Sunday, October 14, 2012

Jubilant FoodWorks Limited - Brief profile


Company Overview
Jubilant FoodWorks Limited (NSE:JUBLFOOD) operates Domino’s Pizza in India and Sri Lanka and Dunkin Donuts brand in India, thereby regarded as engaged in business of retail food outlet. The Master Franchise Agreement (MFA) entered with Domino’s International extends its right to operate Domino’s brand for Bangladesh and Nepal. As of March 2012, the company operated through network of 465 Domino’s Pizza stores in India and 2 in Sri Lanka. During Q1 FY 2013, it opened three Dunkin’ Donuts & More restaurants in India. In March 2012, the Company incorporated a wholly owned subsidiary, JFW Holdings Mauritius Private Limited, with the objective to handle non-Indian Pizza business.

Drivers
Franchise of global brand: The Company operates as a franchise of global brand “Dominos Pizza”.  The MFA provides company right to use brand name ‘Domino Pizza’ and related trademark. It also receives operational support and food technology know-how from Domino International.

Penetration in tier 2 and Tier3 cites: JFW is operating through 465 retail food outlet in 105 cities in India.  Apart from retail outlet, the company is operating stores in corporate campuses and food courts in shopping mall. Of the total stores in operation, 50% are operating in top 10 cities and balance in Tier-2 and Tier-3 cites. Thus, JFW can take advantage of high spending power of population of top cities and keep its total rent expenses lower, as rental cost are lower in Tier 2 and Tier 3 cities.

Varied product offering in middle pricing category:  JFW offers variety of product ranging from Feast Pizza, Simply Veg Pizza, to cheese Burst pizza. Further, the pizzas are offered in regular, medium and large size, thereby giving the consumer amply of choice to choose from.  Also, JFW regularly introduces innovative discount scheme to increase transaction size of the order and frequency of order.

Challenges
Inflation in cost of raw material: Cheese is the biggest food ingredient in Pizza making process. In 2012, the milk prices were increased in range of 15-20%, which has direct impact on cheese price. Though the company is undertaking measures to reduce operational efficiencies, it cannot solely function without passing incremental cost to customer.  During FY2012, the Company increased the price by 12.0%. Any further increase in price could reduce customer footfalls, thereby impact its profitability.

Confidentiality of information: If JFW fails to protect information about its product recipes, product pricing or product launch, then its business could be adversely affected. As Domino’s international would regard this as breach of the Master Franchise Agreement and seek to terminate the Master Franchise Agreement.

JFW growth story
Particular
2008
2009
2010
2011
2012
Domino Pizza Stores
181
241
306
378
465
No. of cities covered
34
47
69
90
105
Employees (nos)
4,240
5,677
8,196
11,514
14,626





Revenue (in Rs. lakhs)
21,116
28,061
42,430
67,828
1,01,736
Revenue growth rate (YoY)
52.3%
32.9%
51.2%
59.9%
50.0%
Same Store Sale Growth rate
20.00%
6.00%
22.00%
37.00%
29.60%






Revenue per employee (lakhs)
4.98
4.94
5.18
5.89
6.96
Revenue per store (lakhs)
116.66
116.44
138.66
179.44
218.79

JFW is in high growth phase, with CAGR revenue of 39.39%, over period 2008-2012. The company has expanded its network of operation from 181 stores in 2008 to 465 stores in 2012. By opening stores in strategic location and introducing attractive and innovative offers, the company was able to increase its average revenue per store from Rs. 116lakhs in 2008 to Rs. 218.79lakhs in 2012. Further, the Company was able to maintain its high same store sales growth, with growth rate of 29.60% in 2012.

The company has also undertaken a massive employment drive; majority of all incremental work forces belongs to delivery-man category. Computing revenue per employees as annual revenue from operation divided by total employee on roll at year end, the revenue per employee is increased from Rs. 4.98lakhs in 2008 to Rs.6.96lakhs in 2012. So, it is seen that incremental work force is contributing to the revenue and there is no material ideal man power.

Particular
2010
2011
2012
Rental expenses (lakhs)
  3,924.17
    5,355.76
       7,747.84
Contingent liability (in lakhs)
192.88
537.47
914.61




Rent expense as percentage of revenue
9.25%
7.90%
7.62%
Contingent liability as percentage of revenue
0.45%
0.79%
0.90%

The company operates through network of stores, which are taken on lease. So, to determine impact of rental expenses on revenue, Rent expense as percentage of revenue is computed. It is observed that the rental expenses have fallen from 9.25% of revenue in 2010 to 7.62% of revenue in 2012, signifying greater operating efficiency.

Thought the contingent liability has increased over 2010 to 2012, still, contingent liability as percentage of revenue is less than 1.0% in 2012.

Reference:
  1.  Jubilant FoodWorks Limited Annual Report 2012
  2.  Jubilant FoodWorks Limited Annual Report 2011
  3.  Jubilant FoodWorks Limited, Q4 2012, Call Transcript.