Jubilant Food

Nov 02, 2013 No Comments by

Name- Jubilant Foodworks

Sector- Fast Food Chain

Market Cap. – Rs. 7,660 cr.

Sales Turnover in Sep13- Rs. 436 cr.

Profit in Sep13- Rs. 33 cr

 

COMPANY PROFILE

Jubilant FoodWorks Limited (the company) & its subsidiary operates Domino’s Pizza brand with the exclusive rights for India, Nepal, Bangladesh and Sri Lanka. As of 31st March 2013, Domino’s Pizza India operates 576 stores in India located in 26 States and Union Territories, covering 123 cities across the Country. According to India Retail Report 2009, Domino’s Pizza is the largest Pizza chain in India and the fastest growing multinational fast food chain between 2006-2007 and 2008-2009 in terms of number of stores. Domino’s Pizza India constantly strives to develop products that suit the tastes of its customers and hence delighting them. It believes strongly in the strategy of ‘Think global and act local’.

FUNDAMENTAL VIEWS

Net sales have grown from Rs 396 cr to Rs 436 cr QoQ but net profit has remained almost flat at Rs 33 cr. This might be on the fact that Dominoes is offering many discount offers. Data on exactly how this discount impacted the profitability is not available. But seeing the net profit we can figure out that this is a major cause for the low profitability of the business. If we see Domino’s stores they are not very high end or well furnished as compared to others like Pizza Hut, McD, KFC etc. So, the real estate cost is less compared to others. Fast food segment is a high profit segment specially pizzas with operational margins being 100-150 %. If we see in Domino’s case the net profit margin is very less, almost 7.5%. The good thing is that the debt cost is zero.

However, FII’s are showing keen interest in this stock. FII’s (foreign international investors) are increasing investment in Jubilant since last 11 quarters. According to the statics available from BSE, foreign institutions holding in the company have almost doubled since its listing from 21.09% to 41.63%.

As per the Euro monitor Report 2012, Domino’s Pizza is largest organized Pizza chain in India with 62% market share in the pizza segment. Now, Pizza Hut is trying to catch up to it. Also, pizza is going to face stiff competition from McD and KFC.

Pizza consumption has seen a rise with more than 40% of people now eating pizzas at least once a week. Pizza has now emerged as one of the most favorite fast food items of the Indians especially the young generation. As per estimation, the Indian organized pizza market will surge at a CAGR of more than 27% during 2012-2015. This is just estimation. The truth is if something is growing at 10-15% each year how long can it sustain that growth. Just thinking from a common man’s point of view, one can get a big burger within Rs 100 in McD or KFC. However, a pizza on similar lines will cost something around Rs 300-400.

Domino’s keeps bringing innovative products continuously. Company came up with new innovations like Stuffed Garlic Bread, Taco Indiana, and Cheesy Boloroni Pizza along with new exciting tastes for Pizza Mania, all of which are highly popular amongst the customers.

Dominos has a good distribution network. It was present in 105 cities (31st march, 2012) but now has expanded to 123 cities (31st march, 2013). It has opened 24 new stores in Q4FY13, taking their total store count to 576 as on 31st March, 2013.

Online ordering (OLO) is one of the most important key in Dominos success all over the world. In the current scenario where the usage of Tablets/smart phones and mobile internet services is showing an expanding trend, dominos has successfully taken the advantage of it by introducing e-commerce engine and also by recently launching Mobile ordering apps. At present, Domino’s had over 6 lacs downloads of mobile ordering apps across various smart phone platforms. Online contribution to delivery sale was at 17% during the quarter.

Jubilant FoodWorks plans to open 4 new commissaries in FY14. It is planning to set up new commissaries near Nagpur, Hyderabad and Guwahati and move into a new bigger commissary in Delhi. It is also planning to launch Dunkin Donuts in various cities in the coming year. This Donut concept is totally new for Indian crowd. It will take time and money to educate them to this product. It can take 2,3 or 5 years for these stores to become profitable. Hence, it will pull down Jubilant’s net profit in the coming years.

Jubilant currently is trading at Rs 1170 levels at a PE is 55. For any share of any sector this is a very high multiple. Pizza business might have seen its maxima. Domino’s already has 62% market share. It is a giant of the business but how much further it can grow. Its valuations look very high. Morgan Stanley picked up 3.36 lakh shares at Rs 1116. Still we would consider that very high valuation and advice investors to stay away from this stock.

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