RR Jubilant Foodworks

Initiating Coverage Jubilant FoodWorks
November 25, 2010 Proxy play to the mounting Indian QRSs…
Theme
HOLD
Initiate coverage with a Hold rating
Key Take Away Jubilant FoodWorks Limited (JFL) manufactures and sell Pizza & side dishes
and is also engaged in trading of beverages & desserts from its outlets. JFL
Recommended with presence across 339 stores pan India operates its stores pursuant to a
Price 583 Master Franchise Agreement with Domino’s Pizza International. It is the
Target Price 627 market leader in the organized pizza market with a 50% overall market
Potential Upside 7.5% share and 65% share in the home delivery segment in India. We consider JFL
a play on India’s growing Quick Service Restaurant (QSR) industry. We
Market Data forecast 35% CAGR growth in revenues for FY10-FY13E period with total
number of stores growing from 306 to 511 with increased penetration in Tier
BSE Code 533155 II and Tier III cities.
NSE Code JUBLFOOD
Reuters Code JUBI.BO Indian QSRs- An Irresistible opportunity
Bloomberg Code JUBI IN The Indian pizza market, estimated at Rs 7 bn (in FY09), is expected to grow
Sensex 19,460 at 35-40% over the next two years to ~Rs 17.2 bn in FY12E (Source: Food
Nifty 5,866 Franchising Report 2009). The Indian QSR industry is growing rapidly with a
52 week range (Rs) 636.3/160 4X increase in the number of outlets between 2003 and 2009 with several
Market Cap, mn 37,512 important demographic and socio-economic changes are driving the QSR
market. JFL is well positioned to benefit from these opportunities.
Shareholding Pattern (%) Key triggers
Potential triggers to the share price include: 1) Significant benefits of
As on September 2010
operating leverage setting in with rise in total number of stores. JFL is
Promoters 61.4 expected to see significant improvement in its EBIDTA margins from the
MFs, FIs & Banks 7.4 current 15.7% in FY10 to 20% in FY13E. 2) Higher same store sales with
FIIs 20.9 introduction of new products. 3) Potential tie-up with international food
Other Bodies corporate 4.6 brands.
Public and others 5.8
Downside risks to our call
Price Performance Competitive activity taking off faster than expected, higher-than-expected
commodity cost pressure, growing health consciousness among consumers
(%) 3M 6M YTD and excessive reliance on the Master Franchise Agreement with Domino’s
Price (Rs) 545.6 278.7 229.0 International remains key risks.
Absolute 10.0 54.0 62.2 Valuation: Target price of Rs 627 based on 19x FY13E EV/EBIDTA
Rel to
JFL remains a difficult stock to value. At 33x FY13E EPS, the stock looks
Nifty 1.6 32.1 36.0
richly valued. On EV/EBIDTA basis, JFL is trading at 17.9x FY13E. Share price
has more than doubled in the last six months, triggered by higher than
Comparative Price
Movement expected results and improved same store sales. The valuations seem to be
expensive at these levels; we thus have a HOLD rating on the stock. News
JFL Nifty B SE FM CG
flow regarding tie-ups with any international brands may provide further
300 thrust to the stock price, which may induce us to re-consider our rating.
250
200 Key Financials
150
Year to March (Rs mn) FY10 FY11E FY12E FY13E
100
Sales 4239 6018 8177 10520
50
Growth (%) 51.1 41.9 35.9 28.7
EBITDA 666 1114 1551 2102
Growth (%) 98.4 67.3 39.2 35.5
PAT 330 662 807 1137
Growth (%) 357.5 98.1 21.9 41.0
Analyst : Nisha Harchekar EPS (Rs) 5.25 10.29 12.54 17.68
Email: nishaharchekar@way2wealth.com PE (x) 111.0 56.7 46.5 33.0
Contact: 022 – 40192900 Market cap/sales 8.8 6.2 4.6 3.6
EV/EBITDA 56.3 33.7 24.2 17.9
RoCE (%) 36.7 53.4 54.6 55.0
RoE (%) 28.5 36.1 31.4 31.6
WAY2WEALTH Securities Pvt. Ltd.,

15/A Chander Mukhi, Nariman Point, Mumbai - 400 021. Tel: +91 22 4019 2900
email: research@way2wealth.com website: www.way2wealth.com
Way2wealth Research is also available on Bloomberg WTWL <GO>

Contents Page
Investment Rationale ……………………………………………………………………………… 3

- Key catalyst ………………………………………………………………………………………… 3
- Competitive Analysis …………………………………………………………………………. 8
- Porter’s Five Forces Model ………………………………………………………………… 10
- Key Risks ……………………………………………………………………………………………. 10
Financial Analysis …………………………………………………………………………………… 11

- Revenue Model …………………………………………………………………………………… 11
- Raw Material Analysis ………………………………………………………………………… 12
- Margin Analysis ………………………………………………………………………………….. 13
- Cash Flow Analysis ……………………………………………………………………………. 13
- Latest Quarter Update ………………………………………………………………………. 14
Valuation …………………………………………………………………………………………………. 15
W2W Ratings ……………………………………………………………………………………………. 16
Company Overview ………………………………………………………………………………… 17
Food Service Industry ……………………………………………………………………………… 20
Financial Summary …………………………………………………………………………………. 24

Way2wealth Research is also available on Bloomberg WTWL <GO> Page 2 of 26

Investment Rationale
Competitive positioning- sustainability of competitive advantage
The Dominos brand enjoys a competitive advantage due to its differentiated
positioning which we believe is sustainable for years to come. The Domino's
brand created a brand pull due its strong marketing which the management
intends to leverage to its advantage by expansion across Tier II and Tier III
cities. (Discussed in the following pages in detail)
Scalable business model

We forecast 35.4% CAGR growth in revenues for FY10-FY13E period with total
number of stores growing from 306 to 511 with increased penetration in Tier II
and Tier III cities. A centralized sourcing and distribution system in four centers
across the country, combined with back-end facilities in smaller cities, has
largely aided operating margins and ensures scalability of the model. Operating
margins have been at ~12.5% in FY07-FY09 period which further improved to
15.7% in FY10 on account of controls in manufacturing costs. Further, it is
expected to expand to 18.5% in FY11E, 19% in FY12E and 20% in FY13E. Thus,
the supply chain model has enabled the company to control cost and result in
high operational efficiencies.
Operational excellence with “30 minute or Free” proposition

JFL has been able to ensure that the average delivery time for an order is only
22.50 minutes. This has enabled its operations to be ranked no. 1 in the
Domino’s global operations among the countries with 100 or more stores in 2006
and 2007 and amongst the top three in 2008, with a cumulative OER score of
89.30%, 92.40% and 85.00% for 2006, 2007 and 2008, respectively.
00:00:00.0 00:30:00.0 Delivery Time (Less than)
Receive Customer Order on Deliver pizza and collect bill

phone amount
Slap Pizza and

Add pizza Unload Pizza Travel to
Wait Line from Oven Customer
ingredients
Address
Cut, pack and

Load Pizza into Ready for
Oven delivery
Address Mapping
Source: Company, W2W Research
Efficient supply chain management

JFL employs the hub-and-spoke model. It has four regional supply chain
centers/commissaries located in Noida (Delhi NCR), Mumbai, Bangalore and
Kolkata. These commissaries primarily manufacture “dough” (base of the pizza)
and act as warehouse for most of other ingredients. The primary raw materials
used in the preparation of pizzas such as cheese, vegetables and meat, are


sourced and supplied to the stores by these commissaries which helps to ensure
consistent quality and ensure timely delivery of raw materials to the stores.
The sourcing, warehousing and distribution of the raw materials are centralized
which reduces the storage space enabling to minimize its store operating costs.
A centralized sourcing and distribution system in four centers across the

country, combined with back-end facilities in smaller cities, has largely aided
operating margins. Dedicated transport fleet and cold-chain systems allow
efficient distribution; inventory turnover period is less than a week. Operating
margin has been at 12.5% in FY07-FY09, it further improved to 15.7% in FY10 on
account of controls in manufacturing costs. Thus, the supply chain model has
enabled the company to control cost and result in high operational efficiencies.
Key features:
- Purchase function centralized which allows us to maximize leverage and
negotiate better prices with suppliers
- Centralization of key function enables to minimize store operating cost
- Follows multi-vendor policy to minimize reliance on a single vendor
- Have a dedicated fleet of hired trucks at our disposal to ensure timely
delivery of raw materials to its stores
Operating leverage
JFL is expected to see significant improvement in its EBIDTA margins from the
current 15.7% in FY10 to 20% in FY13E. The Company has been able to
effectively maintain its Gross Margin levels at 74-75% levels historically Inspite
of increase in raw material cost and falling pizza prices over the years. So with
increase in volumes, operating leverage will come into play as fixed cost is
spread over more stores and higher volumes. We expect EBITDA to grow by 47%
CAGR over FY10-13E period and margins to expand by 429 bps over the three
year period.
The company's return ratios are quite attractive and are expected to improve
going forward. The ROCE is expected to increase from 36.7% in FY10 to 55% in
FY13E, while the RONW is expected to be 37% in FY13E.
Expansion plans
The foremost driver for growth is the expansion of the network of stores. The
expansion strategy is three pronged namely to penetrate further into existing
cities, expand by entering new cities and expand using new distribution
channels. A good portion of new stores are slated for smaller towns and cities
where demand is beginning to take off as income levels and spending habits
pick up. According to Technopak Report 2009 estimates, only 2% of the monthly
expenditure on food bought from outside or ordered-in by households in India is
spent on pizzas and pastas on a monthly basis. Penetrating the number of pizza
stores in existing cities as well as entering new cities augurs well for JFL to take
advantage of this opportunity.


Store expansion plans
Rs in m illion FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
G ross Sales 3139 4706 6011 7887 10143 12570 15319 18494 22055 25979 30176 34804
Sales grow th (%) 33.0 49.9 27.7 31.2 28.6 23.9% 21.9% 20.7% 19.3% 17.8% 16.2% 15.3%
Total Stores (no.) 241 306 376 446 511 571 631 686 741 791 841 891
Sam e store (no.) 130 181 241 306 376 446 511 571 631 686 741 791
Addition (no.) 60 65 70 70 65 60 60 55 55 50 50 50
Average store (no.) 211 274 341 411 479 541 601 659 714 766 816 866
Total Stores grow th (%) 33 27 23 19 15 12 11 9 8 7 6 6

Sam e store grow th (%) 24 39 33 27 23 19 15 12 11 9 8 7
Sam e store as % of total stores 54 59 64 69 74 78 81 83 85 87 88 89
New store as % of avg. store 28 24 21 17 14 11 10 8 8 7 6 6
Sales/store (Rs m n) 13.0 15.4 16.0 17.7 19.8 22.0 24.3 27.0 29.8 32.8 35.9 39.1
Average revenue/store (Rs m n) 14.9 17.2 17.6 19.2 21.2 23.2 25.5 28.1 30.9 33.9 37.0 40.2
Source: W2W Research

The operational history for Dominos dates back to 1996, when pizza eating
culture had just began. However, it was only after the Indian palate adjusted to
pizza and similar cuisine, significant expansion for the Company was possible.
The Company opened 25 new stores in FY07, 52 stores in FY08 and 60 & 65
stores respectively in FY09 and FY10. So, practically the Company added 58% of
its total store count till FY10 (306) during the last three years of its operation.
This means that the Company began to feel confident of the industry growth
prospects only after 2007-2008.
JFL opened 60 stores in FY09 of which 44 stores were opened in existing cities.
During FY10, it opened 65 new stores. It also plans to expand its presence by
entering into new cities and towns where they currently have no operations. We
fell that the future growth would be driven by new stores in Tier 2 and Tier 3
towns.
Domino’s Pizza Inc. International Store Projection

Top 10 Markets YE 2009 Stores Delivery Market Position Potential Store Count
Mexico 589 1 700
United Kingdom 562 1 900
Australia 411 1 550
South Korea 329 2 400
Canada 319 3 400
India 296 1 700
Japan 179 3 700
France 154 1 700
Turkey 132 1 400
Taiwan 120 2 150
TOTAL 3,091 5,600
Source: Domino’s Pizza Inc., May 2010 investor presentation
Domino’s Pizza Inc. in its May 2010 investor presentation has indicated that the
potential store count for India is 700 stores over the next few years, thus
highlighting India as a high growth market. We have assumed 700 stores till
2017 in our estimates and feel that considering the huge untapped opportunity


of organised pizza in India will lead to higher growth rates than the overall QSR
industry. We expect 60-70 stores to be opened each year for the next five years
as we feel that the coming years are very crucial for the players in the QSR
industry to make their presence felt.
Additionally, we feel that most of the new Domino's outlets will come up in tier
II and tier III cities where lies huge untapped potential and most of these is
expected to come with dine in space. Tier II and tier III cities have better
operational efficiencies on account of lower costs (like staff and rentals) as
compared to major cities. This is likely to further augment the operating
margins of the Company in coming years. We expect margins to expand by 429
bps over the three year period.
The Company is also expected to explore new distribution channels like

Airports, Railways, Office Complexes and Malls in its overall growth strategy.
Airport model is a pure footfall driven model. Its first airport store is the first
franchisee store for JFL. The management expects few more airport stores
coming up in the next two to three years. The opportunity is huge considering
that there are 30-40 airports are getting upgraded all over the country.
High Same store sales growth- a healthy indicator

The Company registered same store sales growth of 37% in Q1FY11 and 43.8% in
Q2FY11. With the introduction of Pasta, Choco Lava cake, Cheese burst pizza
and Pizza mania along with the latest addition of Mexican Wrap and Pasta
Italiano, the menu is slowing getting diversified and opportunity exists to
continue this strategy further. This strategy is a key driver for expansion of
same store sales revenues. The launch of these new products can increase the
average bill size or can offer new items as a value proposition.
On an average, over the last 5 years, the same store sales growth has been in
the range of 18-19% CAGR with FY10 registering 22% growth in same store sales.
Same store sales growth outlook for the rest of the financial year remains bright
as we are yet to see the peak season of October-January reflected in the
financials. Sales during this period are normally high compared to other months
due to Diwali, Christmas and New Year celebration. However, we feel that
same store growth rates of 37% and 43.8% witnessed for the first 2 quarters
mainly on account of low base effect and introduction of new products. Overall,
for FY11, we expect same store sales in the range of 30-35%.
Activity in QSR space heating up- eg. RJ Corp, CCD etc

In the 90s, several global fast food firms placed their bets on India, hoping that
the Indian consumer will get found of Western food and capture the share of
the QSR opportunity in India. Indeed, the Indian QSR industry is growing rapidly
with a 4x increase in the number of outlets between 2003 and 2009 with the
industry size currently estimated at Rs 7 bn in FY09 and is expected to grow at
35-40% over the next two years to ~Rs 17.2 bn in FY12E (Source: Food
Franchising Report 2009). Foreseeing a mammoth opportunity in this space
chains like Dunkin' Donuts, Popeye’s Chicken, Pizza & Co, Swensen's and Burger
King are reportedly in talks with local partners to enter India.
McDonald's, which had 20 outlets in India till 2002, has more than 192 today. It
plans to open 200 more over five years with an investment of Rs 500 cr. Yum!
Restaurant owner of the KFC and Pizza Hut brands plans to further augment its


presence. Nirula's is looking to add 120 new points of presence, Sagar Ratna
may add 35 new outlets by December 2010 and Delhi-based Bikanervala and
Haldiram's plans four-five new outlets every year. Even traditional entities like
the Bangalore-based MTR Restaurant and the Chennai-based Murugan Idli Shop
(MIS) are looking at Delhi and Mumbai. Renowned coffee chain, Café Coffee Day
has recently raised over $200 mn (Rs 920 cr) from three private equity players
to fund its aggressive expansion plans in India and abroad.
With this, we believe that the QSR space in India has taken off in a big way and
is expected to catch the attention of investors. Jubilant FoodWorks being the
only listed player is expected to act as a proxy to the mounting opportunity in
the QSR space in India.
Huge opportunity – comparison with developed markets

U.S. has the oldest history for pizza eating culture in the world. Pizza is a
staple for everyday Americans. According to Domino’s Pizza Inc. May 2010
investor presentation, the size of its domestic food industry is $1 tn, of which
the retail food industry comprise $544 bn. The QSR space forms $230 bn, which
is 42% of the organised retail food industry. The pizza market forms 14% or $33
bn of which carry-out is $14 bn and delivery is $10 bn. Domino’s pizza is the
No.1 pizza delivery company in the U.S and takes away 18% share of the QSR
pizza delivery market.
The Indian landscape is still nascent, however holding huge untapped potential.
According to a Technopak 2009 report, India’s food service industry stood at
$13 bn in 2007 with organised food service valued at $2 bn. The Indian pizza
market, estimated at Rs7bn (in FY09), is expected to grow at 35-40% over the
next two years to ~Rs 17.2 bn in FY12E.
Presented below is the life cycle of Domino’s Pizza in India and the U.S. The
same store sales growth of Domino’s Inc in U.S has been on a declining trend for
FY08 and FY09 at -2.3% and -0.9%. As the economy recovered, the same store
sales growth has seen a positive trend during FY10. In sharp contrast to this, JFL
has witnessed a CAGR of 18-19% over the last five years, clearly showing the
tremendous potential of Domino’s Pizza in India.


Competitive Analysis
Competitive positioning
"The key to investing is not assessing how much an industry is going to affect
society, or how much it will grow, but rather determining the competitive
advantage of any given company and, above all, the durability of that
advantage" - Warren Buffet.
We found it of utmost importance to discuss here the competitive advantage and

differentiation strategy of JFL and its rivals as a lot depends on the marketing and
positioning strategies adopted by these company.
Competitive advantage means that the Company is performing better than its rivals
by doing different activities or performing similar activities in different ways. Few
companies are able to compete successfully for long if they are doing the same
things as their competitors.
The Dominos model

In our case, Domino’s mainly focuses on a home delivery and takeaway oriented
model. The model is on belief that the customers will have the convenience of
eating in the comfort of their own homes and workspaces, with minimal
interruption to their schedules and activities, without having to go to a dine-in
restaurant and wait for their orders. In contrast, its competitors follow a dine-in
model where focus is given on the ambience and has more seating space to
facilitate more footfalls.
The following table sets forth the competitive positioning of Jubilant FoodWorks as
against its competitors. Obliviously, Domino’s has a larger presence in various cities
as it follows home delivery and takeaway oriented model which requires more
number of stores to serve the customers in time within their delivery range. The
Domino’s brand enjoys a high brand recall as it relies on extensive advertisement
and promotion methods. The TV commercials “Hungry Kya?”, “30 minutes or free”
and “Khusiyon Ki Home Delivery” enjoy high brand recall and have been
contributed significantly to its sales growth.
Brand No. of stores Cities Format

Dominos 306 69 Own stores
Pizza Hut 140 34 Franchisee
Smokin’ Joe’s 42 23 Franchisee
Garcia’s Pizza 20 1 Own+Franchisee
Source: Websites, W2W Research
Determining the Competitive advantage

In determining competitive advantage of Jubilant FoodWorks, one need to ask the
following questions- Is the strategy different from other companies in the market?
Does the company's strategic position deliver superior profits? Is the strategy
defensible?
A little bit of history

Pizza Hut entered India in 1996 and introduced pizzas to the Indian customers. But
it was not a smooth sail for the international giant. Its large dine-ins, high prices


and positioning of pizza as a meal turned down the customers. Meanwhile, Dominos
Pizza that entered India in the same year was able to gain ground by positioning
Pizza as a snack and supporting it with its efficient home delivery system. So to
say, Domino's main competitive advantage over Pizza Hut is their price which is
generally lower than Pizza Hut. Also, its promotional deal of delivering a pizza
within 30 minutes was a grand success.
“Pizza Differentiation” strategy adopted by Pizza Hut and Dominos
Dominos Pizza Hut

Differentiation Strategy Delivery Innovation
Competitive advantage Favorable Pricing- value for money Focused on quality
Store location Located near target market Located at up markets
Format Delivery and take-away 'sit & dine'
“Hungry Kya?”, “30 minutes or free” "Good times starts with great
Tag line and “Khusiyon Ki Home Delivery” pizzas"
Price Range Rs 39-265 Rs 75-350
The differentiation drives were pan pizza and guaranteed 30-minute free delivery.
However, soon all the pizza chains offered Pizza Hut-style pan pizza, virtually
every pizza company was delivering. So, it may be seen that individual competitive
advantages are pretty much everyone's competitive advantages. So where is a
question of sustainable competitive advantage? But then why is Dominos the first
thing to come to our minds when you want a home delivery? It’s the perception
that the Company is been able to build in the minds of consumers about its
efficient delivery mechanism and add to it the affordability of pizzas.
So coming back to our original question on determining competitive advantage

of Jubilant FoodWorks-
Is the strategy different from other companies in the market?

The answer is a big YES as Dominos tag lines very strongly explains its delivery
efficiency.
Does the company's strategic position deliver superior profits?

Yes, it’s pricing strategy where a pizza starts from as low as Rs 39 provides more
affordability. Its home delivery model assures lesser fixed costs in terms of rentals
and so on as compared to a dine-in format where the rental cost and other fixed
operating cost will be higher.
Is the strategy defensible?

Yes again, its “Hungry Kya?”, “30 minutes or free” and “Khusiyon Ki Home
Delivery” are irreplaceable and enjoys highest brand recall. We find the ‘home
delivery’ model irreplaceable as over a period of time, Dominos has been able to
set up huge network of ‘delivery stores’ in close proximity to the target areas.
Also, the strong brand image of guaranteed delivery on time is something strongly
associated with the Dominos brand.
To sum up, we believe, the Dominos brand does posses a competitive advantage
due to its differentiated positioning which we also believe is sustainable for
years to come.


Assessment of industry attractiveness
Porter’s Five Competitive Forces
Force Intensity Comments

Degree of Rivalry High Dominos Pizza has high competition from other pizza
brands like Pizza Hut, Smokin Joe, Gracia etc.
However, it has created a unique position of
“guaranteed delivery in 30 minutes” which helps to
wither the competition to some extend. It
commands a market share of 65% in the delivery
market in which it was the first mover and enjoys
sizable brand recall. Also, it has positioned itself on
the affordability platform which the lowest pizza
priced at Rs 39. The competitive intensity still stands
high.
Threat of Entry High There are not many barriers to entry apart from
introducing products that suits the Indian palate.
KFC was the first MNC brand to enter India in 1995
which was followed by influx of other QSR brands
such as Domino's and McDonald's (which entered only
after researching the market since 1990).
Threat of High Right from road size eateries to sophisticated dine-
Substitutes ins and other national lower-priced fast-food chains
such as McDonalds, KFC all pose as strong substitutes
for pizzas.
Buyer Power Medium Bargaining power of buyers is medium to low in case
of pizzas.
Supplier Power Low JFL centrally sources all its raw material
requirements, thus commanding significant
bargaining power over its suppliers. Economies of
scale come into play as bulk orders are placed with
various suppliers.
Key Risks
Dominos Pizza faces tough competition from dine-in eateries, other national
lower-priced fast-food chains such as McDonalds, KFC and so on, besides small,
local eateries.
Junk Food Tag: The junk food tag for the foodstuffs it sells could prove costly in
the long term given the new trend in the western market of viewing the junk
food industry in the same light as the life threatening tobacco industry.
Excessive reliance on the Master Franchise Agreement with Domino’s

International.
Factors such as recession, inflation, deflation would significantly alter our

revenue projections and thus remain a key risk.
Higher-than-expected commodity cost pressure


Financial Analysis
We expect a 35% revenue CAGR over FY10-FY13E
Over FY05-10, net sales have grown at CAGR of 42% and operating margins have
grown by 52%. This growth was triggered by expansion of store network along with
introduction of new product categories. Number of stores has expanded from 130 in
FY07 to 306 in FY10. We have assumed addition of 70 stores each in FY11, FY12 and
further 65 stores in FY13 in our estimates taking the total store count to 511 stores
by FY13. We forecast 35.4% CAGR growth in revenues for FY10-FY13E period,
EBIDTA is expected to expand by 47% CAGR while PAT is expected to grow by 51%
CAGR over the 3-year period.
Revenue model
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
No. of Pizzas sold (mn) 21.74 31.81 39.61 50.13 61.28 72.4 84.05 96.7 110 123.4 136.74 150.2
Pizzas sold (mn) (incl add ons)/mth 1.81 2.65 3.30 4.18 5.11 6.03 7.00 8.06 9.17 10.29 11.39 12.52
Avg pizza sold/store/month (nos) 8586 8800 9680 10164 10672 11152 11654 12237 12849 13427 13964 14453
% chg. In pizza sold/mth 2.6 2.5 10.0 5.0 5.0 4.5 4.5 5.0 5.0 4.5 4.0 3.5
Price/pizza (Rs) 139 142 145 150 158 166 174 183 192 202 212 222
Pizza sales (Rs mn) 3018 4517 5744 7519 9682 12011 14641 17686 21128 24888 28952 33392
No. of beverages sold (mn) 4.17 5.58 7.65 9.68 11.52 13.29 15.06 16.83 18.54 20.21 21.85 23.53
Beverage sold (mn) (incl add ons)/mth 0.35 0.46 0.64 0.81 0.96 1.11 1.25 1.40 1.55 1.68 1.82 1.96
Avg sold/store/month (nos) 1645 1700 1870 1964 2007 2047 2088 2130 2166 2198 2231 2265
% chg. In beverage sold/mth -22.9 3.3 10.0 5.0 2.2 2.0 2.0 2.0 1.7 1.5 1.5 1.5
Price/beverage (Rs) 29 34 35 38 40 42 45 48 50 54 56 60
Beverage sales (Rs mn) 121 188 268 368 461 558 678 808 927 1091 1223 1412
Side dishes (Rs mn) 50 750 1300 1678 2799 3453 4223 5054 6099 7013 8028
Total Sales (Rs mn) 3139 4706 6761 9187 11821 15368 18772 22717 27109 32078 37189 42832
New stores added as % of average stores coming down
900 35
750 30
25
600
20
No.
450
15 %
300
10
150 5
0 0
FY08 FY09 FY10 FY11E FY12E FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E
Total Stores (no.) Average store (no.) New stores as % of Avg. store
As can be seen from the chart above, the number of store added formed a larger
proportion (33.4% in FY08) of the average stores. Going forward, as the Company
achieves scale; this ratio is expected to come down gradually (from 23.8% in FY10
to 13.6% in FY13E) with same store sales growth expected to increase and is
expected to contribute even more robustly to overall sales as the number of stores


increases. Overall, this will lead to better operating leverage as higher number of
stores mature with higher incremental profitability.
Pizza and beverage sales and price trend

During FY07-09, the company witnessed 52.4% CAGR in pizza volumes. This
significant growth could be achieved only after the Company came out with
attractive offers and introduced pizzas at lower price points bringing the average
price per pizza significantly down from Rs 165 levels to Rs 139 levels in FY09. We
feel that the pizza prices have touched its lowest point in FY09 after hitting a peak
in FY06. The Company increased the pizza prices marginally in FY10 and we expect
the prices to increase to up to Rs 158/pizza by FY13E. Sharp contrast to pizza
trend, beverages have seen a steady trend in the volumes till FY09 and average
price per beverage has seen an uptrend.
Pizzas and beverage sold

Pizza sales Beverage sales
60 170 14 50
160 12
48 40
in mn (nos)
in m n (nos)
10
36 150 30
in Rs
8
in Rs
24 140 6 20
4
12 130 10
2
0 120 0 0
FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E
No. of Pizza (incl add-ons) Per unit price (Rs) Units of Beverages Per unit price (Rs)

Raw Material analysis
The key raw material namely Cheese and Chicken comprise ~50% of the total raw
material cost of the Company. The prices of Cheese and Chicken are on steady
uptrend for the past few years. Inspite of this, the Company has been able to
maintain its raw material cost as % of sales at 22-23% since last six years. This is
seemingly due to lower per unit consumption of these raw materials over the years
after sale of pizza mania picked up significantly thereby enabling the Company to
improve in its overall margins.
The figures below shows that the quantity of cheese and chicken used per pizza
120 25 205
100 20 190
80 175
15
in gm s
Rs / kg .
60
%
10 160
40
20 5 145
0 0 130
FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E FY05 FY06 FY07 FY08 FY09 FY10
Cheese/pizza Chicken/pizza Raw Mat cost as % of sales Cheese (Rs/kg.) Chicken (Rs/kg.)


Margin analysis
Despite of increase in cheese and chicken cost and falling pizza prices over the few
years, the Company has been able to effectively maintain its Gross Margin levels at
74-75% levels historically. So with increase in volumes, operating leverage will
comes into play as fixed cost is spread over more stores and higher volumes. We
expect EBITDA to grow by 47% CAGR over FY10-13E period and margins to expand
by 429 bps over the three year period.
The figures below show increasing margin trend due to higher operating leverage
and fall in fixed cost with rise in revenue
79 78.1 22 50
20.0
78 77.0 20 40
77
% of net sales
76 75.1 19.0 18
74.8 18.5 76.4 30
74.3 74.4
75 74.0 16
73.4 20
74 15.6 14
73 11.9
11.0 12 10
72 13.0 12.7
12.0
71 10 0
FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E
Gross Margin (%) Operating margin (%) Manufacturing & other exps Employee cost Raw Material
Negative cash conversion cycle

Typically most food chains operating in this segment have negative cash conversion
cycle as the debtors days are low (1.8 days in FY10) on account of prompt payment
for purchases by customers and on account of higher credit period by vendors (57.4
days in FY10) due to higher bargaining power. The inventory churn rate is also
higher thereby resulting in lower inventory days (21.9 days in FY10).
The Company historically has been operating on negative working capital as they
have minimal receivables and inventory turn rates are faster than the normal
payment terms on the current liabilities. The working capital requirements are
limited as the sales are not typically seasonal in nature. These factors, coupled
with ongoing cash flows from operations, which are primarily used to service the
debt obligations and invest in business, fulfill its working capital requirements.
Impressive Free cash flow and return ratios

As can be seen from the chart below, JFL has been generating impressive FCF over
the years. The Company relied on debt to fund its store expansion plans earlier.
With its public issue money, the debt has been repaid and we expect the Company
to turn completely debt free by FY11E. Its ability to generate operating cash flows
will ensure that its funding requirements for store expansion are taken care of. In
fact, historically, its cash flow from operations has been higher than its net
income. The operating cash flow per store is Rs 2.4 mn in FY10 and the average
payback period is around 4 years. Additionally, 99% stores are profitable from day
one itself. We expect JFL to generate operating cash flow of Rs 900.4 mn, Rs 1.2 bn
and Rs 1.6 bn in FY11E, FY12E and FY13E.


60 53.4 54.6 55.0
1500 47.3
50
1200 36.5
40 44.0
Rs m n
900
30 36.7 36.9
36.7
600 20
300 10 19.5
0 0
FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E FY09 FY10 FY11E FY12E FY13E
Cash flow from operations RONW(%) ROCE(%)

The company's return ratios are quite attractive and are expected to improve going
forward. The ROCE is expected to increase from 36.2%% in FY10 to 55% in FY13E,
while the RONW is expected to be 37% in FY13E.
Latest Quarter Update
In Rs mns Q2FY11 Q2FY10 % Chg. H1FY11 H1FY10 % Chg.

Net Sales 1633 978 67.1 2988 1827 63.5
Other operational Income 1 1 0
Total Operating Income(TOI) 1634 978 67.1 2989 1827 63.6
Raw Materials Cons. 347 212 63.4 616 392 57.4

% to TOI 21.2 21.7 20.6 21.4
Stock adj.(-)Inc/(+)Dec -1 0 110.4 -2 0 288.9
% to TOI 0.0 0.0 -0.1 0.0
Net Raw Mat adj. for stock 346 212 63.4 615 391 57.2
% to TOI 21.2 21.7 20.6 21.4
Purchase of traded goods 59 29 100.8 123 57 115.5
% to TOI 3.6 3.0 4.1 3.1
Rent 127 104 22.5 247 184 33.8
% to TOI 7.8 10.6 8.3 10.1
Other expenses 480 294 63.3 881 576 53.0
% to TOI 29.4 30.1 29.5 31.5
Contribution 622 339 83.6 1125 620 81.5
% to TOI 38.1 34.7 37.6 33.9
Personnel 325 187 74.1 576 344 67.5
% to TOI 19.9 19.1 19.3 18.8
Total expenditure 1337 825 62.0 2441 1552 57.3
Operating Profit 297 152 95.3 549 276 99.0
OPM (%) 18.2 15.6 18.4 15.1
Non-Operating Income 3 0 760.7 4 1 564.7
Interest 1 19 -95.1 3 52 -93.7
Gross Profit 299 134 123.6 549 224 145.1
GPM (%) 18.3 13.7 18.4 12.3
Depreciation 69 58 19.0 132 112 18.4
PBT 229 75 204.6 417 112 271.7
PBT (%) 14.1 7.7 13.9 6.1
Prov. for Tax- Cur 45 -2 79 0
Tax/PBT (%) 19.7 -3.1 19.1 0.1
Profit after Tax 184 78 137.3 337 112 201.2
PAT (%) 11.3 7.9 11.3 6.1
EPS (Rs.) 2.9 1.2 137.3 5.2 1.7 201.2
CEPS (Rs.) 3.9 2.1 86.5 7.3 3.5 109.8


JFL reported excellent results for Q2FY11 with net sales growing by 67.1% to Rs
1634 mn and PAT growing by 137.3% to Rs 184 mn. The growth momentum was
driven by increase in number of stores which ultimately resulted in higher volumes,
increased same-store sales and new introductions to Domino's product portfolio.
The EBITDA margins expanded by 263 bps to 18.2% versus 15.6% registered in
Q2FY10. The growth in margins was driven by improved store sales witnessed
during the quarter. It’s a clear case of operating leverage setting in with key head
of expenses forming a lower percentage of net sales. Interest expenses witnessed
a decline in Q2FY11 and stood at Rs 0.93 mn (Rs 19 mn in Q2FY10) on account of
repayment of all the term loans.
The Company opened 19 new stores during the quarter and a total of 33 stores
during H1FY11 taking the store count to 339 at the end of Q2FY11. Number of cities
covered as on September 2010 stood at 79 with enhanced focus on Tier II and Tier
III cities. JFL has 2 franchisee stores opened during H1FY11 at Delhi and Mumbai
airport.
Same store sales growth maintained its healthy trend and grew by a handsome
43.8% in Q2FY11. Continued acceptance of new product launches such as Pasta
Italiano, the Mexican Wrap etc. helped same store sales grow by a healthy number
so far in this financial year. In Q1FY11, it had recorded 37% same store sales
growth.
Last quarter, it introduced online ordering facility covering 26 top cities in India
and is currently in pilot phase. Dominos is the first chain who will be trying this
mode of delivery. The management is of the view that despite Infrastructural
challenges in India; online mode holds lot of potential. Besides online ordering, it
has also initiated the concept of mobile marketing, whereby the customers can
avail personalized target coupons via the mobile platform.
Valuation
Jubilant FoodWorks remains a difficult stock to value. At 33x FY13E EPS, the stock
looks richly priced. As there are no comparable listed companies in India, it will be
apt to compare it with global listed players which are trading at FY10 P/E in the
range of 11-20x. On EV/EBIDTA basis, JFL is trading at 17.9x FY13E while its global
counterparts are valued between 6-10x. We value JFL on EV/EBIDTA of 19x its
FY13E to arrive at a target price of Rs 627.
The pricing of JFL may seem expensive when compared to its global peers.
However, considering that India provides tremendous opportunity for growth in the
organised food service industry and Quick Service restaurants (pizza parlors in
particular) due to various factors such as rising income levels, burgeoning middle
class and younger population, the premium seems to be justified.
Share price has more than doubled in the last six months, triggered by higher than
expected results and improved same store sales. The valuations seem to be
expensive at these levels and we therefore have a HOLD rating on the stock. Any
news flow regarding tie-ups with any international brands may provide further
thrust to the stock price, which may induce us to re-consider our rating.


W2W Ratings (Long-term)
W2W Ratings Weightage (%) Scorecard

Management quality/Promoter background
15 12
Business Model
10 8
Soft factors
(corporate governance, certification/awards, corporate
5 4
social responsibility, employee benefits etc)
Macro Factors 10 7
Competitive Advantage
Industry Attractiveness
Event Risk
Product - Markets position 10 8
Brands/ Market Share
Technology/Capacity
Distribution Reach
Exports
Quality of earnings 20 16
Sales Growth
Margin Growth
PBT Growth
EPS Growth
Financial Health 20 16
Balance Sheet Strength
Liquidity/Resources
ROCE
ROE
Investor Perception 5 2
P/E Relative to Sensex
P/E Relative to Sector
Stock liquidity
FII fancy
Future Prospects 5 4
TOTAL 100 77
W2W Cut Off Criteria Action

1 >80% Strong Buy
2 65-79% Buy
3 50-64% Hold
4 <49% Reduce
W2W Recommendation: BUY (long-term view)
* Disclaimer: The above analysis is highly subjective in nature, as the analyst has used his/her judgment
in exercising ratings. Readers and users are cautioned to verify the information before using it for any personal or
business purpose


Company Overview
Jubilant FoodWorks Limited (JFL) (formerly Domino’s Pizza India Limited) was
incorporated in the year 1995 and opened the first Domino’s pizza store in January
1996. JFL operates its stores pursuant to a Master Franchise Agreement with
Domino’s Pizza International, which provides it with the exclusive right to develop
and operate Domino’s Pizza delivery stores and the associated trademarks in the
operation of stores in India, Nepal, Bangladesh and Sri Lanka.
The Company manufactures and sells Pizza & side dishes and is also engaged in
trading of beverages & desserts from its outlets. The company caters to a wide
section of the population (the target audience ranges from the lower middle class
to upper class), with a range of products at multiple price points (lowest price
point at Rs 39). At a growth rate of nearly 42% for the last five years, the company's
India operations are its fastest in the world.
The Company is the market leader in the organized pizza market with a 50% overall
market share and 65% share in the home delivery segment in India. JFL focuses on a
home delivery and takeaway oriented business model, which offers its customers
the convenience of eating in the comfort of their own homes and workspaces. The
following table indicates its current market presence in India, as on March 31,
2010:
It is the largest pizza chain in the country and the fastest-growing multinational
fast-food chain during FY07 and FY09 in terms of number of outlets, according to
the India Retail Report, 2009. The Food Franchising Report 2009 has estimated that
JFL was one of the largest and fastest growing international food brands in South


Asia and the market leader in the organised pizza home delivery segment in India
with over 65% market share. It is accredited with no. 1 rank in the Domino’s Pizza
Inc’s global operations amongst the countries with 100 or more stores. At present
JFL is one of the largest food service companies in India with a network of 320
stores (as of 30 June, 2010) pan India. JFL to take forward their plans to enter the
Sri Lankan market through company owned stores which are a preferred mode of
operation. The Company plans to set up a subsidiary for this purpose. The 5 stores
in Sri Lanka, under a sub-franchise agreement, cease to operate as of date.
Key Managerial Personnel

Name Name Profile
Mr. Shyam Bhartia Chairman and Founder Director Mr. Shyam S. Bhartia, aged 57 years, is the Chairman and founder director, holds a
bachelor’s degree in commerce and is the fellow member of the ICWAI. He has over 22
years of experience in the pharmaceuticals and specialty chemicals, food, oil and gas,
aerospace and IT sectors.
Mr. Hari Bhartia Co-chairman and Founder Director Mr. Hari S. Bhartia, aged 53 years, is the co-Chairman and founder director, holds a
bachelor’s degree in chemical engineering from IIT, Delhi. He has over 20 years of
experience in the pharmaceuticals, food, oil and gas, aerospace and information
technology sectors.
Mr. Ajay Kaul CEO & Whole time director Mr. Ajay Kaul, aged 46 years, is the CEO and whole time director and holds a bachelor’s
degree in technology from IIT, Delhi and an MBA from XLRI, Jamshedpur. He has over 20
years experience in industries such as financial services, airlines, express distribution
and logistics and food retail. Past experience includes stint with TNT Express, Modiluft
and American Express TRS.
Mr. Ravi Gupta Sr VP – Finance Mr. Ravi S. Gupta, aged 42, holds a bachelor’s degree in commerce and is also a fellow
member of the ICAI and is an associate member of the ICWA and ICSI. He joined the
company on April 15, 2002 and heads the accounts and finance, legal and secretarial
and information technology department. He has over 18 years of experience in
corporate finance, strategy and accounting.
Shareholding Trend
As of September 2010, promoter holding stands at 61.38% and FII holding at 20.82%.
Mutual Funds holding have come down from 10.67% in June 2010 to 7.41% in
September 2010. Detailed trend since March 2010 is specified below:
% Mar-10 Jun-10 Sep-10

Promoter 62.07 61.75 61.38
Indian 54.47 54.18 53.86
Foreign 7.60 7.56 7.52
Public
Institutions 29.85 28.13 28.23
FIIs 21.09 17.39 20.82
Mutual Funds 8.68 10.67 7.41
Non-institutions 8.05 10.06 10.34
Public 4.48 5.88 5.78
Corporate holding 3.57 4.18 4.56
Total 100 100 100

Source: BSE website
Innovative product offerings

Dominos has been constantly innovative new products. It’s “Pizza Mania” which is
the entry level pizza priced at Rs 39 is showing good demand and progress. This
innovative product has been able to grow the size of pizza consumption segment.
It’s Wheat based thin crust pizza has been well received by diet conscious
customers. This product was launched keeping in mind the preference of whole


grains in India. Other products namely “Pasta” and ‘Choco-lava” has witnessed
excellent success.
It has recently brought in more excitement in its menu by introducing Mexican

Wrap and Pasta Italiano, to offer greater variety to its consumers. The New
Mexican Wrap is a unique offering with a refreshingly different layered wrap filled
with fillings (Veg and Non Veg), Mexican seasoning, flavored cheese and tangy
sauce. The new Pasta Italiano has penne pasta tossed with extra virgin olive oil,
new exotic herbs, select toppings and a generous helping of new flavored sauces
(White or Red). The new Pasta offering promises a richer and flavorful pasta
experience.


Food Service Industry
The food service industry has two distinct sectors – the organised segment and the
unorganized segment, each with its own unique operational characteristics.
According to the Food Franchising Report 2009, the food services industry in India
was estimated to be worth Rs 58,000 cr in 2008, out of which Rs 8,000 cr, or 7.24%,
was accounted for by the organised sector. The Report estimates that the
consumer food services value sales grew by 20% in 2008 over 2007.
Dhabas and roadside eateries form the unorganized format which comprises of
street stalls are the most common forms of restaurants and have traditionally
addressed eating out requirements of Indians.
The organised food establishments can be explained as below:
Organised Formats
Dining Quick Service Restaurants (QSRs) Food Courts Cafes Bars & Kiosks
Lounges
Fast food outlets A relatively nascent

Comprises coffee bars
Take Away, Home phenomenon and F-Bar
and parlors. Eg. Café
Fine Dining Casual Dining Delivery. Eg. being popularized by and
Coffee Day, Barista
Full service Restaurant serving McDonald’s, Pizza mall developers lounges
restaurants moderately priced Hut, Dominos
with fine food.
décor Comprises a market
segment between fast
food establishments
and fine dining
restaurants
Source: RHP, W2W Research
According to a Technopak 2009 report, India’s food service industry stood at $13
billion in 2007 with organised food service valued at $2 billion. The organized food
service is growing at an annual rate of 20% with quick service restaurants (QSRs)
are the fastest growing. Among the various formats, QSRs and cafes have had the
maximum growth over the last few years.
The food services industry in India is in the growth phase and offers opportunities
across a variety of cuisines such as fast food restaurants, multi-cuisine food courts
and home delivery. The trend towards home delivery is fast gaining popularity with
value sales increasing significantly over the last couple of years. (Source: India
Retail Report, 2009). The growth of middleclass and rising income levels has
increased the frequency of eating out. Approximately 80% of the population eats
out at least once a month. Approximately 38% of the population (who eat out at
least once in a month) has eaten out at least 7-9 times in a month, whereas almost
28% has eaten out 4-6 times in a month. This has led to higher demand in the food
services industry.
The Technopak Report 2009 estimates that only 2% of the monthly expenditure on
food bought from outside or ordered-in by households in India is spent on pizzas
and pastas on a monthly basis. The Indian pizza market, estimated at Rs7bn (in


FY09), is expected to grow at 35-40% over the next two years to ~Rs17.2bn in FY12E
(Source: Food Franchising Report 2009).
Changing food habits and eating out culture

Increased individual incomes and growth in middle class has impacted greater
demand for convenience foods. Eating out or ordering in meals for consummation
at home has become a popular trend. According to the Technopak Report 2009,
ordering in or bringing in meals from restaurants is a fairly common practice, with
two out of three households in India having done so in one month. In fact, most
who have ordered in or brought food from outside have done it multiple times.
No. of times food ordered-in on a monthly basis
22
20
Average no. times
ordered-in = 5
11
5 5
4
1 to 2 3 to 4 5 to 6 7 to 8 9 to 10 11 + times
times times times times times
Source: Technopak Report 2009, W2W Research
With the growth in Indian middle class and rising income levels has increased the
frequency of eating out. As can be seen from the chart below, approximately 80%
of the population eats out at least once a month. Approximately 38% of the
population (who eat out at least once in a month) has eaten out at least 7-9 times
in a month, whereas almost 28% has eaten out 4-6 times in a month. This has led to
higher demand in the food services industry. Set forth below are percentage break-
up of the frequency of eating out in India in a month.
Percentage of ordered-in food on a monthly basis
No, 33%
Yes, 67
%
The proportion of households ordering in from outside and spending more than an
average of Rs. 600 is higher in Tier 1 towns. Also, the usual monthly spend on


ordered in food increases with affluence levels and is more in larger cities. Spends
on ordering-in are, however, lower in Tier 3 towns and towns as the average
monthly spends are almost half of that in Tier 1 and Tier 2 towns.
Incidence of eating out on a monthly basis Frequency of eating out on a monthly basis
Not gone
Average number of times = 7
out to eat
20.0%
13 10
14
25
11
Have gone
out to eat 28
80.0%
Once 2 to 3 times
4 to 6 times 7 to 9 times
10 to 12 times More than 12 times
Source: W2W Research, RHP

Quick Service Restaurants (QSRs)
Consumers’ growing penchant for eating out and taking quick meals in between
long working hours has spawned a boom in the Indian QSR industry. Unlike fine
dining restaurants, QSRs largely operate through smaller self-service outlets that
provide value-for-money food that can also be consumed while on the go. It is
estimated to be worth about Rs 2,500 cr and is growing at 30-40% annually.
Monthly spends on food bought from outside or ordered in

Population Strata
Monthly
Spends Tier 1(Towns with 3 Tier 2 (Towns with 1-3 Tier 3 (Towns with <1
million+ population) million population) million population)
Avg (in Rs.) 670.6 691 351.3
Up to 50 13 13 20
51-100 12 13 17
101-200 19 17 22
201-300 12 11 13
301-600 18 23 14
601+ 26 23 14
QSRs typically have order taking and cooking platforms designed specifically to
order, prepare and serve menu items with speed and efficiency. They are typically
located in places that are easily accessed and convenient to customers’ homes,
places of work and commuter routes. The menus at most quick service restaurants
have a limited number of standardized items. Typically, customers order at a
counter or drive through and pick up food that then is taken to a seating area or
consumed off the restaurant premises. The average check amounts are generally
lower than other major segments of the restaurant industry. This segment operates
on a high volume-low margin business model.


Currently the Food Service Industry in India is in growth phase and offers
opportunities across a variety of cuisines in various formats including QSR sector.
Following are the key growth drivers
Changing demographic profile and rising income levels

The changing demographic profile of India has led to the growth of the food
services industry. The food services industry not only serves as a meal option,
but it has also become a lifestyle choice. Growing income levels and increase in
purchasing power has led to a higher spending capacity which provides a huge
opportunity for penetration for the food services sector.
Burgeoning middleclass
India has the presence of a strong 300 mn middleclass population. (Source:
Technopak Report 2009) As the middleclass has been the largest consumer of
the food services industry, the increase in the middleclass would lead to higher
growth in the food services industry.
Growth in youth population

The growth of the QSR industry is also influenced by the higher younger
population. Based on the Technopak Report 2009, over 65% of India’s population
is below 35 years of age, which provides for a greater penetration opportunity.
Further, the 21 to 40 year olds constitute the majority among those who eat out
regularly.
Age group profile of those who eat out
Above 40
yrs
11% 18 to 20
yrs
18%
31 to 40
yrs
31%
21 to 30
yrs
40%
Rising urbanization
Ordering in or eating out is more prevalent in the cities and towns than in the
rural areas. The average spends on ordering in the Tier 1 or Tier 2 towns is
double the average spends in the Tier 3 towns.
Increase in number of working women force

Participation of urban Indian woman in the workforce increased from 14% to
17% between 2000 and 2005. (Source: Technopak Report 2009).


Financial Summary (Rs in mn)
INCOME STATEMENT BALANCE SHEET

FY09 FY10 FY11E FY12E FY13E FY09 FY10 FY11E FY12E FY13E
Revenues 2806 4239 6018 8177 10520

Equity Share Capital 582 636 643 643 643
Total Expenditure 2470 3573 4903 6625 8418
Reserves & Surplus -342 526 1188 1922 2951
Operating Profit 336 666 1114 1551 2102
Networth 240 1174 1831 2566 3594
Dep. & Amortisations 169 243 287 347 404
Total debt 824 86 0 0 0
EBIT 166 423 827 1204 1698 Capital Employed 1064 1260 1836 2571 3600
Interest 89 91 0 0 0
EBT 77 331 827 1204 1698 Gross Fixed Assets 1710 2276 2871 3473 4045
Other Income 4 4 0 0 0 Net Fixed Assets 1065 1403 1711 1966 2133
PBT 81 335 827 1204 1698 CWIP 87 25 27 61 97
Tax 8 1 165 397 560 Investments 0 0 0 0 0
PAT 73 334 662 807 1137 Current Assets 336 533 830 1579 2721
Revenue Growth % 32.9 51.1 41.9 35.9 28.7 Current Liabilities 399 663 693 962 1243
Op. Profit Growth % 25.3 98.4 67.3 39.2 35.5 Net Current Assets -91 -169 98 544 1369
PAT Growth % -5.9 357.5 98.1 21.9 41.0 Total Assets 1064 1260 1836 2571 3600
CASH FLOW FY09 FY10 FY11E FY12E FY13E RATIOS FY09 FY10 FY11E FY12E FY13E
Operating cash earning 83 344 827 1204 1698 Gearing (%) 3.4 0.6 0.0 0.0 0.0
Depreciation 169 243 287 347 404 Current Ratio 0.8 0.8 1.2 1.6 2.2
Interest 86 91 0 0 0 Inventory turnover 59.6 67.4 78.7 84.9 88.5
Change in WC -10 157 -49 70 87 Debtors (sale days) 1.6 1.8 1.8 1.5 1.4
Tax paid 8 42 165 397 560 Asset Turnover 2.5 2.8 2.8 2.7 6.0
CFO 321 794 900 1224 1628
RONW(%) 36.5 47.3 44.0 36.7 36.9
ROCE(%) 19.5 36.7 53.4 54.6 55.0
Net Capex 541 521 595 602 572
OPM (%) 12.0 15.7 18.5 19.0 20.0
Net Borrowings 315 -719 -86 0 0
NPM(%) 2.6 7.9 11.0 9.9 10.8
Net Chg. in cash 7 37 219 550 948
FCFE 95 -446 219 622 1056 Eff. Tax Rate 9.9 0.2 20.0 33.0 33.0
KEY OPERATING PARAMETERS VALUATION PARAMETERS

(% of sales) FY09 FY10 FY11E FY12E FY13E FY09 FY10 FY11E FY12E FY13E
Material cost 22.9 21.1 19.0 20.1 20.7 EPS (Rs) 1.3 5.3 10.3 12.5 17.7
SGA 8.1 7.3 7.2 7.0 6.8 P/E Ratio 111.0 56.7 46.5 33.0
Rent 9.5 9.3 9.2 9.1 8.9 Book Value 4.1 18.5 28.5 39.9 55.9
Personnel cost 19.8 19.0 19.8 19.0 18.5 P/BV 31.6 20.5 14.6 10.4
CEPS (Rs) 4.2 9.1 14.7 17.9 24.0
Mcap/Sales 8.8 6.2 4.6 3.6
EV/EBITDA 56.3 33.7 24.2 17.9
Dividend 0.0 0.0 0.0 10.0 15.0
DPS 0.0 0.0 0.0 1.0 1.5
Dividend Yield 0.0 0.0 0.2 0.3


RESEARCH TEAM
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Nisha Harchekar Sr. Research Analyst FMCG, Hotels, Media, Others nishaharchekar@way2wealth.com
Sejal Jhunjhunwala Sr. Research Analyst Auto, Shipping & Metals sejal@way2wealth.com
Banking, NBFC & Financial
Abhishek Kothari Research Analyst abhishekkothari@way2wealth.com
Services
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DISCLAIMER
Analyst Certification: I, Nisha Harchekar, the research analyst and author of this report, hereby certify that the views expressed in this research report accurately reflect our
personal views about the subject securities, issuers, products, sectors or industries. It is also certified that no part of the compensation of the analyst(s) was, is, or will be directly
or indirectly related to the inclusion of specific recommendations or views in this research. The analyst(s), principally responsible for the preparation of this research report,
receives compensation based on overall revenues of the company (Way2Wealth Brokers Private Limited, hereinafter referred to as Way2Wealth) and has taken reasonable care
to achieve and maintain independence and objectivity in making any recommendations.
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Initiating Coverage Jubilant FoodWorks

November 25, 2010 Proxy play to the mounting Indian QRSs…

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Investment Rationale ……………………………………………………………………………… 3

Financial Analysis …………………………………………………………………………………… 11

W2W Ratings ……………………………………………………………………………………………. 16

Company Overview ………………………………………………………………………………… 17

Food Service Industry ……………………………………………………………………………… 20

Financial Summary …………………………………………………………………………………. 24

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 Scalable business model

 Operational excellence with “30 minute or Free” proposition

00:00:00.0 00:30:00.0 Delivery Time (Less than)

Receive Customer Order on Deliver pizza and collect bill

Slap Pizza and

Cut, pack and

Source: Company, W2W Research

 Efficient supply chain management

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A centralized sourcing and distribution system in four centers across the

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Total Stores grow th (%) 33 27 23 19 15 12 11 9 8 7 6 6

Source: W2W Research

Domino’s Pizza Inc. International Store Projection

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The Company is also expected to explore new distribution channels like

 High Same store sales growth- a healthy indicator

 Activity in QSR space heating up- eg. RJ Corp, CCD etc

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 Huge opportunity – comparison with developed markets

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We found it of utmost importance to discuss here the competitive advantage and

The Dominos model

Brand No. of stores Cities Format

Determining the Competitive advantage

A little bit of history

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“Pizza Differentiation” strategy adopted by Pizza Hut and Dominos

Dominos Pizza Hut

So coming back to our original question on determining competitive advantage

Is the strategy different from other companies in the market?

Does the company's strategic position deliver superior profits?

Is the strategy defensible?

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Porter’s Five Competitive Forces

Force Intensity Comments

 Excessive reliance on the Master Franchise Agreement with Domino’s

 Factors such as recession, inflation, deflation would significantly alter our

 Higher-than-expected commodity cost pressure

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New stores added as % of average stores coming down

Source: W2W Research

Scalable business model

Operational excellence with “30 minute or Free” proposition

Efficient supply chain management

High Same store sales growth- a healthy indicator

Activity in QSR space heating up- eg. RJ Corp, CCD etc

Huge opportunity – comparison with developed markets

Excessive reliance on the Master Franchise Agreement with Domino’s

Factors such as recession, inflation, deflation would significantly alter our

Higher-than-expected commodity cost pressure

Changing demographic profile and rising income levels

Growth in youth population

Increase in number of working women force