INDUSTRY FMCG CMP (as on 29 May 17) Rs 94 Target Price Rs 995 Nifty 9,65 Sensex 31,19 KEY STOCK DATA Bloomberg JUBI IN No. of Shares (mn) 66 MCap (Rs bn)/(us$ mn) 62/962 6m avg traded value (Rs mn) 574 STOCK PERFORMANCE (%) 52 Week high / low Rs 1,299 / 761 3M 6M 12M Absolute (%) (7.) 1.6 (15.4) Relative (%) (15.2) (16.2) (32.1) 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 Changing DNA JFL s net revenues were down.9% YoY at Rs 6.1bn, lower than our expectation of 1% growth. EBITDA and PAT declined by 15% and 32% YoY, respectively. Demonet, slower store expansion and withdrawal of consumer offers have impacted JFL s performance. SSG was at -7.5% (our expectation +3.5%), even lower than - 3.3% in. Delivery orders (5% of revenues) remained weak owing to demonetisation. System sales growth for Yum/KFC was at +6%/+2% respectively. JFL has closed eight Dominos stores in and 14 in 2HFY17. Management has also cut its expansion target to 4-5 stores in FY18, much lower than historical average of 13-15 stores. There is a shift in its strategy of increasing the number of stores to a greater focus on profitability. Closure of loss-making stores could improve its margin in the coming years. We expect efficient store expansion to result in improved SSG in the coming years. We anticipate 5.5% SSG over FY18-19 (earlier expectation ~4%). JFL s EBITDA margin has reduced from 19% in FY12 to ~1% in FY17, owing to weak SSG and losses in Dunkin Donuts (~2% impact on EBITDA margin). However, as the company is taking several cost-control initiatives, its RESULTS REVIEW 3 MAY 217 Jubilant FoodWorks NEUTRAL EBITDA margin could expand in FY18-19. Reduction in Dunkin Donuts losses can also improve margins. We expect the EBITDA margin to be in the range of 11-12 % during FY18-FY19. We reduce our EPS by ~8% for FY18and FY19 owing to slower store expansion. JFL is a strong player in the QSR industry, and has >1,1 stores. Therefore, it commands a high valuation despite its recent lacklustre performance. We expect JFL to improve performance in ensuing quarters. We have a NEUTRAL rating with a TP of Rs 995 based on 4x Mar- 19EPS. Highlights of the quarter Revenue pressure continues: JFL reported flat revenue growth with -7.5% SSG for Dominos. Revenue growth in FY17 was 5.6%, much slower than the historical average. Contraction in profits: JFL reported 4bps contraction in gross margins, while EBITDA margin was down by 17bps owing to high rent and other expenses. EBITDA down by 15% and resulted in 32% fall in APAT. Near term outlook: Stock can be under pressure in the near term as new management/strategy would take some time to improve performance. Financial Summary (Rs mn) YoY (%) QoQ (%) FY15 FY16 FY17E FY18E FY19E Net Revenue 6,128 6,18 (.9) 6,588 (7.) 2,745 24,12 25,46 28,418 31,592 EBITDA 65 713 (15.2) 641 (5.5) 2,648 2,743 2,465 3,185 3,836 APAT 67 278 (75.8) 2 (66.3) 1,233 1,71 672 1,247 1,637 EPS (Rs) 2.9 4.2 (32.1) 3. (5.3) 18.9 16.5 1.2 19. 24.9 P/E (x) 49.6 56.8 91.9 49.5 37.7 EV/EBITDA (x) 23.1 22.4 24.8 18.9 15.3 ROE (%) 2.1 15.1 8.4 14.1 16.3 HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters
Revenue growth stood at -.9% with -7.5% SSG (-3.3% in ). We were expecting 1% revenue growth with +3.5% SSG GM declined was limited at 4bps YoY to 76.9% EBITDA margin contracted by 17bps to 9.9%, lower than our expectation of 11% Total number of employees stood at 26,64 in as compared to 27,719 in APAT declined 32% YoY to Rs 189mn vs. expectation of Rs 281mn Quarterly Financials Year to March (Rs mn) YoY (%) QoQ (%) Net Revenue 6,128 6,18 (.9) 6,588 (7.) Material Cost 1,418 1,452 (2.3) 1,651 (14.1) Employee Expenses 1,423 1,46 (2.5) 1,52 (6.3) Rent Expenses 769* 677 13.5 734 4.8 Other Expenses 1,913 1,878 1.8 2,44 (6.4) EBITDA 65 713 (15.2) 641 (5.5) Depreciation 438 328 33.6 381 14.9 EBIT 167 385 (56.6) 259 (35.6) Other Income 36 29 22.5 35 1. PBT before exceptional 23 415 (51.1) 295 (31.2) Exceptional item 122 - - PBT 81 415 (8.4) 295 (127.3) Tax 14 136 (89.8) 95 (85.4) RPAT 67 278 (75.8) 2 (66.3) APAT 189 278 (32.1) 2 (5.5) Adjusted EPS 2.9 4.2 (32.1) 3. (5.3) As % Of Net Revenue Material Cost 23.1 23.5 (4) 25.1 (19) Employee Expenses 23.2 23.6 (4) 23.1 2 Rent Expenses 12.5 11. 16 11.1 14 Other Expenses 31.2 3.4 8 31. 2 EBITDA 9.9 11.5 (17) 9.7 2 Tax Rate 17.1 32.9 (1,57) 32.2 (1,51) APAT 3.1 4.5 (14) 3. 1 *Estimated Page 2
Demonetisation has impacted quarterly performance. However, revenue deceleration has continued for the last many quarters SSG was -7.5% vs. expectation of +3.5% Net Revenue 7, 6, 5, 4, 3, 2, 1, Net Sales Growth - RHS Rs mn % 64 56 48 4 32 24 16 8 Same Store Sales Growth % 31. 22. 13. 4. (5.) (14.) 26.2 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 EBITDA margin was down by 17bps to 9.9% vs. expectation of 11%. Dunkin losses impacted ~2% of EBITDA margin JFL to add 4-5 new Dominos stores in FY18 compared to 91 stores in FY17 and 15 stores in FY16 EBITDA Performance 1, 8 6 4 2 EBITDA Growth - RHS Rs mn % 75 6 45 3 15 (15) EBITDA Margin % 2 15 1 5 18.5 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 (3) Page 3
18 new Domino s were added during the quarter, while 8 closed. Store expansion has slowed down as compared to previous years Domino s store count increased to 1,117 Dunkin s store addition was 3, while it closed 13 stores in 4Q. Total number of stores reached 63 in FY17 vs. 71 stores in FY16 Management guiding for reducing losses in Dunkin by 5% in FY18 Domino s brand extended its reach to 265 cities, whereas Dunkin was available in 16 cities till the end of FY17 Online ordering (OLO) and mobile ordering continue to remain an integral part of revenue generation Store Additions 1,2 1, 8 6 4 2 Number Of Stores At The End Nos OLO And Mobile Ordering Performance 8% 7% 6% 5% 4% 3% 2% 1% % 22% 22% 27% 21% 27% 21% 29% 23% 33% 28% 36% 3% 41% 38% 36% 38% 41% 38% 44% Store Addition - RHS Nos 5 Average OLO contribution to delivery sales Mobile Ordering sales contribution to overall OLO 54% 47% 56% 51% 68% 4 3 2 1 Cities Covered 3 25 2 15 1 5 15 11 112 118 123 128 132 142 15 154 167 184 196 28 218 225 235 248 251 26 265 Download of Mobile Ordering App 7. 6. 5. 4. 3. 2. 1.. 1.6 Mn No. 1.8 2. 2.3 2.6 3.1 3.5 3.7 3.9 4.4 5. 5.3 6.4, OLO - Online Ordering Page 4
Assumptions FY15 FY16 FY17P FY18E FY19E Net Revenue Growth 22.4 2.4 16.2 5.6 11.6 Same Store Sales Growth 1.6.1 3.2 (2.4) 5.5 Stores At The Beginning 576 726 876 1,26 1,117 Store Additions 15 15 15 91 5 Stores At The End 726 876 1,26 1,117 1,167 As % Of Sales COGS 26. 25.1 23.7 24.2 24. Employee 19.6 21.2 23.6 23. 21.7 Rent 9. 9.9 1.5 11.6 11.4 Ad spends 5.1 5.5 5.2 5.7 6.2 P&F 5.9 5.8 5.7 5.6 5.4 Franchise fees 3.2 3.3 3.3 3.3 3.3 EBITDA 14.8 12.8 11.4 9.7 11.2 Change In Estimates Rs Mn FY18E FY19E New Old Chg (%) New Old Chg (%) Net Revenue 28,418 3,141 (5.7) 31,592 34,262 (7.8) EBITDA 3,185 3,326 (4.2) 3,836 3,957 (3.1) EBITDA Margin (%) 11.2 11. 17 bps 12.1 11.5 59 bps PAT 1,247 1,353 (7.8) 1,637 1,776 (7.8) EPS 19. 2.6 (7.8) 24.9 27. (7.8) Source: HDFC sec Inst Research Page 5
Income Statement (Rs mn) FY15 FY16 FY17P FY18E FY19E Net Sales 2,745 24,12 25,46 28,418 31,592 Growth (%) 2.4 16.2 5.6 11.6 11.2 Material Expenses 5,212 5,71 6,158 6,86 7,495 Employee Expenses 4,39 5,685 5,845 6,16 6,529 A&P Expenses 1,133 1,253 1,451 1,762 2,275 Other Operating Expenses 18,96 21,359 22,995 25,233 27,756 EBIDTA 2,648 2,743 2,465 3,185 3,836 EBIDTA Margin (%) 12.8 11.4 9.7 11.2 12.1 EBIDTA Growth (%) 3.5 3.6 (1.1) 29.2 2.4 Depreciation 982 1,243 1,511 1,627 1,76 EBIT 1,667 1,51 954 1,559 2,76 Other Income 54 9 23 179 221 PBT 1,721 1,591 977 1,738 2,297 Tax 488 52 35 491 66 RPAT 1,233 1,71 672 1,247 1,637 EO items (net of tax) (9) (17) (122) - - APAT 1,242 1,88 794 1,247 1,637 APAT Growth (%) (1.6) (12.4) (27.) 57.1 31.3 EPS 18.9 16.5 1.2 19. 24.9 EPS Growth (%) (1.8) (12.7) (38.2) 85.5 31.3 Balance Sheet (Rs mn) FY15 FY16 FY17P FY18E FY19E SOURCES OF FUNDS Share Capital 656 658 658 658 658 Reserves 6,57 7,23 7,652 8,72 1,75 Total Shareholders Funds 6,712 7,681 8,31 9,36 1,733 Deferred Taxes 558 678 678 678 678 TOTAL SOURCES OF FUNDS 7,27 8,359 8,988 1,38 11,411 APPLICATION OF FUNDS Net Block 7,164 8,134 8,469 8,119 7,552 CWIP 181 174 174 174 174 LT Loans & Advances 1,25 1,477 1,561 1,742 1,936 Investments 1,33 1,524 1,68 2,18 2,68 Inventories 423 538 587 73 781 Trade Receivables 119 125 156 176 195 Cash & Equivalents 34 313 5 1,463 3,43 Other Current Assets 197 27 36 322 338 Current Assets 1,42 1,246 1,55 2,664 4,358 Creditors 2,8 3,253 3,117 3,479 3,868 Other Current Liabilities 871 944 1,327 1,362 1,421 Net current Assets (2,628) (2,951) (2,895) (2,177) (931) TOTAL APPLICATION OF FUNDS 7,27 8,359 8,988 1,37 11,411 Page 6
Cash Flow Statement (Rs mn) FY15 FY16 FY17P FY18E FY19E Reported PBT 1,721 1,67 1,99 1,738 2,297 Non-operating & EO items (197) (11) 22 (179) (221) Interest expenses (1) (1) - - - Depreciation 982 1,243 1,511 1,627 1,76 Working Capital Change 485 (125) 48 64 139 Tax (352) (59) (35) (491) (66) OPERATING CASH FLOW ( a ) 2,637 2,184 2,574 2,758 3,314 Capex (2,796) (2,22) (1,847) (1,277) (1,192) Free Cash Flow (159) (36) 727 1,481 2,121 Investments & Others 18 148 (155) (5) (5) Non-operating Income 54 9 23 179 221 INVESTING CASH FLOW ( b ) 234 238 (132) (321) (279) Interest 1 1 - - - FCFE (161) (37) 727 1,481 2,121 Share Capital Issuance 9 21 - - - Dividend - (197) (164) (197) (263) FINANCING CASH FLOW ( c ) 1 (175) (164) (197) (263) EO items (9) (17) (122) - - NET CASH FLOW (a+b+c) 76 1 39 963 1,58 Closing Cash 34 314 622 1,585 3,165 Key Ratios FY15 FY16 FY17P FY18E FY19E PROFITABILITY (%) GPM 74.9 76.3 75.8 76. 76.3 EBITDA Margin 12.8 11.4 9.7 11.2 12.1 EBIT Margin 8. 6.2 3.7 5.5 6.6 APAT Margin 5.9 4.4 2.6 4.4 5.2 RoE 2.1 15.1 8.4 14.1 16.3 RoIC 25.8 18.5 11.6 19.3 28.2 RoCE 28. 22.3 13.7 19.7 22.9 EFFICIENCY Tax Rate (%) 28.4 32.7 31.2 28.2 28.7 Asset Turnover (x) 2.3 2.1 1.9 1.9 1.9 Inventory (days) 7.4 8.1 8.4 8. 8. Debtors (days) 2.1 1.9 2.2 2. 2. Other Current Assets (days) 3.5 4.1 4.4 4.1 3.9 Creditors (days) 64.6 63.6 63.7 62.2 61.1 Other Current Liab & Prove (days) 15.3 14.3 19. 17.5 16.4 Cash Conversion Cycle (days) (66.9) (63.7) (67.7) (65.5) (63.6) Net D/E (.) (.) (.1) (.2) (.3) PER SHARE DATA EPS (Rs/sh) 18.9 16.5 1.2 19. 24.9 CEPS (Rs/sh) 29.8 29.4 26.8 36.7 43.9 BV (Rs/sh) 12.4 116.7 126.3 142.3 163.1 DPS (Rs/sh) - 2.5 2.5 4. 5. VALUATION P/E (x) 49.6 56.8 91.9 49.5 37.7 P/BV (x) 9.2 8. 7.4 6.6 5.8 EV/EBITDA (x) 23.1 22.4 24.8 18.9 15.3 OCF/EV (%) 4.3 3.6 4.2 4.6 5.7 FCF/EV (%) (.3) (.1) 1.2 2.5 3.6 FCFE/mkt cap (%) (.3) (.1) 1.2 2.4 3.4 Dividend Yield (%) -.3.3.3.4 Page 7
RECOMMENDATION HISTORY Jubilant FoodWorks 1,6 1,5 1,4 1,3 1,2 1,1 1, 9 8 7 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 TP Feb-17 Mar-17 Apr-17 May-17 Date CMP Reco Target 31-May-16 1,23 BUY 1,342 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 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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