RESULTS REVIEW 1QFY19 25 JUL 2018 Jubilant FoodWorks BUY HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters Continues to amaze! Jubilant FoodWorks (JFL) reported another blowout quarter with revenue growth of 26% to Rs 8.55bn (exp. of 20%) led by SSG of 26% (6.5% in 1QFY18) vs. expectation of 18%. JFL’s IPL activations (higher ad spend) with EDV offer aided in driving volume led growth. The franchise enjoys high operating leverage resulting in EBITDA margin expansion of 489bps YoY to 16.6% (exp. 15.5%). EBITDA/APAT growth was stellar at 79/151% (exp. 59/99%). Post a successful year of profitable expansion, JFL stays committed to add 75 domino’s stores (7% of total stores) during FY19. Mgt’s key focus areas remain 1) More value to consumers 2) Product innovation 3) Better customer experience 4) Investment in technology and 5) Cost optimization. In the last 3 quarters, SSG has contributed >95% of the revenue growth (long-term average is ~50%) which aided in driving stronger operating leverage. EBITDA margin expanded by ~600bps YoY during this period. We believe that with new store openings on the cards and higher SSG base from 2HFY19 onwards margin expansion will be limited. We model ~70bps EBITDAM expansion during FY19E-21E. JFL plans to split its large stores (few in number) since they are running at peak capacity. We note that there is adequate capacity at the back-end to support the volume growth. We model 16/9/9% SSG growth during FY19/FY20/FY21. Such inspiring performance justifies high valuation. We value it at 46x P/E on Jun-20EPS to arrive TP of Rs 1,562 (earlier Rs 1510). We maintain BUY. Highlights of the quarter Stellar 79% EBITDA growth: GM was down by 183bps YoY to 74.5% (exp. -136bps) due to removal of ITC benefits and focus on offering value to the consumer. Focus on cost control and oplev resulted in modest growth in employee/rent to 5/6%. While, higher ad spend drove 21% growth in other expenses. EBITDAM expanded by sharp 489bps to 16.6% (exp. 15.5%). Improving Dunkin’ performance: Dunkin’ continued to reduce its operating losses through closure of loss making stores and change in format (smaller stores). Dunkin‘ losses continue to decline (55bps EBITDAM impact vs. 143bps YoY). Mgt expects Dunkin would break even by the end of FY19. Near-term outlook: With successfully execution in strategy and return to store expansion, we expect modest upside in the near-term. Financial Summary (Rs mn) Q1FY19 Q1FY18 YoY (%) 4QFY18 QoQ (%) FY17 FY18P FY19E FY20E FY21E Net revenue 8,551 6,788 26.0 7,798 9.6 25,461 29,804 36,856 42,573 49,206 EBITDA 1,421 796 78.5 1,278 11.2 2,466 4,464 6,244 7,398 8,664 APAT 747 298 151.0 631.7 18.3 673 2,065 3,408 4,199 5,176 EPS (Rs) 5.7 2.3 151.0 4.8 18.3 5.1 15.6 25.8 31.8 39.2 P/E (x) 274.5 89.5 54.2 44.0 35.7 EV/EBITDA (x) 74.2 41.1 28.9 24.0 20.0 RoIC 12.5 35.4 56.6 71.9 89.3 Source: Company, HDFC sec Inst Research INDUSTRY FMCG CMP (as on 25 Jul 2018) Rs 1,400 Target Price Rs 1,562 Nifty 11,132 Sensex 36,858 KEY STOCK DATA Bloomberg JUBI IN No. of Shares (mn) 132 MCap (Rs bn)/(US$ mn) 185/2,689 6m avg traded value (Rs mn) 2,451 STOCK PERFORMANCE (%) 52 Week high / low Rs 1,499 / 618 3M 6M 12M Absolute (%) 14.0 26.7 116.0 Relative (%) 7.1 24.5 101.7 SHAREHOLDING PATTERN (%) Promoters 44.94 FIs & Local MFs 10.22 FPIs 33.74 Public & Others 11.10 Source : BSE Naveen Trivedi [email protected]+91-22-6171-7324 Siddhant Chhabria [email protected]+91-22-6171+7336
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RESULTS REVIEW 1QFY19 25 JUL 2018
Jubilant FoodWorks BUY
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters
Continues to amaze! Jubilant FoodWorks (JFL) reported another blowout quarter with revenue growth of 26% to Rs 8.55bn (exp. of 20%) led by SSG of 26% (6.5% in 1QFY18) vs. expectation of 18%. JFL’s IPL activations (higher ad spend) with EDV offer aided in driving volume led growth. The franchise enjoys high operating leverage resulting in EBITDA margin expansion of 489bps YoY to 16.6% (exp. 15.5%). EBITDA/APAT growth was stellar at 79/151% (exp. 59/99%). Post a successful year of profitable expansion, JFL stays committed to add 75 domino’s stores (7% of total stores) during FY19. Mgt’s key focus areas remain 1) More value to consumers 2) Product innovation 3) Better customer experience 4) Investment in technology and 5) Cost optimization. In the last 3 quarters, SSG has contributed >95% of the revenue growth (long-term average is ~50%) which aided in driving stronger operating leverage. EBITDA margin expanded by ~600bps YoY during this period. We believe that with new store openings on the cards and higher SSG base from 2HFY19 onwards margin expansion will be limited. We model ~70bps EBITDAM expansion during FY19E-21E. JFL plans to split its large stores (few in number) since they are running at peak capacity. We note that there
is adequate capacity at the back-end to support the volume growth. We model 16/9/9% SSG growth during FY19/FY20/FY21. Such inspiring performance justifies high valuation. We value it at 46x P/E on Jun-20EPS to arrive TP of Rs 1,562 (earlier Rs 1510). We maintain BUY.
Highlights of the quarter
Stellar 79% EBITDA growth: GM was down by 183bps YoY to 74.5% (exp. -136bps) due to removal of ITC benefits and focus on offering value to the consumer. Focus on cost control and oplev resulted in modest growth in employee/rent to 5/6%. While, higher ad spend drove 21% growth in other expenses. EBITDAM expanded by sharp 489bps to 16.6% (exp. 15.5%).
Improving Dunkin’ performance: Dunkin’ continued to reduce its operating losses through closure of loss making stores and change in format (smaller stores). Dunkin‘ losses continue to decline (55bps EBITDAM impact vs. 143bps YoY). Mgt expects Dunkin would break even by the end of FY19.
Near-term outlook: With successfully execution in strategy and return to store expansion, we expect modest upside in the near-term.
Revenue beat was on account of higher SSG of 26% (6.5% in 1QFY18) vs. expectation of 18% GM was down by 183bps YoY to 74.5% due to removal of ITC benefits and offering of better quality product without sufficient price hike EBITDA grew by 79% (exp of 59%) driven by lower rent and employee expense Total number of employees stood at 30,279 (27,539 in 4QFY18 and 27,369 in 1QFY18) Higher other income and lower depreciation led to 151% growth in APAT vs. expectation of 99%
JUBILANT FOODWORKS : RESULTS REVIEW 1QFY19
Page | 3
Net Revenue Same Store Sales Growth
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research EBITDA Performance EBITDA Margin
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
Revenue growth during the last 3 quarters was primarily driven by SSG unlike the historical years which was driven by store expansion Mgt’s medium-long term focus is to 1) Expand Domino’s franchise 2) Breakeven Dunkin’ and improve its profitability Mgt is now focusing on smaller store formats for Dunkin’ (300-650sqft vs. 800-1200sqft) Dunkin’ losses have come down to ~55bps of JFL EBITDA in 1QFY19 vs. 143bps in 1QFY18
0
8
16
24
32
40
48
0
1,500
3,000
4,500
6,000
7,500
9,000
4QFY
131Q
FY14
2QFY
143Q
FY14
4QFY
141Q
FY15
2QFY
153Q
FY15
4QFY
151Q
FY16
2QFY
163Q
FY16
4QFY
161Q
FY17
2QFY
173Q
FY17
4QFY
171Q
FY18
2QFY
183Q
FY18
4QFY
181Q
FY19
Net Sales Growth - RHS
Rs mn%
7.7
6.3
6.6
-2.6
-3.4 -2.4
-5.3
1.9
6.6
4.6
3.2
2.0 2.9
-3.2
4.2
-3.3
-7.5
6.5
5.5
17.8
26.5
26.0
(14.0)
(5.0)
4.0
13.0
22.0
31.0
4QFY
131Q
FY14
2QFY
143Q
FY14
4QFY
141Q
FY15
2QFY
153Q
FY15
4QFY
151Q
FY16
2QFY
163Q
FY16
4QFY
161Q
FY17
2QFY
173Q
FY17
4QFY
171Q
FY18
2QFY
183Q
FY18
4QFY
181Q
FY19
%
(30)(15)0 15 30 45 60 75 90 105 120 135
0
300
600
900
1,200
1,500
4QFY
131Q
FY14
2QFY
143Q
FY14
4QFY
141Q
FY15
2QFY
153Q
FY15
4QFY
151Q
FY16
2QFY
163Q
FY16
4QFY
161Q
FY17
2QFY
173Q
FY17
4QFY
171Q
FY18
2QFY
183Q
FY18
4QFY
181Q
FY19
EBITDA Growth - RHS
Rs mn%
16.7
16.8
14.9
14.8
12.8
12.4
12.2 13
.112
.911
.810
.3 11.5
11.5
9.5 9.7
9.7
9.9 11
.714
.117
.216
.416
.6
-
5.0
10.0
15.0
20.0
4QFY
131Q
FY14
2QFY
143Q
FY14
4QFY
141Q
FY15
2QFY
153Q
FY15
4QFY
151Q
FY16
2QFY
163Q
FY16
4QFY
161Q
FY17
2QFY
173Q
FY17
4QFY
171Q
FY18
2QFY
183Q
FY18
4QFY
181Q
FY19
%
JUBILANT FOODWORKS : RESULTS REVIEW 1QFY19
Page | 4
Domino’s Quarterly Store Additions Cities Covered
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research OLO And Mobile Ordering Performance Download of Mobile Ordering App
Dominos 10 stores were added (net) during the quarter with 13 additions and 3 closures Dunkin Donuts’ net store additions were flat during the quarter (closure 1, opening 1). Total number of stores stand at 37 Management guiding to breakeven Dunkin’ by FY19 Online ordering (OLO) and mobile ordering will continue to remain an integral part of revenue generation
05101520253035404550
0
200
400
600
800
1,000
1,200
4QFY
131Q
FY14
2QFY
143Q
FY14
4QFY
141Q
FY15
2QFY
153Q
FY15
4QFY
151Q
FY16
2QFY
163Q
FY16
4QFY
161Q
FY17
2QFY
173Q
FY17
4QFY
171Q
FY18
2QFY
183Q
FY18
4QFY
181Q
FY19
Number Of Stores At The End Store Addition - RHS
Nos Nos
123
128
132 14
2 150
154 16
7 184 19
6 208 21
822
5 235 24
825
1 260
264
264
264
265
266
266
0
50
100
150
200
250
300
4QFY
131Q
FY14
2QFY
143Q
FY14
4QFY
141Q
FY15
2QFY
153Q
FY15
4QFY
151Q
FY16
2QFY
163Q
FY16
4QFY
161Q
FY17
2QFY
173Q
FY17
4QFY
171Q
FY18
2QFY
183Q
FY18
4QFY
181Q
FY19
2.6 3.1 3.5 3.7 3.9 4.4 5.0 5.36.4
7.5 7.89.0 9.6 9.6
0%
5%
10%
15%
20%
25%
0.0
2.0
4.0
6.0
8.0
10.0
12.0
4QFY
151Q
FY16
2QFY
163Q
FY16
4QFY
161Q
FY17
2QFY
173Q
FY17
4QFY
171Q
FY18
2QFY
183Q
FY18
4QFY
181Q
FY19
Downloads of mobile ordering app (Mn) QoQ (%)
33% 36
%
41%
36% 41
% 47%
47%
51%
51% 57
%
60%
63% 63
%
28% 30
% 38%
38%
38%
54%
56%
68%
69% 69
%
71% 78
%
78%
0%10%20%30%40%50%60%70%80%90%
1QFY
16
2QFY
16
3QFY
16
4QFY
16
1QFY
17
2QFY
17
3QFY
17
4QFY
17
1QFY
18
2QFY
18
3QFY
18
4QFY
18
1QFY
19
Average OLO contribution to delivery sales
Mobile Ordering sales contribution to overall OLO
JUBILANT FOODWORKS : RESULTS REVIEW 1QFY19
Page | 5
Domino’s Yearly Store Additions Domino’s Yearly SSG
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research Domino’s City Coverage Dunkin’ Stores
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
We expect store expansion of 70-75 stores over FY19-20 each We model 16/9/9% SSG for FY19/FY20/FY21
37%
30%
16%
2% 0%3%
-2%
14%16%
9% 9%
-8.0%
0.0%
8.0%
16.0%
24.0%
32.0%
40.0%
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
E
FY20
E
FY21
E
90105
123150
196
235264 266
0
50
100
150
200
250
300
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
No. of cities covered (India)
378 46
5 576 72
6 876 1,
026
1,11
7
1,13
4
1,20
9
1,27
9
1,34
9
0
200
400
600
800
1,000
1,200
1,400
1,600
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
E
FY20
E
FY21
E
10
26
54
7163
37 37 37 37
0
10
20
30
40
50
60
70
80
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
E
FY20
E
FY21
E
JUBILANT FOODWORKS : RESULTS REVIEW 1QFY19
Page | 6
Gross Margin Trend EBITDA Margin Trend
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research Assumptions
FY16 FY17 FY18P FY19E FY20E FY21E Net Revenue Growth 16.2 5.6 17.1 23.7 15.5 15.6 Same Store Sales Growth 3.2 (2.4) 13.9 16.3 9.0 9.0 Stores At The Beginning 876 1,026 1,117 1,134 1,209 1,279 Store Additions 150 91 17 75 70 70 Stores At The End 1,026 1,117 1,134 1,209 1,279 1,349 As % Of Sales COGS 23.7 24.2 25.2 25.2 25.3 25.4 Employee 23.6 23.0 20.3 18.0 17.5 17.0 Rent 10.5 11.7 10.6 9.5 9.3 9.0 Ad spends 5.2 5.7 5.8 7.7 8.2 8.9 P&F 5.7 5.6 4.9 5.0 5.0 5.0 Franchise fees 3.3 3.3 3.3 3.3 3.3 3.3 EBITDA 11.4 9.7 15.0 16.9 17.4 17.6 Source: Company, HDFC sec Inst Research
We model lower GM in FY19-20 as we believe management would continue to focus on higher SSG and improving consumer experience EBITDAM can sustain healthy on account of reducing losses in Dunkin’ and operating leverage
74.8
%
74.3
%
73.9
%
74.0
%
74.9
%
76.3
%
75.8
%
74.8
%
75%
75%
75%
73%
74%
75%
76%
77%
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
E
FY20
E
FY21
E
18%
19%
18%
15%
13%
11%
10%
15% 17
%
17%
18%
0%
5%
10%
15%
20%
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
E
FY20
E
FY21
E
JUBILANT FOODWORKS : RESULTS REVIEW 1QFY19
Page | 7
Changes in Estimates
Rs Mn FY19E FY20E FY21E
Old New Chg (%) Old New Chg (%) Old New Chg (%) Net Revenue 36,106 36,856 2.1 41,193 42,573 3.4 47,242 49,206 4.2 EBITDA 6,302 6,244 (0.9) 7,252 7,398 2.0 8,584 8,664 0.9 EBITDA Margin (%) 17.5 16.9 -56 bps 17.6 17.4 -22 bps 18.2 17.6 -59 bps PAT 3,413 3,408 (0.1) 4,047 4,199 3.7 5,035 5,176 2.8 EPS 25.9 25.8 (0.3) 30.7 31.8 3.6 38.2 39.2 2.7 Source: HDFC sec Inst Research Peer Set Comparison
Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period
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