India Midcap Research

Result Update

xF

JUBILANT FOODWORKS
Inflation woes May 13, 2011
Reuters : JUBI.BO Bloomberg : JUBI IN

Same store sales zoom 33%, but likely to moderate in FY12

Jubilant Foodworks (JFL) Q4FY11 same store sales (SSS) surprised positively with 33% growth despite high base of Q4FY10. However, the company has guided for SSS growth of 19-20% for FY12. This is in line with our thesis that 30% plus SSS growth is not sustainable and the company will revert to its original 20% trajectory. For FY12, we are expecting 47% sales growth, with approximately 21% coming from new store openings and balance from SSS. JFL opened 14 and 72 new stores during Q4FY11 and FY11, respectively, ending FY11 with 378 stores; the companys FY12 guidance is at 80 stores. We maintain our FY12 and FY13 sales estimates of INR 10.0 bn and INR 13.6 bn, respectively.

EDELWEISS RATING Absolute Rating REDUCE

MARKET DATA CMP 52-week range (INR) Share in issue (mn) : : : INR 704 804 / 251 64.5

Inflation eating into margins; full tax rate in FY12

The company reported EBIDTA margin of 17.1% in 4QFY11. Due to higher cost of goods sold (up 40bps during FY11) and employee salary adjustment (up 100bps in FY11), EBIDTA margins have declined 140bps over the past four quarters. Considering this EBIDTA margin trajectory, we perceive downside risks to our FY12 and FY13 estimates of close to 18% each. JFL reported PAT margin of 10.0% and 10.6% for Q4FY11 and FY11, respectively, as lower EBIDTA dented PAT. We expect FY12 and FY13 PAT margins of 9.5% and 9.7%, respectively, and maintain our estimates. In FY12E the company will pay tax of 33% due to elimination of accumulated losses.

M cap (INR bn/USD mn) Avg. Daily Vol. BSE (000)

: 45.4 / 1,016.0 : 1,586.6

SHARE HOLDING PATTERN (%) Promoters* MFs, FIs & Banks FIIs Others * Promoters pledged shares (% of share in issue) : : : : : 60.2 7.7 24.5 7.5 Nil

RELATIVE PERFORMANCE (%)

Outlook and valuations: Expensive; maintain REDUCE

We believe our thesis of SSS growth coming off and EBIDTA margin peaking is playing out. We maintain our FY12 and FY13 PAT growth estimates at 33% and 38%, respectively. At CMP of INR 704, the stock is trading at FY12E 4.5x EV/Sales, 24.8x EV/EBIDTA and 47.5x P/E, which we believe is expensive. We maintain our DCF-based target price of INR 434 and REDUCE recommendation on the stock.
1 month 3 months 12 months

Sensex (5.6) 2.1 8.1

Stock 23.2 46.4 130.4

Stock over Sensex 28.8 44.3 122.4

Financials Year to March Revenue (INR mn) EBIDTA (INR mn) Net profit (INR mn) Diluted EPS (INR) Diluted P/E (x) ROAE (%) Q4FY11 1,937 330 193 3.0 Q4FY10 1,241 193 104 1.7 % change 56.1 71.5 85.8 79.6 Q3FY11 1,857 323 190 3.0 % change 4.3 2.4 1.9 1.7 FY11 6,783 1,199 717 11.2 63.1 48.0 FY12E 9,999 1,795 951 14.8 47.5 43.3

Manav Vijay +91-22- 4063 5413 manav.vijay@edelcap.com Manish Sarawagi +91-22- 4040 7575 manish.sarawagi@edelcap.com

Edelweiss Research is also available on www.e del resear ch. com, Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.

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Jubilant Foodworks

Financial snapshot Year to March Net sales Other operating income Total income Consumption of raw material Purchase of traded goods Staff costs Rent Other expenses EBIDTA Depreciation EBIT Interest Other income PBT and extraordinary items PBT Taxes PAT EPS As % of net revenue Consumption of raw material Staff costs Rent Other expenses Total expenditure EBIDTA Net profit Tax rate 22.3 20.4 7.7 29.3 82.9 17.1 10.0 24.7 20.7 19.7 8.9 30.8 84.5 15.5 8.4 0.1 21.3 20.7 7.5 28.9 82.6 17.4 10.2 24.4 21.3 20.0 7.9 29.3 82.3 17.7 10.6 22.2 20.6 19.2 8.4 30.6 82.0 18.0 9.5 33.0 Q4FY11 1,936 1 1,937 432 63 396 149 567 330 83 247 9 257 257 64 193 3.00 Q4FY10 1,241 1,241 257 53 245 111 382 193 69 123 20 1 104 104 0 104 1.67 % change 56.1 0.0 56.1 68.1 18.9 61.5 34.1 48.4 71.5 20.0 100.4 NM NM 146.6 146.6 NM 85.8 79.6 Q3FY11 1,856 1 1,857 396 78 384 140 537 323 78 245 0 6 251 251 61 190 2.95 % change 4.3 0.0 4.3 9.2 (19.6) 3.1 6.3 5.6 2.4 6.7 1.1 NM 47.4 2.3 2.3 NM 1.9 1.7 FY11 6,781 3 6,783 1,443 263 1,356 536 1,986 1,199 293 906 3 19 922 922 204 717 11.21 FY12E 9,999 9,999 2,060 330 1,915 840 3,059 1,795 380 1,415 6 1,422 1,421 469 951 14.82

(INR mn) FY13E 13,584 13,584 2,798 448 2,601 1,141 4,176 2,419 475 1,943 20 1,964 1,963 648 1,316 20.5

20.6 19.2 8.4 30.7 82.2 17.8 9.7 33.0

Edelweiss Securities Limited

Jubilant Foodworks

Company Description
JFL is the largest pizza chain in India and is also one of the fastest growing multi-national fast food chains. The company, part of the Jubilant Bhartia Group, was founded in 1995 and opened its first store in January 1996. Since then it has expanded to gain leadership position with 339 stores across 79 cities located in 22 states and more than 10,000 employees. The company offers both dine-in and delivery options. JFL commands 50% market share in the Indian pizza market and 65% in the home delivery segment. The master franchise agreement with Dominos International is till 2024 and is renewable for another 10 years.

Investment Theme
JFL is currently trading at 47.5x PE FY12. We believe that the company is in a sweet spot due to its business model. As the Indian consumer is developing taste for fast food products especially pizza, the company with its dominant strategy of opening stores in Tier 2 and 3 towns is clearly paying off in terms of above average growth rate. But we believe that at current valuations where margins are close to its peak, there is hardly any cyclicality risk factored in the model.

Key Risks
Faster than expected roll out of stores, better than estimated SSS growth along with continuous roll out of new products are some of the risks on the upside.

Edelweiss Securities Limited

Jubilant Foodworks

Financial Statements
Income statement Year to March Income from operations Total operating expenses Raw material Employee costs Manufacturing and other expenses EBITDA Depreciation and amortisation EBIT Interest Total other income Profit before tax Provision for tax Profit after tax Shares outstanding (mn) EPS (INR) basic Diluted shares (mn) EPS (INR) diluted Common size metrics- as % of net revenues Year to March Operating expenses Raw materials Employee costs Manufacturing and other expenses Depreciation and amortisation Interest expenditure EBITDA margins Net profit margins Growth metrics (%) Year to March Revenues EBITDA PBT Core net profit EPS FY09 33.0 25.7 (11.3) (13.7) (13.7) FY10 51.0 97.3 314.3 358.7 320.0 FY11 60.0 80.0 175.2 114.7 112.1 FY12E 47.4 49.7 54.2 32.8 32.8 FY13E 35.9 34.8 38.1 38.1 38.1 FY09 88.0 25.6 19.8 42.6 6.0 3.2 12.0 2.6 FY10 84.3 24.8 19.0 40.5 5.7 2.2 15.7 7.9 FY11 82.3 25.1 20.0 37.2 4.3 0.1 17.7 10.6 FY12E 82.0 23.9 19.2 39.0 3.8 0.0 18.0 9.5 FY13E 82.2 23.9 19.2 39.1 3.5 17.8 9.7 FY09 2,808 2,471 718 556 1,196 338 169 168 89 2 81 8 73 58 1.3 58 1.3 FY10 4,239 3,573 1,050 805 1,719 666 243 423 91 4 335 1 330 64 5.3 64 5.3 FY11 6,783 5,584 1,706 1,356 2,522 1,199 293 906 3 19 922 204 717 64 11.2 64 11.2 FY12E 9,999 8,204 2,390 1,915 3,899 1,795 380 1,415 6 1,422 469 952 64 14.8 64 14.8 (INR mn) FY13E 13,584 11,165 3,247 2,601 5,317 2,419 475 1,943 20 1,964 648 1,316 64 20.5 64 20.5

Edelweiss Securities Limited

Jubilant Foodworks

Balance sheet As on 31st March Equity capital Reserves & surplus Shareholders funds Secured loans Sources of funds Gross block Depreciation Net block Capital work In progress Inventories Sundry debtors Cash and bank balances Loans and advances Total current assets Current liabilities Total current liabilities & provisions Net current assets Uses of funds Book value per share (BV) (INR) Free cash flow Year to March Net profit Depreciation Others Gross cash flow Less: Changes in working capital Operating cash flow Less: Capex Free cash flow Cash flow metrics Year to March Operating cash flow Financing cash flow Investing cash flow Net cash flow Capex FY09 319 232 (542) 9 (541) FY10 789 (229) (523) 37 (521) FY11E 1,077 (165) (657) 256 (677) FY12E 1,438 (188) (938) 312 (844) FY09 73 169 88 330 12 319 (541) (222) FY10 330 243 59 632 (157) 789 (521) 269 FY11E 717 293 (16) 995 (83) 1,077 (677) 401 FY12E 952 380 (6) 1,326 (112) 1,438 (844) 594 FY09 582 (353) 228 824 1,053 1,710 651 1,059 89 55 12 30 239 336 431 431 (95) 1,053 4 FY10 648 526 1,174 86 1,260 2,276 872 1,403 26 71 29 70 362 533 702 702 (169) 1,260 18 FY11E 648 1,168 1,816 1,816 2,952 1,166 1,786 26 92 37 326 475 930 926 926 4 1,816 28 FY12E 648 1,932 2,580 2,580 3,796 1,545 2,251 26 135 55 638 718 1,546 1,342 1,342 204 2,580 40

(INR mn) FY13E 648 3,022 3,670 3,670 4,755 2,021 2,734 26 184 74 1,105 959 2,323 1,813 1,813 510 3,670 57 (INR mn) FY13E 1,316 475 (20) 1,771 (161) 1,932 (959) 974

FY13E 1,932 (226) (1,238) 468 (959)

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Jubilant Foodworks

Ratios Year to March ROAE (%) ROACE (%) Inventory (days) Debtors (days) Payable (days) Cash conversion cycle Current ratio Debt/EBITDA Interest cover (x) Fixed assets turnover (x) Total asset turnover (x) Equity turnover(x) Debt/Equity (x) Adjusted debt/Equity Du pont analysis Year to March NP margin (%) Total assets turnover Leverage multiplier ROAE (%) Valuation parameters Year to March Diluted EPS (INR) Y-o-Y growth (%) CEPS (INR) Diluted P/E (x) Price/BV(x) EV/Sales (x) EV/EBITDA (x) EV/EBITDA (x)+1 yr forward Dividend yield (%) FY09 1.3 (13.7) 4.2 562.1 179.4 14.9 123.6 62.7 FY10 5.3 320.0 9.1 133.8 38.1 10.6 67.1 37.3 FY11E 11.2 112.1 15.7 63.1 24.9 6.6 37.5 25.0 0.1 FY12E 14.8 32.8 20.7 47.5 17.5 4.5 24.8 18.4 0.4 FY13E 20.5 38.1 27.9 34.4 12.3 3.2 18.1 14.2 0.4 FY09 2.6 3.2 4.4 37.5 FY10 7.9 3.7 1.6 47.6 FY11E 10.6 4.4 1.0 48.0 FY12E 9.5 4.5 1.0 43.3 FY13E 9.7 4.3 1.0 42.1 FY09 37.5 19.4 7 2 57 (49) 0.8 2.4 1.9 3.2 3.2 14.4 3.6 3.6 FY10 47.6 36.6 6 2 58 (50) 0.8 0.1 4.6 3.4 3.7 6.0 0.1 0.1 FY11E 48.0 58.9 5 2 53 (46) 1.0 264.7 4.3 4.4 4.5 5.0 4.5 4.5 5.4 4.3 4.3 FY12E 43.3 65.9 5 2 50 (44) 1.2 FY13E 42.1 67.6 5 2 52 (45) 1.3 -

Edelweiss Securities Limited

Jubilant Foodworks

Edelweiss Securities Limited, Edelweiss house, off C.S.T. Road, Kalina, Mumbai 400 098. Board: (91-22) 4009 4400, Email: research@edelcap.com
Vikas Khemani Nischal Maheshwari Head Head Institutional Equities Research vikas.khemani@edelcap.com nischal.maheshwari@edelcap.com +91 22 2286 4206 +91 22 6623 3411

Coverage group(s) of stocks by primary analyst(s): Hotels

Cox & Kings, EIH, Hotel Leela Venture, Indian Hotels Company, Jubilant Foodworks, Mahindra Holidays & Resorts India and Taj GVK Hotels & Resorts.

Jubilant Foodworks

Recent Research

(INR) (INR)

1,150 700 950 575 750 450 550 350 325 150 200

Redc
Buy

Date 29-Apr-11

Company Taj GVK Hotels & Resorts

Title Results in line with estimates: Result Update

Price (INR) Recos 105 Buy

Redc Redc
Buy Buy

25-Apr-11 Mah. Holidays Mixed bag; & Resorts Result Update 28-Mar-11 Jet Airways

381

Reduce

May-10 Jun-10 Jul-08 Jul-10 Aug-08 Aug-10 Sep-08 Sep-10 Oct-08 Oct-10 Nov-08 Nov-10 Dec-08 Dec-10 Jan-09 Jan-11 Feb-09 Feb-11 Mar-09 Mar-11 Apr-09 Apr-11 May-09 May-11 Jun-09 Jul-09

Double whammy: Lower 455 yield, higher oil price headwinds: Company Update

Buy

Distribution of Ratings / Market Cap Distribution of Ratings / Market Cap Edelweiss Research Coverage Universe Edelweiss Research Coverage Universe Buy Hold Buy Hold Rating Interpretation Reduce Reduce Total Total 189 128 < 10bn < 10bn 17 15 Rating Buy Hold Reduce Expected to appreciate more than 15% over a 12-month period appreciate up to 15% over a 12-month period depreciate more than 5% over a 12-month period

Rating Distribution* 118 51 17 Rating Distribution* 53 43 29 * 3 stocks under review * 3 stocks under review > 50bn Between 10bn and 50 bn > 50bn Market Cap (INR) Market Cap (INR) 111 72 Between 10bn and 50 bn 61 41

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