Quick Service Restaurants

Jubilant Foodworks: QSR with 70% share in Pizza Market

Jubilant FoodWorks Limited (JFL/Company) is part of the Jubilant Bhartia group and is India’s largest food service Company. The Company has the exclusive rights to develop and operate Domino’s Pizza brand in India, Sri Lanka, Bangladesh and Nepal.

  • At present, it operates in India and through its subsidiary companies in Sri Lanka and Bangladesh. The Company also enjoys exclusive rights to develop and operate Dunkin’ Donuts Restaurants in India.
  • JFL ventured into Chinese cuisine segment with its first owned restaurant brand, ‘Hong’s Kitchen’. Recently, the Company added Indian cuisine of biryani, kebabs, breads and more to the portfolio by launching Ekdum!.

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Jubilant Bhartia group

Mr. Shyam Bhartia & Mr. Hari Bhartia are the founders of Jubilant Bhartia Group.

The Jubilant Bhartia Group, has a strong presence in diverse sectors like Pharmaceuticals, Contract Research and Development Services, Proprietary Novel Drugs, Life Science Ingredients, Agri Products, Performance Polymers, Food Service (QSR), Food, Auto, Consulting in Aerospace and Oilfield Services. Jubilant Bhartia Group has 4 flagship Companies- Jubilant Pharmova Limited, Jubilant Ingrevia Limited, Jubilant FoodWorks Limited and Jubilant Industries Limited. Currently the group has a global workforce of around 46,000 employees.

(1) Family Chart of Jubilant Foodworks

(2) Executive Board Members

(a) Mr. Shyam S. Bhartia - Founder Director and Chairman

Mr. Shyam S. Bhartia, is the Chairman and founder Director.

He holds a bachelor’s degree in commerce from St. Xaviers College, Calcutta University. He is also a fellow member of the ICWAI. He serves on the Board of Chambal Fertilizers and Chemicals Limited, India and also a Director on the Board of Air India.

Moreover Mr. Shyam S. Bhartia has experience in the pharmaceuticals and specialty chemicals, food, oil and gas, aerospace and IT sectors.

(b) Mr. Hari S. Bhartia - Founder Director and Co-Chairman

Mr. Hari S. Bhartia, is the Co-Chairman and also founder Director.

He holds a bachelor’s degree in chemical engineering from the Indian Institute of Technology, Delhi. 

Mr Hari is a member of several CEO’s Forums & prominent being the India-USA CEO Forum and India-France CEO Forum.  He was the Co-Chair of the Davos Annual Meeting of the World Economic Forum in 2015. Hari is also a Founding Member of Centre for Social and Economic Progress (CSEP).

(c) Mr. Pratik Pota - CEO and Wholetime Director

Mr. Pratik Pota , joined the Board of Directors of Jubilant FoodWorks as Chief Executive Officer and Whole time Director in April 2017.

He has graduated in Electrical and Electronics Engineering from BITS Pilani and has a PGDM from IIM Kolkata. Mr. Pota has held various leadership roles at Bharti Airtel, Hindustan Unilever & PepsiCo. He has over 24 years of experience in FMCG & Telecom.

Total remuneration of Mr. Pratik Pota is 4.54 crore which is 0.14% of Net sales and 1.96% of Net Profit for FY20.

(d) Ms. Aashti Bhartia - Non-Executive Director

Ms. Aashti Bhartia, joined the Board of Directors of Jubilant FoodWorks Limited as Non-Executive Director in May, 2017.

She holds Bachelor's degree in Anthropology and History from Columbia University, USA and Business Bridge Program from Tuck School of Business, Hanover, New Hampshire.

She is an Executive Director at Ogaan India Private Limited and earlier worked as head of Strategy and Business Development for Jubilant First Trust Hospitals.

(e) Mr. Shamit Bhartia - Non Executive Director

Mr. Shamit Bhartia, joined the Board of Directors of Jubilant FoodWorks Limited as Non-Executive Director in May, 2017.

He holds bachelor's degree in Economics from Dartmouth College, USA.

Shamit is on the board of Hindustan Media Ventures Ltd. and HT Media Ltd., both of which operate in the Media sector. He is also on the board of Jubilant Industries Ltd.

(3) Shareholding Pattern

Jubilant Shareholding pattern as on june2021

Shareholding of Promoter and Promoter Group include Jubilant Consumer Pvt. Ltd.

Jubilant Consumer Private Limited is majorly in Trading business from last 13 years and currently, company operations are active. Current board members & directors are Umesh Sharma, Vishal Mahajan and Arjun S Bhartia (Son of Mr. Hari S Bhartia) .

Jubilant Foodworks Detailed research with major shareholding
  • Promoters shareholding in the company reduced from around 52% to 42% over the last 10 years.
  • Moreover, in past 5 years the shareholding of promoters has been reduced by 5%.
  • However, the overall institutional shareholding increased from 35% to 52%.
  • Mutual funds holding increased over last 10 years from 1% to 9% in 2021. However, the mutual funds from past 5 years has been reduced from 12% in June-17 to 9% in June-21.

(4) Brands offered by Jubilant Foodworks

(a) Domino's Pizza

In 1996, the first Domino’s Pizza store was opened in New Delhi. Over the period, Domino’s Pizza India has remained focused on delivering great tasting Pizzas and sides, superior quality, exceptional guest care and value for money offerings.

(b) Dunkin' Donuts

The Company launched Dunkin’ Donuts in India in April 2012 in New Delhi. Dunkin’ Donuts India offers wide selection of donuts, hot and iced beverages and other baked goods. Dunkin offers its guests a great ambience to catch up with their friends and family in a relaxed and comfortable environment.

(c) Hong's Kitchen

Hong’s Kitchen is the Company’s first homegrown brand in the Chinese cuisine segment. 

(d) ChefBoss

ChefBoss is the Company’s brand that offers a range of ready-to-cook sauces, gravies and pastes.

(e) Ekdum

In year 2020, the company launched a new restaurant chain selling biryani under the "Ekdum" 

(5) Operational Parameters of Jubilant Foodworks

(a) Network Presence

Jubilant Foodworks Detailed research with Total Restaurants
  • The company is aggressively focusing on increasing the market presence of Domino's. As Domino's is the main segment of the company therefore the company has doubled the number of Domino's restaurants over last few years. All these restaurants which are active are revenue generating.
  • On the other hand, the Dunkin' Donuts has not generated desired amount of profit over last years. Thus, company started rationalizing its operations by exiting from some loss making units.
  • In year 2019 the company started its first homegrown brand Hong's Kitchen in Chinese cuisine segment and now within the span of 2 years Hong's Kitchen has 12 restaurants in the country.
Jubilant Foodworks detailed research with city coverage of dominos

The company's Domino's Restaurants are present in 293 cities/towns across the country. Further, the management is increasing the presence in International markets as well. Moreover Domino's is starting gaining its market presence in Sri Lanka and Bangladesh as well.

(b) Domino's Network Performance

Jubilant Foodworks Detailed research with Domino's Network
  • The performance of the company in FY21 was mainly affected due to Covid-19. As the Dine-in was not permitted due to various restrictions by central and state government. Thus the company has closed some of Domino's units which did not perform well.
  • However the last two quarters of FY 21 the company performed well mainly due to home delivery of orders. Thus, the management thinks that for timely delivery of orders, Domino's has increased its market presence. As a result the management opened some new restaurants in past few months.
Jubilant Foodworks with Domino's Same store sales growth

In FY17 Domino's pizza reported negative SSSG because demonetization affected the revenue of the company. However in FY19, Domino's reported highest ever SSSG growth in 7 years. Further in FY 21 due to various lockdowns and other restrictions on Dine-in, Domino's reported negative SSSG of 17.7%.

“Same store growth” (SSG) refers to the year-over-year growth for restaurants in operation for
2 whole years (i.e. current & previous year)

(c) Dunkin' Donut Network

Jubilant Foodworks Detailed research with Dunkin' Donut Network
  • The company decreased the number of its Dunkin' Donuts restaurants over past few years. The reason behind this is some of the restaurants were not generating any profits to the company thus the company in order to rationalize its operations in Dunkin' Donuts segment closed some of its loss making outlets.
  • Moreover, in this segment management is now focusing on providing only Donuts, coffee and other beverages and has exited several products which were offered before. For instance sandwiches and other bakery items.

(d) Hong's Kitchen

Jubilant Foodworks Detailed research with Hong's Kitchen
  • Jubilant Foodworks launched its first homegrown brand Hong's Kitchen in FY 19.
  • Management wanted to enter into Chinese segment as Chinese cuisine is 3 most consumed cuisine in India.
  • Thus, management launched its brand, Hong's Kitchen and over since the management is increasing its presence. In FY21 management added 8 new restaurants of Hong's Kitchen across the country.

(e) Jubilant Foodworks - Online deliveries

Jubilant Foodworks Detailed research with Online orders
  • Q4 of FY21 had the highest ever contribution of online orders to delivery sales because of lockdown and restriction on Dine in people preferred home delivery of orders.
  • Online orders derived major part of company's revenue during lockdown period. Also more than 57 million people downloaded the Domino's application during lockdown due to which company's reach to its customers increased.

(6) Cost Structure - Jubilant Foodworks

Jubilant Foodworks Detailed research with Cost Structure

(i) Costs as a % of Net Sales

Jubilant foodworks detailed research with Major Cost of the company

Employee cost, Raw material cost, Selling and Distribution cost and rent cost form the major costs of company. Thus these cost greatly affects the profits of the company. However the company has tried to maintain these cost over the past years. Royalty cost is also an important cost for the company which is between 3-4% of sales from past five years.

(7) Financial Parameters

Jubilant Foodworks Detailed research with Financial Parameters

In FY17

  • The Profit after tax of the company decreased by 27%. The main reason behind this negative growth was the increase in total expenditure which mainly include increase in selling and distribution expenses, Raw material expenses and personal expenses. Further the restrained market situation and demonetization which happened in Nov,2016 also impacted Domino's pizza sales. As a result same restaurant sales growth (SSG) for the year, also stood negative at -2.7%.
  • Further the cost of expansion affected the EBITDA margin of the company.

In FY20

  • The company reported negative growth in PAT margin for FY20. The reason behind this was mainly increase in expenses of the company. In FY 20 Depreciation, Finance cost and employee cost of the company has been increased.
  • In FY 20 the company reported amortization expenses on right to use assets. As per IndAS the nature of expenses in respect of operating leases changed from “Rent”/ “Other expenses” in previous period to “Depreciation and amortization expense” for the Right of use assets and “Finance cost” for interest accrued on lease liability.
  • As a result the “Rent” / “Other expenses”, “Depreciation and amortization expense” and “Finance cost” of the current period is not comparable to the earlier periods.
  • This also resulted in change in cash flow from operating activities and financing activities for relevant expenses.

In FY21

  • Due to Lockdown the restaurants temporary closed which affected the sales of the company for FY21.
  • Further the restriction in delivery hours also acted as an headwinds for the company and affected the profit margins. As a result the company reported negative growth in revenue and profits.
  • However during the end of FY21, the company managed to recover its sales level mainly driven by home delivery.

Dividend Pay out Ratio

Jubilant Foodworks Detailed research with Dividend Payout ratio

(8) Management Discussion and Concall Highlights

(i) Aggressive store Expansion Strategy

Company opened 50 new domino's stores in q4 FY21 and 20 new stores in q1 FY21 as the company wants to increase the presence of Domino's in the market by tapping new locations and cities. As in last few months the major sales were driven by online ordering thus the management thinks that opening of new stores will increase the efficiency of the company in timely delivery. Also the company opened 4 new stores in international markets, which is 3 in Sri Lanka and 1 in Bangladesh as the company saw huge potential of domino's in both these international markets.

(ii) Investment in DP Eurasia

The company made an investment during FY21 in DP Eurasia through the acquisition by its wholly owned subsidiary - Jubilant Foodworks Netherland B.V of Fides Food Systems Coöperatief U.A., Netherlands - for approximately GBP 24.80 million. As Fides is the beneficial owner of 32.81% equity in DP Eurasia, one of the largest Domino’s franchisees, which is a category leader in Turkey and a strong challenger in Russia. Thus the company's rationale here is to try and replicate its best practices in the new geographies of Turkey, Russia, Azerbaijan and Georgia, through active Board participation.

(iii) Acquisition of master franchise rights

The Company also acquired exclusive master franchise rights to operate and sublicense the iconic Popeyes brand in India and in the neighboring countries which are Bangladesh, Bhutan, and Nepal. As management expects that Popeyes will be an exciting addition to the Company’s portfolio of brands and is expected to become one of the key drivers of growth for the company in the coming years.

(iv) Highlights from latest quarter Q1 FY22

  • As pandemic has accelerated the push towards digitalization and thus the company has an endeavor to be Foodtech company therefore the company is continuing focusing on growing its digital assets and made some change in its app to enhance user experience. Moreover the company introduced “Hello Domino's” Toll-Free number to allow customers to call and use voice to place orders.
  • The company's performance in the new brands especially in Hong’s Kitchen was encouraging and improved sequentially through the quarter. Company now have a total of 11 Hong’s Kitchen stores in Delhi NCR.
  • The company also opened 9 stores for the new brands, 3 each for Hong’s Kitchen, ‘Ekdum!’ and Dunkin’ Donuts. However the store opening was lower than the earlier quarters on account of the pandemic related challenges, but the company intends to accelerate its store opening momentum as the company has a target of opening between 150-175 stores year 2022, on ground conditions permitting.

(v) Management Outlook

  • The company believes that Domino's will continue to power ahead as the company see a clear potential of 3,000 stores in India in the medium to long term for the brand.
  • Company will continue to invest in expanding its portfolio brands through Hong’s Kitchen, Popeyes, ‘Ekdum!’, Dunkin’ Donuts, etc., as management aim to own a much larger share of occasions.
  • Management will use its best practices to rapidly scale up company's business in International markets as well.
  • Management expects that the company's growing strength in digitalization will enhance the customer engagement and will also improve its employee's efficiency.

(9) Opportunities & Strengths

(a) Cash Rich company

As the company is aggressively making expansion and for this expansion the company has not even taken any debt from outside. The company has enough cash to meet its expansion strategy. Moreover the management thinks that the company has an potential to open 3000 stores of Domino's across the country. The company is expected to have prudent expansion and dividend plans, supported by internal cash accrual and liquid balances.

Jubilant Foodworks detail research with its Cash and Investments

(b) Robust financial risk profile

The financial risk profile is supported by a debt-free status, a strong net worth, and high financial flexibility. The company has been debt-free since the past three fiscals. The net worth was Rs 1183 crore as on March 31, 2020, and is expected to increase further, backed by healthy accretion to reserves.

(c) Established market position in the QSR segment

The company is a market leader in the pizza segment through its exclusive rights to operate Domino's Pizza brand outlets in India, Sri Lanka, Bangladesh, and Nepal. Domino's Pizza enjoys 70% market share in QSR pizza segment in India. Moreover the customer loyalty for dominos serve as an competitive advantage for the company.

(d) Entrance into new segments

The company has entered into new segment like Hong's Kitchen which is an Chinese cuisine as the Chinese cuisine is very much consumed segment in India and also by Launching Popeyes a chicken brand to India as Indian is not a major consumer of chicken yet. Thus management is seeing an opportunity in these two segments.

(e) Healthy operating efficiency driven by a strong supply-chain network

The company operates various regional supply chain centres, which source and supply primary raw materials, thus helping to ensure consistent quality and timely delivery of these to its stores. The company also benefits from higher share of home deliveries. In Q4 2020, the share of online orders increased to 89% from 75% in Q4 2019, of which contribution from application-based, mobile phone orders remained high at 96%. Moreover in Q4 2021 the share of online orders increased to 98% from 89% in Q4 2020 of which contribution from application-based, mobile phone orders remained high at 97%.

(10) Risks

(a) Weak performance of the donuts division

The Dunkin Donuts division incurred losses in the past, resulting dilution in overall profitability. The number of Dunkin Donuts stores was brought down to 30 as on June 30, 2019, from 55 as on June 30, 2017. Nevertheless, in the absence of profitable expansion of this division, reliance on the pizza division will remain high, and hence its performance remains a key monitorable.

(b) Susceptibility of profitability to competitive intensity and cost pressures

The Indian QSR market is highly competitive with players in both the organized segment and in the huge un-organized market which may result in loss of market share and reduced profitability. Fixed costs (mainly lease rentals for store premises, employee cost, and electricity charges) form a significant portion of the operating cost for a QSR, resulting in high operating leverage. Thus, growth in same-store sales is essential to boost profitability. Hence, timely execution of the growth plan without any cost overrun, and improvement in the operating margin with sustained focus on cost optimization, technology, low leverage, and economies of scale, remain key monitorable.

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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry's Publications.

Disclaimer: The report only represents personal opinions and views of the author. No part of the report should be considered as recommendation for buying/selling any stock. Thus, the report & references mentioned are only for the information of the readers about the industry stated.

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