 Jul-17 Date CMP Reco Target 7-Sep-16 1,68 NEU 1,172 23-Sep-16 976 NEU 1,1 27-Oct-16 1,57 NEU 1,1 1-Jan-17 835 NEU 924 7-Feb-17 1,7 NEU 1,41 14-Apr-17 1,8 NEU 1,8 3-May-17 94 NEU 995 18-Jul-17 1,273 BUY 1,45 Rating Definitions BUY : Where the stock is expected to deliver more than 1% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)1% to 1% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)1% returns over the next 12 month period Page 8
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