COMPANY INSIGHT JUBI IN EQUITY March 21, 2017 CEO’s ...reports.ambitcapital.com/...CEOschecklistforaturnaround_21Mar2017.pdf · better dining choices (pizza competitors outnumber

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CEO’s checklist for a turnaround

A new CEO and recent commentary on profitable growth have renewed hope amongst investors. However, the path is not as quick as delivering pizza in 30 minutes. Correcting price value proposition (10% price CAGR over FY11-16) no longer assures margin expansion in sync with SSG. Measures like headcount reduction, while margin accretive, would impair delivery-centric business. Architecture around product, technology and advertisement is at the core of growing customer base, which at 15mn is low despite presence in 260 cities. Own-store model remains Jubilant’s handicap vs successful Domino’s franchisees globally that are asset-light but tech heavy. We would like to see steps on the above by the new management before turning BUYers on a franchise which is struggling but not beyond resurrection. At 43x FY19E EPS, the stock factors 7% SSG over FY18-20E but ignores risks associated with near-term execution and re-building the foundations. Competitive position: STRONG Changes to this position: NEGATIVE Checklist #1 Price drop or product improvement? Lower prices or better products can drive SSG revival but with margin compression; 100bps fall in gross margins needs 250bps in SSG to maintain EBITDA margins. Domino’s offering is rated as mediocre by a large customer base (on Zomato) vs global positioning as value for money proposition. Moreover, in just top 10 cities its pricing faces competition from over 11,000 better dining choices (pizza competitors outnumber Dominos 2:1). Checklist #2 Expanding small user base; headcount cut is short term fix Headcount reduction may boost near-term earnings but compromises delivery experience in the long run. Investments in product (quality), communicating the same and technology (ease of ordering, reducing delivery time) helped the US business in 2010. For Jubilant, given input cost inflation (28% CAGR over FY11-16) and low user base of 15mn, such measures can be margin-dilutive. Checklist #3 Is sub-franchising feasible? Jubilant is perhaps the only sizeable master franchisee that has not sub-franchised. Jubilant expanded in many small towns, with 240 of them having <10 stores. Ramp-up at these locations has been delayed due to higher costs vs lower revenues (lower share of delivery) than stores in major cities. Sub-franchisee model is more viable in smaller towns given franchisee-owned real estate and lower administration costs from family members’ involvement. Growth multiples cannot be ascribed to earnings from cost savings Costs saving measures are a short-term fix and do not warrant valuation re-rating. Re-building this asset-heavy business will take longer than just a couple of quarters and could depress margins. Titan, at 33x FY19E EPS, with an asset-light model has demonstrated agility in product pricing to overcome regulatory disruptions. But Jubilant is constrained by size and cost structure. Our fair value of `879 implies 33x FY19E EPS; SSG over 10% is a key risk to our SELL rating.

COMPANY INSIGHT JUBI IN EQUITY March 21, 2017

Jubilant FoodworksSELL

Consumer Discretionary

Recommendation Mcap (bn): `71/US$1.1 6M ADV (mn): `728.3/US$10.9 CMP: `1,119 TP (12 mths): `879 Downside (%): 22

Flags Accounting: GREEN Predictability: AMBER Earnings Momentum: RED

Catalysts

Further gross margin decline in FY18E given higher cheese cost

FY18E SSG to be capped at 7% given rising competition.

Continued delay in ramp-up of new stores to over 3 years from erstwhile 2.5 years.

Performance (%)

Source: Bloomberg, Ambit Capital Research

60

708090

100110120

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-16

May

-16

Jun-

16

Jul-

16

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-16

Sep-

16

Oct

-16

Nov

-16

Dec

-16

Jan-

17

Feb-

17

JUBI IN SENSEX

Research Analysts

Abhishek Ranganathan, CFA

+ 91 22 3043 3085

[email protected]

Mayank Porwal

+ 91 22 3043 3214 [email protected]

Key financials Year to March FY15 FY16 FY17E FY18E FY19E

Net Revenues (` mn) 20,928 24,380 26,253 30,698 37,260

Operating margin (%) 12.2% 11.4% 9.9% 10.7% 11.4%

Net Profits (` mn) 1,111 1,048 843 1,202 1,721

Diluted EPS (`) 16.9 15.9 12.8 18.3 26.2

RoCE (%) 19% 15% 11% 14% 18%

P/E (x) 66.1 70.2 87.2 61.3 42.6

EV/EBITDA (x) 28.5 26.2 28.1 21.9 16.7

Source: Company, Ambit Capital research

mailto:[email protected]


Jubilant Foodworks

March 21, 2017 Ambit Capital Pvt. Ltd. Page 2

Addressing price value proposition critical to SSG revival Jubilant’s management has long blamed poor macro for the decline in SSG, but at the heart of SSG revival is price value proposition that needs correction. A 10% CAGR in pizza prices and increasing democratization of local chains have resulted in dwindling same store volume growth. Therefore, margins have contracted to 11% in FY16 from a peak of 18% in FY12. In the top 10 cities, local pizza outlets ranked better than Domino’s outnumber it by 2:1 and are a part of 11,000 restaurants (up from 9,000 in March 2016 –see our report dated 04 March 2016), which compete with 655 Domino’s stores there. The increased share of stores (40%) of smaller cities (nearly 206 have at best just two stores) which are dine-in heavy (lower asset turns) have impaired the margin mix.

Price hikes, not macro behind dwindling SSG The management has stated that poor macro is the cause of muted SSG, which has been falling since FY13. However, price increases due to cost push from inputs and wage inflation have resulted in its pizza prices being higher on purchasing power parity (PPP) than Domino’s franchisees in the US, the UK and Australia. The company’s commentary in its earnings calls and annual reports since FY13 states poor macro for falling SSG. However, pricing was never considered a cause for the dwindling SSG.

Exhibit 1: The company believes macro has had a material bearing on operations

Year Management commentary on economy

FY13

“The economic environment has been challenging. Nonetheless we have remained committed to capitalize on the growth potential. The volatile economy demanded even more financial strength, flexibility and disciplined execution and we have delivered on those. We will continue to strengthen our systems and processes to better equip ourselves to handle unfavourable economic situation and market scenarios. As mentioned earlier we witnessed the impact of wavering economic conditions on our same store sales performance. Nonetheless we believe the potential to growth remains intact and we want to continue investing in our business to generate higher returns as and when the scenario normalizes.

FY14

"We have been faced with an unprecedented climb down in sentiment from the consumers’ vantage perspective. JFL is cognizant of such compulsions and motivations and as a company we have taken steps to maintain a value proposition for them. I would reckon that nearly 80% - 90% if not more, is attributable to the macro economic factors, splitting of stores is a phenomenon which is a part and parcel of our business and we believe is no different from last year." "As I explained to you when the economic sentiment is weak, it may take more efforts to bring the consumers to you so that the consumers become more loyal and on long term basis he stays with you. " "The FSI sector reeled under subdued sales as market growth was severely impacted for a large part of FY2014, mainly in the latter half. "When you do micro analysis, big trends are still not emerging honestly. The political outcome of the elections which happened a couple of days back do bring in a sense or call it reassurance, call it optimism, but it is still not reflecting in numbers obviously."

FY15

"Economic parameters are yet to witness a turnaround. As of now we're not seeing any positive, but all the consumer sentiment and all the research we got which is coming now in the market they are talking about that consumer confidence is improving and it is expected that consumer will come back to the categories like QSR and all the discretionary expense will come back." Clearly, the worst time is behind us. We believe the kind of pressures which we saw in the last one year or so is not there anymore, but there will be always challenges in a growing economy. There will be inflationary pressures."

FY16

"And if the economy, which we are very positive about, is going to open up, consumer sentiments will improve. Consumers clearly are telling us that we love Domino's Pizza, we are emotionally connected still highest on your brand but they're also saying that we are clamping down on eating or consuming food outside of home, and this is kind of conclusive, though qualitativeness in its nature.." "If the consumer sentiment does not improve, and if GDP growth does not kick-in, if we have all the reforms which we're talking about the government will take, does not happen, obviously then it becomes very difficult to predict the future. "


http://reports.ambitcapital.com/reports/Ambit_JubilantFood_Initiation_Itisnothotyet_04Mar2016.pdf

Jubilant Foodworks


We highlight that the 10% CAGR in pizza prices over FY11-16 has eroded the price value proposition, resulting in a decline in SSG. The fall in SSG was caused by a decrease in volumes, indicating lower ordering frequency and a decline in same store customer base. In contrast, Domino’s Pizza Group plc (‘Domino’s UK’) witnessed only a 2.3% (CY15) increase in order value, which also includes mix change, thus sustaining the value proposition and delivering SSG.

Exhibit 2: Price hikes have dented Jubilant’s SSG


Exhibit 3: Measured price hikes taken by Domino’s UK have aided SSG unlike in the case of Domino’s India


Exhibit 4: Domino’s pizzas in India are the most expensive on PPP basis as compared to other prices in other countries Non veg medium sized pizza USA UK Australia India Indonesia

Chicken pizza prices in US$ - list prices 14.0 20.7 20.9 7.8 3.4

PPP indexed to USA 1.0 1.1 1.2 0.3 0.3

Chicken pizza price in US$ adjusted for PPP 14.0 15.4 16.8 4.2 4.2 % by which PPP adjusted pizza prices higher / lower than list prices 0% 35% 24% 87% -19%

Source: World Bank, Ambit Capital research. Note: Veg Pizza of the same size provides the same results.

Competition has emerged stronger due to internet Food aggregators have disrupted the space by offering deliveries from restaurants at low and unviable costs. However, the real sustainable disruption comes from democratisation of local restaurants whose products, experience and value proposition are showcased through ratings and reviews as against unsolicited pamphlets. This has also led to mushrooming of smaller local restaurants (there are now 11,000+ restaurants rated 3 and above [good or excellent] on Zomato in the top 11 cities) with lower investment in prominent real estate and/or promotions.

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Price per order (Rs) (LHS)Same Store Volume growth (RHS)YoY growth in number of orders (RHS)

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CY10 CY11 CY12 CY13 CY14 CY15

Price hikes-Domino's UK (LHS) Price hikes-Domino's India (LHS)

SSG-Domino's India SSG-Domino's UK

Jubilant Foodworks


Value proposition offered by neighbourhood restaurants is higher

The more sustainable and perhaps less appreciated trend is the disruption caused by the likes of Zomato. Zomato’s 24,000 online and 200,000 phone orders each day reflect the disruptive power of foodtech and empowerment of local restaurants. The popularity of such apps makes customers more open to trying newer or hitherto untried but well “rated” restaurants. A case in point is that the number of pizza outlets (at comparable price points) in key cities such as Mumbai, Bangalore, Delhi etc. is 2x that of Domino’s outlets

Exhibit 5: Cities with the most Domino’s stores face competition from a plethora of restaurants at the same price points

City

Domino's outlets as on

March 5, 2017

Zomato – No. of restaurants other than Domino's in

those cities where cost for 2 is `500-1000

Zomato - No. of restaurants where cost for 2 is ̀ 500-

1000 with average rating of 3 or more

Avg. rating of Domino’s on Zomato

Zomato - No. of restaurants

offering pizza (other than

Domino’s) at `500-1000

Zomato - No. of restaurants

offering delivery where

cost for 2 is `500-1,000

Chain restaurants offering pizza (rating above 3 on Zomato and cost for 2 is `500-1000)

Delhi NCR 147 5,290 2,496 3.1 297 4,740

Tossin Pizza, Baking Bad, Jamie’s Pizzeria, Instapizza, New York Slice

Bangalore 95 2,779 1,408 2.8 244 2,148

Whooppeezz, Mojo Pizza, Pizza Stop, Pizzeria, Ovenstory Pizza, Crunch Pizzas

Mumbai 129 4,774 2,649 2.6 279 4,255 Joey’s Pizza, Eva’s Pizza, Francesco’s Pizzeria, PizzAah

Chennai 56 1,484 728 3.4 73 1,133 Pizza Republic, Eagle Boys Pizza, Pizza Hut, Long Live Pizza

Hyderabad 58 1,676 820 2.7 74 1,152 Pizza Hut, Eagle Boys Pizza, Ovenstory Pizza

Pune 55 2,403 1,193 2.6 126 1,776 Mojo Pizza, Pizza Hut, 95 Pasta n Pizza, Cheesiano Pizza

Kolkata* 44 1,350 778 3.5 29 876 Pizza Hut, Eagle Boys Pizza, Home Slice

Ahmedabad* 26 777 404 2.6 144 496

Pizza Hut, No Mad Baker – The Pizzeria, Hamfoo’s, The Blue Oven

Navi Mumbai* 17 626 332 3.1 39 605 Pizza Hut, Delicious Den, Smoking Pizza, La Pino’s Pizza, Pizzeria House

Surat* 8 169 206 2.9 23 31 Pizza Hut, Den’s Pizza

Total 655 21,328 11,014 2.9 1,328 17,212

Source: Zomato, Ambit Capital research. * Have included names of standalone outlets too in restaurants offering pizza.

Neighbourhood restaurants’ value proposition is better than that of Jubilant

Price increase has not been peculiar to Jubilant. However, not only has the gap between prices of local chains and Domino’s pizza increased, the value proposition too has widened. In FY11, a Domino’s pizza for `160 would be a meal for two people vs two plates of pav bhaji (a local delicacy) costing `120 for two people. Today, two plates of pav bhaji cost `220 but a Domino’s pizza is a lot more expensive, at `500.

Democratisation of local restaurants has hit the delivery business

The top 10 cities for Jubilant account for nearly half the number of its stores and revenues. But the share of delivery-driven business in these stores, at 60%, is higher than the system-level share of 50%. The empowered local chains’ online presence is highest in these top 10 cities, which impacts Jubilant’s delivery business and, hence, asset turns.

Jubilant Foodworks


Exhibit 6: For Jubilant dine-in accounts for nearly half of revenues… Overall Dine in Delivery

Share of orders 60% 40%

Ticket size 1x 1.75x

Share of revenues 46% 54%


Exhibit 7: …but deliveries drive revenues in the top 12 cities Top 12 Cities Dine in Delivery

Share of orders 40% 60%

Ticket size 1x 1.75x

Share of revenues 28% 72%


Exhibit 8: The appetite for more Jubilant stores in smaller cities of India is low

No. of cities Dec-09 Dec-11 Dec-13 Dec-15 March-17 Key cities as on March 2017

50 and above stores 0 3 3 4 6 Bangalore, Chennai, Mumbai, New

Delhi, Hyderabad, Pune 41-50 stores 1 0 0 2 1 Kolkata

31-40 stores 2 0 1 1 0 -

21-30 stores 0 3 2 1 1 Ahmedabad

10-20 Stores 5 2 5 10 10 Gurgaon, Ghaziabad, Goa, Indore, Nagpur, Navi Mumbai, Noida, Surat, Thane, Vadodara

6-9 stores 3 5 6 11 11 3-5 stores 6 15 20 25 22 1-2 stores 42 79 82 174 211 Total 59 107 119 228 260 Source: Company, Ambit Capital research

Exhibit 9: Increasing share of Jubilant’s stores in smaller cities has impacted SSG Store network Dec-09 Dec-11 Dec-13 Dec-15 March-17

Top 10 cities 199 277 316 483 650

Top 11-20 cities 28 47 64 112 102

Top 21-30 cities 19 34 40 68 62

Top 31-40 cities 14 20 26 44 42

Top 41-50 cities 7 12 19 34 32

51 and above 19 61 82 212 232

Total 286 451 547 953 1,120

SSG Growth 17.2% 30.9% 3.3% 3.2% -0.7%

SSG stores 286 451 547 876

Stores from top 10 cities in SSG stores 199 277 316 NA


Jubilant Foodworks


Domino’s USA turnaround story is tough to replicate in India Positive SSG was the key margin driver but was driven by demand pull. Now, however, driving SSG needs investments in price (covered in previous section), product, branding and technology. A case in point is Domino’s Pizza, Inc. (‘Domino’s USA’), which made investments in improving product, price value proposition, communication and technology. This helped SSG (average 7.4% over CY10-16 vs -2.6% over CY06-09), PAT (16% CAGR over CY10-16 vs -9% over CY06-09) and RoCE (from 47% in CY08 to 76% in CY16). The quick turnaround was aided by low input cost inflation and low wage inflation. However, for Jubilant, challenges in replicating the USA measures lie in sacrificing margins given wage and food inflation in India.

Exhibit 10: Steps taken by Domino’s USA and impact; most of these were taken by new CEO, J Patrick Doyle, who was appointed in 2010

Steps Impact on company’s metrics (company operated stores)

Metric CY08 CY09 CY10 CY11-16

New product creation and Customer involvement in validation: Created a completely new recipe for its pizzas which ranged from dough development to testing dozens of cheeses, 15 sauces and 50 crust seasoning blends and made 1,800 random pizza consumers from eight U.S. markets taste them for their reviews

Revenue growth -9.4% -6.1% 2.9% 4.3%

Hired 30 tech workers to reconfigure its online ordering system; Today the tech team has around 400 members and is the biggest division at the Headquarters

SSG -2.2% -0.9% 9.7% 6.4%

Rolled out a honest and interactive ad campaign that actively utilized the internet and technology that showed customers discussing how they felt the pizza was devoid of flavour

Gross margin 72.4% 74.2% 72.6% 72.7%

Operating margin 16.4% 18.3% 19.5% 23.4%

Ad spend as a % of revenues 2.5% 2.4% 1.9% 1.6%

Source: Ambit Capital research

Multi-pronged strategy from product to technology Domino’s USA faced declining SSG during CY06-08 due to poor tasting pizzas and low price value proposition. The company took several steps to improve the product (now it’s a leader amongst national QS`) and value proposition (on par with Pizza Hut and Papa John’s) and followed it up with innovations in technology to improve experience and convenience. The outcome was an improvement in SSG (average 7.4% over CY10-16 vs -2.6% over CY06-09) and operating margins (14.5% in CY10 to 18.4% in CY16).

Improvement in product helped boost the value proposition

Though Domino’s USA ranked high on service it ranked low on taste. The company examined each ingredient from crust to cheese and created a completely new recipe for its pizzas. The new process ranged from dough development to testing dozens of cheeses, with multiples sauces and 50 crust seasoning blends. This was followed by making 1,800 random consumers from eight US markets taste/review the pizzas.

Jubilant Foodworks


Exhibit 11: Domino’s USA redesigned its pizza recipes and process to improve the product….

Source: Domino’s USA CY12 presentation, Ambit Capital research

Exhibit 12: ..the outcome being absolute and relative improvement in taste

Source: Domino’s USA CY12 presentation, Ambit Capital research

Jubilant Foodworks


Exhibit 13: Domino’s USA has made commendable changes and scaled up the value for price ladder since 2010


Investment in experience through technology

Domino’s has been able to keep consumers engaged by introducing unique innovations (see Exhibit 14) such as 10-minute delivery and one-click ordering. For instance, recently, Domino’s Australia introduced the Fresh Fast Bake Certified concept in some of its stores, wherein it ensures pizza delivery within 13 minutes of ordering. The India business is lagging in terms of innovations because, unlike franchisees in the UK, Australia and the US, it is an own-store business with lower focus on technology.

Exhibit 14: Innovations made by Domino’s in the QSR space

Innovation introduced Domino's Australia

Domino's USA

Domino's UK Domino's India

Online ordering 2005 2007 2007 2011

Mobile App ordering 2009 2007 2010 2012 Pizza Tracker on mobile (allowed customers to view the status of their order in a simulated progress bar)

2010 2008 2009 2013

Pizza Theatre 2012 2012 2012 2013 Pizza profiles (allowed customers to save their online ordering information and reorder their saved favourite combinations in five clicks, or about 30 seconds)

2013 2013 2013 2015

Order from Xbox 2014 2014 2014 - Dom (Siri-like app called Dom which lets customers place orders by conversing with a computer-generated voice)

2014 2014 2014 -

3D Pizza Builder iPad App (offers a much more realistic 3D view of customers’ finished orders)

2014 2014 2014 -

Pizza Car 2015 2015 - -

Tweet/Message and order 2016 2015 - -

Domino's One Click order 2016 2016 - - Piece of the Pie Rewards Loyalty Program - 2016 - -

Domino's Robotic unit 2016 - - - Fresh Fast Bake certified - 3:10 stores 2016 - - -

DRU-Drone 2016 - - -

Instagift 2016 -


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CY09 CY12 CY15

Price Value (0-10 scale)

Jubilant Foodworks


Input cost and wage inflation critical Domino’s USA invested in improving the product as well as the price value proposition. It benefited from low wage inflation (2% and that too due to higher variable payouts), flat rentals and moderate input cost inflation. In the case of Jubilant, investments in product and price value proposition can be margin-dilutive if input cost inflation (28% CAGR over FY11-16) and wage inflation (33% CAGR over FY11-16) continue to be steep.

Exhibit 15: Domino’s USA faced only 2% inflation in labour cost and flat occupancy cost over the last 6 years

Source: Ambit Capital research. Note: Inflation in labour costs have been calculated for CY09-CY14 as CY15 labour costs include extraordinary expenses (higher performance based incentives); CY16 occupancy costs are not available

Exhibit 16: Cheese prices in the USA increased by only 3% CAGR over the last 7 years


Inflation is a bigger challenge in India

Domino’s USA was able to pull off a reasonably quick turnaround in two years due to lower input costs, steady rentals and low wage inflation (CY09-14 CAGR of 2% on per store basis). In India, improving the price value proposition entails sacrificing gross margins because of sustained food and wage inflation.

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US$ mn

SSG (LHS) EBITDA margin (LHS)Occupancy costs per store (RHS) Labour costs per store (RHS)

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Cheese block per pound (US$)

Cheese costs in India have gone up by 15-20% YoY in 4QFY17 as milk prices have gone up 20%. This is likely to add pressure on gross margins of Jubilant in the event of no price hikes for the pizzas.

Jubilant Foodworks


Exhibit 17: Jubilant has increased prices as food and wage inflation remains high


Small user base may flatter to deceive

Jubilant’s user base of 15mn customers is small given its network of 1,111 stores across 260 cities. Promotions have not been successful in driving volume growth as this customer base hasn’t grown. On the contrary, promotions can be counterproductive as loyal customers gain from lower pricing even as new customer additions continue to underwhelm.

Exhibit 18: Jubilant’s customer base is low given its large network of stores

Customers ordering

once Customers ordering

multiple times Total

Percentage (%) 50% 50% 100%

Number of times ordered (x) 1 7 Weighted orders (x) 0.5 3.5 4

Number of orders (mn) 7.5 52.5 60 Number of customers ordering (mn) 7.5 7.5 15


Technology is a master franchisee’s domain, but Jubilant continues to lag

A master franchisee has access to Domino’s USA’s knowhow in product development, commissary and logistics management and vendor development. Currently Jubilant pays 3.4% of revenues as royalty for the same. But technology is largely the domain of the master franchisee. Therefore, the onus of development of the app is on Jubilant. Moreover, it is likely that access to technology from either Domino’s or other franchisees will come at an additional cost.

Exhibit 19: Jubilant’s app continues to have highest unfavourable ratings amongst leading Domino’s franchisees

Metrics/Company India UK Australia USA

App downloads (last reported, in mn) 3.7 13.2 1mn+ 10-50mn

% of unfavourable ratings for the app 25.0% 8.0% 13% 2.0%

Major App features -Pizza tracker -One touch order -Pizza tracker

-Receive notifications for great deals from one’s local store -New On Time Cooking is now available so one’s pizza is ready as soon as one walks in to store to pick up order -Pizza tracker

-Voice ordering assistant, Dom -Sign up for Domino’s Piece of the Pie Rewards and earn points toward free pizza! -One touch order -Pizza tracker

App Developer's name Jubilant Foodworks Ltd.

Domino's Pizza Group, plc Domino's Pizza Enterprises Limited Domino's Pizza, Inc.


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Price of a medium sized Non-veg (treat) pizza at Domino's (LHS)Inflation in milk and milk products (RHS)Inflation in meat (RHS)Inflation in employee cost (RHS)

Jubilant Foodworks


Exhibit 20: Mobile orders form <30% of delivery orders for Jubilant…


Exhibit 21: …whilst Domino’s UK has leveraged mobile ordering to generate SSG


0%5%10%15%20%25%30%35%40%

0%5%

10%15%20%25%30%35%40%

FY11 FY12 FY13 FY14 FY15 FY16

Share of online orders(LHS)Share of mobile orders forming part of online orders(LHS)Ad spend as a % of Sales(RHS)SSG(RHS)

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Share of online orders forming part of delivered orders (LHS)Share of mobile orders forming part of online orders (LHS)Ad spend as a % of Sales (RHS)SSG (RHS)

Jubilant Foodworks


Sub-franchising: Better late than never? New Domino’s stores have underperformed since FY13 as evident in falling asset turns (4.2x in FY12 to 3.2x in FY16) and margins (410bps adjusting for losses from Dunkin Donuts). Jubilant is the one of the few master franchisees which runs almost all its stores. The closest is Domino’s Alsea (Mexico), which operates nearly three-fourth of its stores. The advantages of sub-franchising will be two pronged: a) frees management bandwidth to work on innovation and technology; and b) helps franchisees operate a tighter ship (high involvement of family, legacy real estate) and at lower (yet respectable) return expectations than that of a listed entity.

New store profitability issues need a long-term fix Delayed ramp-up of new stores has contributed to margin compression. Lower proportion of the higher ticket size delivery business in stores beyond the top 10 cities combined with elevated prices has resulted in asset turns falling and margins compressing. While the company has reduced headcount by 8% last year, the solution is short term as a material pick-up in SSG would need a higher head count to ensure optimal delivery experience.

Operating margins have fallen as new store ramp-up is sub-optimal

The company has added 450 stores over the past 3 years whereas margins have fallen by 410bps (adjusting for losses from Dunkin Donuts). Apart from poor SSG, the fall in margins is also due to delay in ramp-up of these new stores.

Exhibit 22: Store operating margins have been deteriorating as Jubilant increased the number of outlets

Store level metrics (̀ mn) FY14 FY15 FY16

Revenue 26.7 26.1 25.6

YoY -2% -2% -2%

Food costs 7.0 6.6 6.1

As a % of sales 26% 25% 24%

Employee cost 5.2 5.5 6.0

As a % of sales 20% 21% 23%

Power and fuel cost 1.6 1.5 1.5

As a % of sales 6% 6% 6%

Freight & delivery cost 0.8 0.8 0.7


Rent 2.4 2.6 2.7

As a % of sales 9% 10% 10%

Packing material costs 1.1 1.0 0.9


Depreciation 1.2 1.3 1.3


Other costs 2.6 2.6 2.7

As a % of sales 10% 10% 11%

Total costs (before royalty and advertising expenses) 21.8 21.9 21.9

As a % of sales 85% 87% 88%

Operating profit 4.8 4.2 3.8

Operating Margin % 18.1% 16.2% 14.7%

Dunkin’s impact on margins % 1.3% 1.5% 2.5%

Domino’s store level margin % 19.4% 17.7% 17.2%

No. of stores existing for less than 3 years 348 411 450


The ramp-up/payback of some of the recent additions to the store network is now beyond 3 years as against earlier 3 years – Management in its 3QFY17 earnings call

Jubilant Foodworks


Headcount reduction is not sustainable in the long term

Jubilant’s headcount has been falling since 3QFY16. While this is partly due to improved efficiencies, it is more likely a response to falling delivery sales/orders. While the reduction has helped control wage costs, it is not sustainable as delivery experience will be compromised thus, affecting SSG. Therefore, SSG below 6% (as guided by the management) is unlikely to bring huge operating leverage from wage costs. Moreover, sustainable SSG has to be volume driven and hence scope to reduce headcount significantly is limited.

Exhibit 23: Headcount reduction would affect delivery efficiency


Exhibit 24: The number of orders per store is declining for Jubilant but is still higher than that of Domino’s UK


Sub-franchising is globally proven, could be a long-term solution Sub-franchising not only frees management bandwidth but also creates a more disciplined portfolio of stores. Moreover, managing a staff size of over 25,000 with wage inflation can be counterproductive, with the end-result being escalating pizza prices. In the case of Jubilant, sub-franchising some stores and future additions will help cap input cost inflation. Also, sub-franchising is likely to bring more discipline in new store openings and functioning as the onus to dedicate time and capital shifts to the sub-franchisee.

Exhibit 25: Sub-franchising has been integral to most successful markets of Domino’s

Metric Domino’s UK Domino’s USA Domino’s Mexico Domino’s India

Share of Sub franchised stores 99% 93% 77% NA Franchise fee received as income (US$ mn-CY16/CY15) NA 312 16 NA

RoCE (CY16/CY15) 50% 76% 8% 15%

CFO (US$ mn) (CY16/CY15) 47 287 213 32


-5%0%5%10%15%20%25%30%35%40%

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100,000

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Orders per store-UK Orders per store-India

“If another company were to get out ahead of Domino’s by providing quick, reliable delivery without having to manage a staff of drivers and coordinate routes, Domino’s would lose some of its competitive advantage.” – Kelly Garcia, Head of Ecommerce at Domino’s Pizza Inc. in a media interview

Domino’s UK has 30 employees per store on an average

Jubilant Foodworks


Sub-franchisees have been able to operate on sound store economics

Sub-franchises in the UK and the US have operated on sound economic parameters and have gained from product and technological innovations. Although they pay royalty to the master franchisee, their underlying operating margins have improved due to better SSG. For Jubilant, sub-franchising will help manage wage costs (currently 23% of revenues) better as well as focus on innovations, which in turn will enable it to manage pizza price inflation and, hence, value proposition. This could result in consistent SSG for Jubilant.

Exhibit 26: Operating metrics of Domino’s UK’s franchised stores

£, unless specified CY11 CY12 CY13 CY14 CY15 CY16

SSG (company) 3.7% 5.2% 7.0% 11.3% 11.7% 7.5%

Average Weekly Unit Sales (£) 14,976 15,317 15,930 17,478 19,517 21,100

Annual Sales per store (£) 778,752 796,484 828,360 908,856 1,014,884 1,097,200

Indicative EBITDA margin (%) 12.50% 12.90% 12.40% 14% 15.50% 15.30%

Indicative EBITDA per store per year (£) 97,344 102,746 102,717 123,604 157,307 167,689


Exhibit 27: Domino’s USA - franchised stores have been profitable…

US$ mn, unless specified CY11 CY12 CY13 CY14 CY15 CY16

Franchised stores (No.) 4,513 4,540 4,596 4,690 4,816 4,979

Revenues 3,400 3,545 3,862 4,185 4,960 5,678

YoY 8% 4% 9% 8% 19% 14%

SSG 3.4% 3.2% 5.5% 7.7% 11.9% 10.5%

Store EBITDA (US$) 70,000 75,000 78,000 89,000 125,000 134,000

Operating Margin % 9% 10% 9% 10% 12% 12%


Exhibit 28: …so have been company operated stores

US$ mn, unless specified CY11 CY12 CY13 CY14 CY15 CY16

Company operated stores (No.) 394 388 390 377 384 392

Revenues 336 324 337 349 397 439

YoY -3% -4% 4% 3% 14% 11%

SSG % 4.1% 1.3% 3.9% 6.2% 12.2% 10.40%

Food costs 95 88 93 99 104 117

Food costs (As a % of sales) 28.3% 27.1% 27.6% 28.3% 26.1% 26.6%

Gross margin % 72% 73% 72% 72% 74% 73%

Operating Profit 69 76 81 81 98 107

Operating margin % 21% 24% 24% 23% 25% 24%


Jubilant Foodworks


Valuations: ‘Multiple’ fault lines Jubilant has long enjoyed growth multiples (five-year average P/E of 76x on 1-year forward basis) given the large top-down opportunity provided by demographic size and profile of India. However, growth has been an enigma since FY13 as price value proposition eroded even as local restaurants, empowered by technology, improved their customer acceptance. The scope to improve margins is limited to short term measures of headcount reduction given cost pressures from inflation in cheese costs. Positive SSG will come from increased promotions or lower prices, translating to lower gross margins. The stock at 43x FY19E EPS reflects high growth prospects but given the near mutual exclusivity of SSG and margins, these valuations are rich. Our DCF value of `879 (implied 33x FY19E EPS) reflects SSG of 7% over FY18-20 but margin expansion of only 110bps given the above-mentioned challenges. Structural changes like correcting price, improving product and moving to sub-franchising would make us review our thesis.

Growth and margin improvement not in tandem Jubilant’s PAT growth has lagged revenue growth since FY12 even as its asset turns deteriorated. Orders per store have deteriorated as the value proposition eroded. Phases of positive SSG in FY17 were driven by higher promotions. Improving price value proposition is the key to SSG growth but will come at the cost of gross margin. Gross margin would come under pressure also due to steep inflation in milk prices in India in 4QFY17.

Exhibit 29: Sensitivity of FY19E EPS to SSG and gross margin

Sensitivity of FY19E EPS to

Gross Margin

77% 76% 75% 74% 73% 72% 71% 70%

Sam

e St

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wth

5% 30.7 26.8 23.0 19.2 15.3 11.5 7.7 3.8

7% 34.0 30.1 26.2 22.3 18.3 14.4 10.5 6.6

10% 38.9 34.9 30.9 26.9 22.9 18.9 14.9 10.9

12% 42.2 38.1 34.1 30.0 25.9 21.8 17.8 13.7

14% 45.5 41.4 37.2 33.1 28.9 24.8 20.6 16.5


Exhibit 30: High milk prices have impacted gross margin


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Gross margin (LHS) Inflation in milk and milk products (RHS)

The increase in the raw milk prices was above 20% in 3QFY17 YoY vis-à-vis the similar quarter of the last year. - Bharat Kedia, CFO of Parag Milk Foods during the 3QFY17 earnings call

Jubilant Foodworks


Exhibit 31: SSG has to be revived by promotions and better price value proposition, which however will impact gross margin


Exhibit 32: Revenue growth has been largely store network driven…


Exhibit 33: … pressuring margins and RoE


Exhibit 34: Promotions will drive asset turns but margins and RoE will remain below the peaks of FY12


0%5%10%15%20%25%30%35%40%

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Jubilant Foodworks


Re-rating warranted only if RoCE accompanies growth Expectations of a re-rating in recent management commentary ignore the bumpy path to sustainable RoCE accretion. Notwithstanding near-term measures such as headcount reduction, there is no visibility of a turnaround akin to Domino’s USA. Sustained SSG was at the core of Domino’s USA improved RoCE and consequent valuation re-rating. The asset-heavy nature of Jubilant (no sub-franchisees), combined with high wage and food inflation in India, reduces the visibility of SSG and, hence, limits margin and RoCE growth. Therefore, the stock is expensive at 43x FY19E EPS compared to better run, discretionary companies such as Titan (33x FY9E EPS, 28% RoE), Page (35x FY19E EPS, 52% RoE) as well Domino’s Pizza Enterprises Ltd., Australia (24x CY18E EPS, 39% RoE).

Exhibit 35: Domino’s US re-rated post the turnaround in CY09…

Source: Bloomberg, Ambit Capital research

Exhibit 36: …which was reflected in margin and RoCE accretion


Jubilant’s earnings growth prospects are better comprehended over FY16 as a base rather than FY17E due the demonetisation disruption in FY17E. Earnings growth over FY16-20E will be only 21% for the stock trading at 43x FY19E EPS.

Exhibit 37: Jubilant’s P/E has de-rated to a 14% discount to average P/E


Exhibit 38: Low visibility of sustainable SSG does not make a case for a re-rating


Peer comparison – Titan reinventing itself in face of regulatory disruptions

Jubilant is amongst the most expensive consumer discretionary stocks in India. While the challenges for companies like Jubilant and Bata are internal (price value proposition, over-expansion, high fixed costs), a franchise like Titan at 33x FY19E EPS has faced external challenges from regulations. Yet Titan has actively pursued measures to drive demand through price interventions (reducing making charges), product innovations (wedding jewellery) and communication. Titan’s asset-light business, brand investments (Tanishq continues to be an aspirational brand) along with the above measures mean that it is on track to deliver SSG and double-digit growth in the jewellery business in FY17 after three years.

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Jubilant Foodworks


Exhibit 39: RoE trends – Titan vs Jubilant


Exhibit 40: Capex has lagged brandex for Titan


Jubilant is also more expensive than the high-growth Domino’s Australia, which trades at 24x FY19E EPS with 33% earnings CAGR over FY16-19. Domino’s Australia has delivered sustained SSG (average of 7% over FY10-16) as well as RoE (average of 23% over FY10-16).

Exhibit 41: Peer comparison

Relative valuations Country

MCap EV/EBITDA P/E CAGR (FY16-19)/ (CY15-18) RoE RoCE

(US$ mn) FY18E FY19E FY17E/

CY16 FY18E/ CY17E

FY19E/ CY18E Sales EBITDA EPS FY17E/

CY16 FY18E/CY17E

FY19E/CY17E

FY15/ CY13

FY16/ CY14

Indian Companies Jubilant Foodworks India 1,120 22 17 87 61 43 15 15 18 11 14 18 19 15

Westlife Development India 507 41 28 N/A 400 137 16 34 105 (1) 1 4 (4) 3

Speciality Restaurants India 62 13 9 N/A 46 40 10 30 230 (3) 0 3 16 11

International Companies Yum Brands USA 22,780 15 15 26 24 21 (11) 7 2 (63) (33) (19) 24 26

McDonald’s Corp USA 104,512 13 13 23 21 19 (8) 4 11 219 125 NA 20 19

Chipotle Mexican Grill USA 11,678 21 16 312 50 34 5 (7) (8) 2 18 25 NA NA

Papa John's Intl Inc USA 2,804 15 14 30 27 24 4 9 19 NA NA NA 19 21

Berjaya Foods BHD Malaysia 157 9 8 27 21 17 11 12 26 6 8 10 19 16 MK restaurants Group PCL Thailand 1,529 13 12 26 24 21 7 11 11 16 17 18 NA NA

Just Eat PLC UK 4,831 24 18 52 35 25 34 60 82 11 13 15 NA NA

GrubHub Inc USA 2,957 15 12 38 32 25 29 36 44 9 10 13 NA NA

Domino's Global Domino’s Pizza, Inc. USA 8,839 20 17 43 35 30 10 13 20 (12) (15) (19) 58 66 Domino’s Pizza Group plc UK 2,060 16 15 25 22 20 12 14 19 60 50 43 29 28 Domino’s Pizza Enterprises Ltd. Australia 3,799 17 14 40 31 25 18 30 33 29 35 39 23 22 Other Discretionary peers

Titan Company India 5,941 28 23 47 41 33 11 21 20 26 26 28 33 25

Trent India 1,204 23 16 50 37 26 25 49 70 11 13 16 5 8

Page Industries India 2,510 31 24 59 45 35 22 21 23 47 50 52 42 43 Aditya Birla Fashion & Retail India 1,687 25 19 NA 156 69 17 22 NA (8) 6 16 NA 2


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Titan Jubilant

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Rs bnBrandex Capex

Jubilant Foodworks


Exhibit 42: Key assumptions

Particulars (̀ mn unless otherwise stated) FY16 FY17E FY18E FY19E Comments

Store additions (no.) 115 120 120 120 As guided by the company

Same Store Sale growth 3.4% 0.2% 7.0% 7.0%

Revenues 24,380 26,253 30,698 37,260 EBITDA (̀ mn) 2,771 2,596 3,297 4,245

EBITDA margins 11.4% 9.9% 10.7% 11.4% Margins expansion from SSG

Others

Depreciation 1,282 1,451 1,695 1,922 PAT 1,048 843 1,202 1,721

PAT margin 4.3% 3.2% 3.9% 4.6% Cashflow parameters

CFO (148) (37) 787 1,678 Capex (2,264) (2,159) (2,167) (2,325) Capex includes capex for 120 stores each year

and commissary capex FCF (148) (37) 787 1,678 Balance Sheet Asset turnover 3.2 3.1 3.3 3.6 ROE 15.2% 11.0% 14.1% 17.9% Source: Ambit Capital research

Revision of estimates to reflect lower gross margins

We lower our gross margin estimates for FY18E and FY19E to 75.3% and 75% respectively from 75.5% as SSG will be driven by promotions and lower prices. Also, with higher cheese prices (up 20% in 4QFY17) gross margins will be under pressure in the absence of price hikes. Consequently, we revise our earnings estimates downwards by 4% and 6% for FY18E and FY19E to `18.3 and `26.2 respectively.

Exhibit 43: Revision of estimates

FY18E FY19E

Comments Old New % change in

estimates Old New % change in estimates

SSG 7% 7% - 8% 7% -1% SSG for FY18E reduced as we build only volume driven SSG.

Revenues (` mn) 30,698 30,698 0% 37,515 37,260 -1% Revenue estimates reduced as we build in lower SSG

Gross margin % 75.5% 75.3% 75.5% 75.0% We build in lower gross margins as SSG will be led by promotions

EBITDA (` mn) 3,404 3,297 -3% 4,383 4,245 -3% EBITDA Margin % 11.1% 10.7% 11.7% 11.4%

Lower SSG and lower gross margins impact EBITDA margins

PAT (` mn) 1,258 1,202 -4% 1,855 1,721 -6% EPS (`) 19.1 18.3 -4% 28.2 26.2 -6% Source: Ambit Capital research

Jubilant Foodworks


Risks Improvement in SSG: Significant improvement in SSG led by promotions (while still maintaining gross margins at 75%), which is above our estimate of 7% for FY18E, will result in operating leverage.

Exhibit 44: Sensitivity of EBITDA margin to SSG

SSG EBITDA margin

6% 11.1%

7% 11.4%

8% 11.7%

9% 12.0%

10% 12.3%

11% 12.6%

12% 12.8%


Deflation in input costs coupled with price correction: A deflation in input costs, which hitherto has been the primary reason for price hikes, will give the company leeway to reduce/correct prices. This can drive volume growth by attracting new customers and, hence, deliver higher SSG.

Margins expand due to lower rentals: A reduction in rental costs which are 11% of sales due to re-negotiation will result in margin improvement everything else remaining the same.

Catalysts Increase in input costs: With increase in key input costs such as cheese (by 20% in 4QFY17) coupled with absence of price hikes will put pressure on the gross margins and hence operating margins.

Competition from local chains armed with technology: In the top 10 cities where Jubilant operates, competition (which has better reviews than Domino’s at similar price points) has increased over last one year. The number of such restaurants now stands at 11,000 as against 9,000 in March 2016. Their visibility and accessibility along with the choice/value proposition has been aided by the internet. This choice and better value proposition continue to weigh on near-term SSG averaging 7% over FY18E-20E.

Delay in ramp-up of new stores: A delay in ramp-up of new stores (428 stores open for less than three years as on 31 December 2016) coupled with increased competition in the top markets will continue to weigh on operating margins, which are unlikely to return to the historic highs of 19% soon.

Exhibit 45: Explanation of accounting flags

Segment Score Comments

Accounting GREEN Jubilant enjoys a high CFO/EBITDA ratio (91% in FY16), indicating clean accounting. However, miscellaneous expenses account for close to 4% of sales. The company is audited by a quality firm.

Predictability AMBER Management has been guiding for positive SSG in the near future but has not been able to deliver it consistently.

Earnings momentum RED Earnings have been downgraded throughout 9MFY17 as the company has not been able to deliver SSG consistently.


Jubilant Foodworks


Jubilant’s forensic score percentile

Source: Ambit HAWK

Jubilant’s greatness score percentile

Source: Ambit HAWK

Jubilant falls in the ‘Zone of Safety’ as it enjoys a high CFO/EBITDA

Source: Ambit HAWK

Jubilant has fallen in the ‘Zone of Mediocrity’ as it gets penalized on Balance Sheet and pricing discipline

Source: Ambit HAWK

Jubilant Foodworks


Balance Sheet

Year to March (̀ mn) FY15 FY16 FY17E FY18E FY19E

Share capital 656 658 658 658 658

Sources of funds 6,462 7,324 8,008 8,983 10,289

Gross block - - - - -

Net block 7,040 8,002 8,686 9,661 10,967

Investments 10,810 12,904 15,063 17,230 19,554

Working capital 7,572 8,546 9,253 9,725 10,128

Cash 767 908 908 908 908

Application of funds 7,040 8,002 8,686 9,661 10,967


Income statement

Year to March (̀ mn) FY15 FY16 FY17E FY18E FY19E

Revenues 20,928 24,380 26,253 30,698 37,260

YoY % 21% 16% 8% 17% 21%

EBITDA 2,551 2,771 2,596 3,297 4,245

EBITDA margin % 12.2% 11.4% 9.9% 10.7% 11.4%

Depreciation 1,011 1,282 1,451 1,695 1,922

EBIT 1,540 1,489 1,144 1,601 2,323

PBT 1,615 1,551 1,258 1,794 2,568

PAT 1,111 1,048 843 1,202 1,721

EPS (̀ ) 16.9 15.9 12.8 18.3 26.2


Cash flow statement Year to March (̀ mn) FY15 FY16 FY17E FY18E FY19E

PBT 1,615 1,551 1,258 1,794 2,568

Depreciation 1,011 1,282 1,451 1,695 1,922

Tax 352 392 415 592 848

Change in working capital 488 (328) (172) 57 -

CFO 3,113 2,509 2,538 3,545 4,850

Capex 2,863 2,264 2,159 2,167 2,325

Investment 180 200 - - -

CFI (2,623) (1,997) (2,159) (2,167) (2,325)

Issue of shares 9 (177) (159) - -

CFF 9 (177) (159) (227) (414)

Free cash flow (102) (148) (37) 787 1,678


Ratio analysis / Valuation parameters Year to March FY15 FY16 FY17E FY18E FY19E

Gross margin 74.8% 76.2% 75.5% 75.3% 75.0%

EBITDA margin 12.2% 11.4% 9.9% 10.7% 11.4%

Net profit margin 5.3% 4.3% 3.2% 3.9% 4.6%

Net debt: equity (x) (0.1) (0.0) (0.0) (0.1) (0.2)

RoCE (post-tax) 18.6% 15.2% 11.0% 14.1% 17.9%

RoE 18.6% 15.2% 11.0% 14.1% 17.9%

P/E (x) 66.1 70.2 87.3 61.3 42.8

Price/Sales (x) 3.5 3.0 2.8 2.4 2.0

EV/EBITDA (x) 28.5 26.2 28.1 21.9 16.7


Jubilant Foodworks


Institutional Equities Team Saurabh Mukherjea, CFA CEO, Ambit Capital Private Limited (022) 30433174 [email protected] Pramod Gubbi, CFA Head of Equities (022) 30433124 [email protected]

Research Analysts

Name Industry Sectors Desk-Phone E-mail

Nitin Bhasin - Head of Research E&C / Infra / Cement / Home Building (022) 30433241 [email protected] Aadesh Mehta, CFA Banking / Financial Services (022) 30433239 [email protected] Abhishek Ranganathan, CFA Retail / Consumer Discretionary (022) 30433085 [email protected] Anuj Bansal Consumer (022) 30433122 [email protected] Aditi Singh Economy / Strategy (022) 30433284 [email protected] Ashvin Shetty, CFA Automobiles / Auto Ancillaries (022) 30433285 [email protected] Bhargav Buddhadev Power Utilities / Capital Goods (022) 30433252 [email protected] Deepesh Agarwal, CFA Power Utilities / Capital Goods (022) 30433275 [email protected] Dhiraj Mistry, CFA Consumer (022) 30433264 [email protected] Gaurav Khandelwal, CFA Automobiles / Auto Ancillaries (022) 30433132 [email protected] Girisha Saraf Home Building (022) 30433211 [email protected] Karan Khanna, CFA Strategy (022) 30433251 [email protected] Mayank Porwal Retail / Consumer Discretionary (022) 30433214 [email protected] Pankaj Agarwal, CFA Banking / Financial Services (022) 30433206 [email protected] Paresh Dave, CFA Healthcare (022) 30433212 [email protected] Parita Ashar, CFA Cement / Metals / Aviation (022) 30433223 [email protected] Prashant Mittal, CFA Strategy / Derivatives (022) 30433218 [email protected] Rahil Shah Banking / Financial Services (022) 30433217 [email protected] Ravi Singh Banking / Financial Services (022) 30433181 [email protected] Ritesh Gupta, CFA Oil & Gas / Chemicals / Agri Inputs (022) 30433242 [email protected] Ritesh Vaidya, CFA Consumer (022) 30433246 [email protected] Ritika Mankar Mukherjee, CFA Economy / Strategy (022) 30433175 [email protected] Sagar Rastogi Technology (022) 30433291 [email protected] Sudheer Guntupalli Technology (022) 30433203 [email protected] Sumit Shekhar Economy / Strategy (022) 30433229 [email protected] Utsav Mehta, CFA E&C / Infrastructure (022) 30433209 [email protected] Vivekanand Subbaraman, CFA Media / Telecom (022) 30433261 [email protected]

Sales

Name Regions Desk-Phone E-mail

Sarojini Ramachandran - Head of Sales UK +44 (0) 20 7886 2740 [email protected] Dharmen Shah India / Asia (022) 30433289 [email protected] Dipti Mehta India (022) 30433053 [email protected] Krishnan V India / Asia (022) 30433295 [email protected] Nityam Shah, CFA Europe (022) 30433259 [email protected] Punitraj Mehra, CFA India / Asia (022) 30433198 [email protected] Shaleen Silori India (022) 30433256 [email protected]

Singapore

Praveena Pattabiraman Singapore +65 6536 0481 [email protected] Shashank Abhisheik Singapore +65 6536 1935 [email protected]

USA / Canada

Ravilochan Pola – CEO Americas +1(646) 793 6001 [email protected] Hitakshi Mehra Americas +1(646) 793 6002 [email protected] Achint Bhagat, CFA Americas +1(646) 793 6752 [email protected]

Production

Sajid Merchant Production (022) 30433247 [email protected] Sharoz G Hussain Production (022) 30433183 [email protected] Jestin George Editor (022) 30433272 [email protected] Richard Mugutmal Editor (022) 30433273 [email protected] Nikhil Pillai Database (022) 30433265 [email protected]















































Jubilant Foodworks


Jubilant Foodworks Ltd (JUBI IN, SELL)

Source: Bloomberg, Ambit Capital research

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Jubilant Foodworks Ltd

Jubilant Foodworks


Explanation of Investment Rating

Investment Rating Expected return (over 12-month)

BUY >10%

SELL <10%

NO STANCE We have forward looking estimates for the stock but we refrain from assigning valuation and recommendation

UNDER REVIEW We will revisit our recommendation, valuation and estimates on the stock following recent events

NOT RATED We do not have any forward looking estimates, valuation or recommendation for the stock POSITIVE We have a positive view on the sector and most of stocks under our coverage in the sector are BUYs

NEGATIVE We have a negative view on the sector and most of stocks under our coverage in the sector are SELLs

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Disclosures

29. The analyst (s) has/have not served as an officer, director or employee of the subject company. 30. There is no material disciplinary action that has been taken by any regulatory authority impacting equity research analysis activities. 31. All market data included in this report are dated as at the previous stock market closing day from the date of this report.

Analyst Certification Each of the analysts identified in this report certifies, with respect to the companies or securities that the individual analyses, that (1) the views expressed in this report reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly dependent on the specific recommendations or views expressed in this report. © Copyright 2017 AMBIT Capital Private Limited. All rights reserved.

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