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Jubilant FoodWorks – No More Toppings

By Kaustubh Ghotikar | 11/7/2011 10:18 AM Monday

Investors like growth and if they see that happening in a company they would be more than happy to assign it a higher premium over others. This exactly seems to be the case with Jubilant FoodWorks (JFL) which has pleasantly surprised its investors a lot of times since its IPO in January 2010. Everything about this company has been interesting. Its unique business model (a pizza company), its market leadership in the segment, strong and brisk financial performance quarter after quarter and the announcement of launching Dunkin Donuts in India has had everything good on offer for investors.

In fact this scrip, since its listing in February 2010, has yielded an overall appreciation of 422 per cent while the Sensex during the same period has been up by a mere 6 per cent. But all said and done, does the scrip still have enough steam left considering the fact that its volatility has increased sharply? It has come off almost 35 per cent since its September 2011 peak and is also seen recovering equally sharply with the scrip now down only by 18 per cent. Though it may be tempting for many, does it make sense and moreover, are the valuations justified? Here we have taken a closer look at these factors in our analysis of the company.

A part of the Bhartia Group, Jubilant FoodWorks (JFL) is a leading food services company, which operates the Domino’s Pizza brand with exclusive rights for India, Nepal, Bangladesh and Sri Lanka. As of June 2011 the company operates through a total network of 392 stores. Nearly 80 per cent of its revenues come from pizza sales while the balance comes from beverages and other products such as pastas, choco lava cake, etc. That apart, in February 2011 the company decided to extend its portfolio further by entering into an alliance with Dunkin Donuts for opening its restaurants in India. The first of the Dunkin Donuts’ stores is expected to open in Q4FY12 in the NCR region.

JFL has been a unique company from the stock market point of view. It is the only pizza company in the listed space and hence enjoys a novelty premium. Secondly, it is a market leader commanding a massive 50 per cent market share and has been able to create a very strong brand recall for itself over the years. No wonder it has been growing at three-year CAGR of 47.55 per cent and 110 per cent in topline and bottomline respectively.

To fuel growth JFL has been undertaking continuous capex. In FY11 it spent around Rs 70 crore for adding about 70 stores, while another 80 stores are expected by FY12 with a total capex of more than Rs 100 crore. The capex, which is expected to be funded through internal accruals, would also be utilised for the relocation of two commissaries in Mumbai and Kolkata with a new one in Chandigarh. It also includes capex on maintenance and IT requirements, besides store expansion of Dunkin Donuts and Dominos. In fact the current expansion would be more focused towards Tier II and III cities, where the management believes there is a lot of pent-up demand. But what is also interesting is that JFL’s revenues are growing more from the same stores which contribute to around 80 per cent of JFL’s topline. These have been growing at a brisk pace of 37 per cent and have been helping JFL build stronger numbers on a YoY basis. JFL was expecting a 20 per cent sales growth this fiscal but with the start that they have got the company is confident of posting same stores’ growth of more than 20 per cent.

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