Jubilant FoodWorks - Returns ki ‘home delivery’?

‘Ta Na Na Na Na Re, Pizza Aaya free’ - reminds you of something? Remember the euphoria of getting a pizza for free if it’s a late delivery? That mind-blowing ’30-min or free delivery’ policy is what has made Dominos an extraordinary company. Maybe you know (or maybe not), but Dominos is operated by Jubilant Foodworks in India. That would be our topic of discussion for today.

But before moving ahead, we must know which industry it operates in and what the industry’s future prospects are.

QSR Industry Overview

This company falls into the QSR (quick-service restaurants) segment. QSR is the type of restaurant that serves customers as quickly as possible. Fast food items like pizza, burgers, tacos, rolls, etc fall under QSR. As the Covid wave is subsiding, this sector is expected to grow at 13% CAGR to $9.5 billion by 2025. Astonishingly, western QSRs are expected to grow more than 50% until 2025. Can you imagine how much fast food we will be consuming?

We will be talking about this industry in detail in this blog. Welcome to a detailed fundamental analysis of Jubilant Foodworks Ltd.

Jubilant FoodWorks Ltd - Company Overview

Many people don’t know who operates Dominos in India. That’s where tools like Ticker’s brand search come in handy. Just search “Domino’s” in Ticker, and it will show you what you want to!

Taddaa! So yes, Jubilant FoodWorks Ltd (JFL) is the Master Franchisee of Domino’s pizza in India. Besides, it not only holds the right to operate Domino’s but also Dunkin’ Donuts in India. Along with India, the company has sole and exclusive rights to own and operate Domino’s Pizza in Bangladesh, Sri Lanka, and Nepal.

JFL is part of the Jubilant Bhartia group which has its presence in other sectors like pharmaceuticals, life sciences, agri-products, automobiles, and few others. Mr. Shyam S. Bhartia, along with Hari S. Bhartia, founded this group and the company itself. JFL was incorporated in 1995 and the first Domino's store was opened in Delhi in 1996. Since then, the promoters have managed this business outstandingly well and now with almost two decades of experience in this domain, they have seen all ups and downs of the business. Currently, Mr. Pratik Pota, an IIM Calcutta alumnus is the CEO of this company.

From a single restaurant in Delhi in 1996 to 1360 in 2021, Domino’s has shown how popular it is in Indian markets. This year in the face of headwinds from COVID, the company managed to open 20 new restaurants in the latest quarter in India to reach 1380.

On the other hand, Dunkin’ Donuts is not able to show its magic in the Indian market. The company closed 3 Dunkin’ Donuts stores and now the total count is 27. Maybe Indian consumers aren’t habitual of having a sweet snack like donuts as a breakfast.

To cater to Indian consumers, JFL has also started its own brands like Hong’s Kitchen, a Chinese cuisine restaurant, and Ekdum, a biryani eatery to get a slice of authentic Indian dishes. The total count of Hong’s kitchen and Ekdum last year was 4 which has exponentially increased to 18 this year. Not only these brands but, JFL has another brand called ChefBoss that offers a range of ready-to-cook sauces, gravies, and pastes.

Although COVID was a hell of a pandemic and disrupted livelihood largely, it proved beneficial for Domino’s as 98.9% of their sales came from online ordering. This is what the company actually wanted to be (a pizza delivery company) as their tagline goes “Khushiyon ki home delivery”. Domino’s is now present in 298 cities in India. In Sri Lanka and Bangladesh too, the company has opened 2 new stores each, this year and reached a count of 28 and 7 stores respectively. There too, JFL is trying to focus more on online orders.

If we were to classify all the brands of JFL in the BCG matrix -

Financials of JFL

Let’s go to Ticker and have a look at the financials of JFL(consolidated). The sales grew at a CAGR of 6.32% for previous years (2017-2021) whereas the net profit grew at 18.93% in the same period. ROCE  & ROE of the company were increasing since 2017 until COVID-19 struck. ROE above 15% is fairly a handsome number.

Now, let's have a look at the P&L of the JFL. The top-line (sales), as well as bottom line (net profits), has increased over the years, except due to the covid-induced business impact.

The company’s fixed assets have increased exponentially in the past two years. Also, the company has maintained zero debt levels for a while and has sufficient cash sitting on its balance sheet.

Overall if you see Jubilant, the company is financially strong and is growing at a faster pace.

What’s so unique about JFL?

But here, a question arises? Why is Zomato, a loss-making company, so highly valued? The answer is Customer data. Now, this company (JFL) was started in 1996, so can you imagine the amount of customer data Jubilant has?

Even before the concept of ‘cloud kitchen’, Domino’s had thought about making customers habitual to online delivery or takeaways. If we see the Domino's or Dunkin’ Donuts stores, they occupy a small space compared to other western QSR chains. It helps them in reducing lease charges. This says a lot about their business strategy. They want most of their customers to ‘order online’ or ‘takeaway’ their respective meals.

Also, their ‘30 min delivery or free pizza’ policy, attracted a lot of customers in the lure to get free pizzas. In fact, the company is now thinking to reduce this 30 min to 20 min! Just imagine!

Catering to an Indian audience with western cuisine is one of the toughest jobs. In order to grab more and more customers, JFL invests substantial amounts in continuous product redevelopment. Market surveys and new product launches go hand-in-hand to keep up with the ever-increasing demand and changing customer preferences.

The food business segment is very competitive in India. There are several new stores opening and several others closing every day but still, JFL has secured a niche position in the market. Currently, its competitors in the QSR segment are Westlife Development (McDonald’s), Devyani International (KFC, Pizza hut, Costa coffee), Burger King, Subway, and others. Except for Subway, all these are listed players but as of today, none of them is profitable in India. This tells us how prudent JFL’s business model is.

JFL has built such a successful franchisee model which wouldn’t have been possible without a supply chain center. Jubilant has 8 supply chain centers. Supply chain centers have strict quality standards and that’s why the company’s food items taste fresh and uniform.

During COVID-19’s first wave, JFL tied up with major FMCG companies to start ‘Domino’s essential grocery delivery’ to help in the crisis situation and leveraged its delivery platform as well.

What’s not so good in JFL?

Although Dunkin’ Donuts has tried newer varieties in their menu and is continuously altering the menu to attract more customers, it hasn’t gained enough popularity in India. Their stores are continuously declining in India.

The company is heavily dependent on Domino’s for its earnings. To tackle this dependency, right now they are exploring other business verticals like Biryani or Chinese food too.

Also, JFL is currently trading at an incredible P/E valuation of 134.14 which is overvalued. This is the prime reason why one may not invest in this stock.

The promoters of the company who hold 41.94% of the stake have pledged 2.71% of their stake. Although that’s not a big proportion, it’s just a sign of caution.

The Bottom Line

Finally, we would like to quote Peter Lynch –

“Put your money where your mouth is!”

So, if you eat burgers at McD, invest in Westlife development, or if you eat at Pizzahut or KFC, invest in Devyani International or if you eat at Dominos then JFL is the answer. But don’t just invest blindly, first look at the growth prospects, financials, valuation and see if it aligns with your investment objectives and risk appetite. Only then, make your call!

Happy Investing.