Jubilant Foodworks (JFL) – India’s Largest Food Service Company

India, the most populous country in the world, is experiencing largest urbanisation and rapid growth of small towns. In addition to this, the rising population in key metro cities with the increase in disposable income is fuelling growth across consumer centric industries in the country. Predominantly, the consumer centric industries are driven by the increasing number of youth population. Due to exposure to western culture, right from college students to working executives has created a demand for world-class products. 

Being the most populous country, the Indian Food Services Industry (FSI) also continued to expand rapidly with a compounded annual growth rate (CAGR) of 17 per cent. The size of FSI has grown up to Rs 75000 crore in 2012 from Rs 53000 crore in 2010 and is expected to reach Rs 137000 crore by 2015, as per Indian Restaurant Report, 2012. Indian FSI's growth story is driven by the strong consumer side drivers, the innovations and expansion from the industry participants.

This fast growing FSI sector, traditionally dominated by the unorganised players in India, is shifting rapidly in favour of the organised sector. The shift is fuelled by the increasing aspiration levels of Indians and the ability of the organised sector to delight consumers offering quality, value, convenience, tastes and flavours, global ambience, etc. Various Indian and international cuisines have been mushrooming across high footfall areas like shopping malls, high streets, shopping areas, education complexes, university campuses and large corporate offices. Furthermore, confectionery and bakery formats are also two upcoming segments of the organised sector that are observing increase likings with Indian people as a part of their everyday life.

Here we have taken a closer look at best candidate to capture the growing pie of India’s organised food industry in our analysis of the company.

A part of Bhatia group, Jubilant FoodWorks (JFL) is India's largest food service company, a market leader in the organised pizza marketplace with a market share 67 per cent in India. JFL has the exclusive rights of the Domino’s Pizza brand to operate in India, Sri Lanka, Bangladesh and Nepal; and exclusive rights for developing and operating Dunkin’ Donuts restaurants for India. The company operates with a network of 679 Domino’s Pizza and 21 Dunkin' Donuts restaurants (as of 31 December, 2013) across 142 cities in India. The company has 6 stores in Srilanka, strengthening its presence in the island nation. 

Domino’s Pizza 

This is the tested and established format of JFL started and established since 1998 by the company. Domino's Pizza restaurants are present in all the metros and most of the tier I & II cities. This format has evolved a simple business model focusing on delivering quality pizzas and in a timely manner since its inception. This format offers customers comfort and convenience of eating in their homes and workplaces without taking pain of going to a restaurant and waiting for the orders. The delivery is from centrally located pizza store and delivered within 30 minutes from the time you order your order. This delivery time includes cooking and packing time for the pizza along with travel time from the pizza store to customer's place despite of peak hours. 

The Indian market is consistently the fastest growing market globally for last seven years. Surprisingly, the Indian business individually contributes more than 5 per cent to Domino's global sales. Technologically adoption by JFL is also far ahead in the industry and the company is ranked first for its e-commerce and m-commerce initiatives in the Indian FSI. This is clearly seen from around 16 per cent of average Online Ordering contribution to delivery sales in Q3FY14 and around 15 per cent of average Mobile Ordering sales contribution to overall Online Ordering in Q3FY14.

Dunkin’ Donuts

This new format of JFL is in the process of establishing its presence in India. In 2011, JFL managed to sign and acquire exclusive rights to establish and develop Dunkin' Donuts restaurants across India. At initial stages, the company established its Dunkin' Donuts restaurants in Delhi, NCR, Chandigarh, Punjab and Uttarakhand. The company has object to achieve better placed in the QSR and the Cafe markets via the Dunkin’ Donuts. 

The menu of this format has something for everyone during anytime of the day and is receiving a good welcome from its customers, according to the management. 
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Changing customers' demography, geography and behaviour 

With a strong economic growth of the country, an average Indian’s per capita income is also rising at considerable pace. Furthermore, almost 65 per cent of Indian population are under the age of 35, leading to higher number of people who have rising disposable income. This in turn is driving the demand for food servicing industry. Also the younger Indian population are more acceptable for different food and drinks apart from traditional food and beverages in India. As the income is rising, Indians are more careful about the quality and hygienic conditions of the food. One of the major changes in recent times is the participation of Indian women who have started joining the work force. 

As the economy is growing, the Indian economy is experiencing emergence of new economic centres of consumption. Till recent past economic activities were concentrated around the metros and tier I cities. However, the focus of economic activities is now changing to tier II and tier III cities across the country. The organised modern formats such as malls, multiplexes and food courts are also experiencing the popularity among the people. The QSR started with traditional economic centres like metros and are now spreading their networks across tier I, II and III cities. 

Capitalising the opportunities

Identifying the immense potential of Indian FSI, JFL has been aggressive since the inception of the company. The company is leader in the segment with 679 stores of Domino's Pizza across the country. The massive expansion too continued in this financial year with increasing their new store guidance to 145, out of which 103 stores opened in first nine months. Customer response and strong brand recall are giving JFL to expand its network even in tier IV cities also. The aggression is clearly seen from its plan to take the number of Domino's stores to 1200 across the country in the near future. The company is maintaining its new store target of 20 for Dunkin' Donuts restaurants with successful opening of 11 new stores in first nine months.  

On product front, the product innovations and menu reinvigoration are priority agendas for JFL over the years. Due to this, the company managed to offer and launch various products capturing the Indian consumers' interest and taste. Furthermore, to strengthen consumers connect, JFL has been phenomenally innovative in launching product initiatives, insightful consumers connect programme and creative marketing and branding techniques. The only outcome of these initiatives are JFL's success in establishing its new positioning, “Yeh Hai Rishton Ka Time”, which followed its successful preposition of “Khushiyon Ki Home Delivery” and “Hungry Kya” in past, thereby maintaining its core brand essence i.e. “Promise of shared joy”.

Financial Performance

JFL is consistently posting a good set of numbers over the years now. The company posted a revenue of Rs 1415 crore during FY13 with 5 years CAGR of 38.17 per cent. Interestingly, the company posted EBITDA of Rs 244 crore in FY13, with 5 years CAGR of 48.54 per cent. The net profit for the company stood at Rs 135 crore in FY13, 5 years CAGR of 29.73 per cent. However, as the company is expanding its network of stores across India, there has been pressure seen on JFL's same store sales growth (SSSG). The SSSG for FY13 was down to 16 per cent against 30 per cent in FY12. 

However, the first nine month in FY14 numbers for JFL was not exciting. The company posted 23.81 per cent growth in its revenue to Rs 1290 crore during 9MFY14. Despite such a good growth, the inflationary pressure eats up its EBITDA, posting a mere 8.86 per cent yearly growth. Inflationary pressures continued to shape key raw material items combined with enhanced expenditure on promotions and advertising, new product launches and new restaurant openings. Further, the higher depreciation cost during 9MFY14 forced company to post marginal 1.51 per cent de-growth in its PAT on yearly basis. Further on profitability front, it has seen considerable dent due to the subdued macro- economic growth resulting in stress in discretionary spending. The SSSG during first nine months in FY14 stood at 3.3 per cent against 19.2 per cent during the same period last year. 

Should you have it?

JFL is continuously facing inflationary issues for last few quarters. During couple of quarters, the problem is seen worsening further and eating up its margins. The company had rose its prices on two occasions, by 5 per cent in June and 3 per cent in November in current financial year. However, food inflation continues to be in double digit, the price rise could not translate into major relief for the company. Adding more pain to the company, the subdued macro economic factors will continue to be concern for the company over next 2-3 quarters. On valuation front, JFL's stock is trading at a PE ratio of 50.83x its TTM diluted EPS of Rs 20.91. The valuation is slightly pricey compared to its 5 years EBITDA CAGR of 48.54 per cent. On positive front, JFL's board approved increasing investment limit for FIIs from 49 per cent to 55 per cent of the paid up equity share capital which will be expected to have more FII in JFL. Though the long term story of JFL is rosy, we suggest our readers to add this stock on every dip as we anticipate the volatility in the stock price to continue for next couple of quarters.