Mutual Funds Commodities Research Tax Planning IPO Our Team Contact Us  
Google
Web www.equitybulls.com
Research

| More

Jubilant Foodworks - Buying in-the-money options - ICICI Securities

Posted On: 2021-03-01 23:28:41 (Time Zone: Arizona, USA)


We believe that JUBI's recent acquisition of stakes in DP Eurasia (DPEU) and Barbeque Nation (BN) as well as the investments in new ventures (Hong's Kitchen and Ekdum!) are steps in the right direction. We like this utilisation of cash on balance sheet (Rs8.4bn as of Sep'20) to buy potentially in-the-money options. Some investors believe that the stakes in DPEU and BN are likely for trading purposes; however, we believe its strategic. Furthermore, we reckon there can be structural benefits - (1) turnaround of DPEU (replicating India execution) and (2) better dine-in experience in India ventures (using learnings from BN). That said, our biggest concern is limited management bandwidth to handle such diverse, multiple opportunities along with the expansion of the core (Domino's India), which in itself has the potential to be 3X by FY2030. Retain ADD.

- Utilising cash in balance sheet for buying in-the-money options: JUBI had Rs8.4bn of cash on Sep'20. We believe that with the recent acquisitions (32.81% stake in DP Eurasia and 10.96% stake in Barbeque Nation) as well as the investments behind new ventures (Hong's Kitchen and Ekdum!), JUBI is buying in-the-money options which could potentially be value accretive. We also note that there are potential structural benefits that the company could derive out of these acquisitions - turnaround the Eurasia business or gain knowledge on casual dining from Barbeque Nation. The diversification into different geographies and cuisines also makes the business less cyclical.

- Potential turnaround in DP Eurasia: JUBI's acquisition of stake in DP Eurasia is strategic, in our view, with the intent to turnaround the business. The business (CY19 turnover of TRY 980mn and operating profits of TRY 125mn) is operating Domino's stores in Turkey (which has a good opportunity to grow), Russia (intense competition), Georgia and Azerbaijan. We believe that Jubi has the potential to turnaround the business applying its learnings from India. With the acquisition, Jubi has become the largest shareholder in DP Eurasia. We ascribe a high probability for Jubi to have a controlling stake in DPEU eventually. Currency volatility risk may potentially be the most important risk. Further, if the business turnaround gets delayed, managing debt of ~TRY 494mn is another risk.

- Investment in Barbeque Nation may drive learnings for casual dining business and drive synergies in the medium term: We believe that investment in BN could also be strategic - Jubi could gain significant knowledge about casual dining and can apply that to drive better dine-in experience (and hence growth) for its core Domino's and the new ventures (Hong's Kitchen and Ekdum!). We further believe that, JUBI and BN can also drive synergies like better negotiating power with various stakeholders like suppliers, food aggregators etc.

- Turnaround of Dunkin Donuts: JUBI has been able to cut losses in Dunkin' Donuts franchise by closing its unprofitable stores (closed more than half of its stores; see chart 1), cutting back on store operating costs, changing the menu to faster moving products and focusing more towards small formats (like kiosks). If JUBI is able to achieve a right operating model for Dunkin' Donuts, this could also turnout to be a profitable business with growth.

- Hong's Kitchen: Chinese cuisine is the second largest segment in India (behind North Indian food) and is pegged at 19% of the total food service market (pizza is just 6% of the total market). Jubi's foray into Chinese cuisine with fast casual format with value-for-money positioning and learnings from Dunkin Donuts improves success probability for Hong's Kitchen, in our view.

- Ekdum!: Jubi's foray into Biryani cuisine with Ekdum! brand also adds another potential value driver. Biryani segment is the one of the largest cuisines in India (Biryani is India's most ordered dish in 2019; third year in a row) and is currently highly fragmented with no presence of a national brand. However, one of the most important success factors in the segment is the ability to cater to highly differentiated tastes of different varieties of Biryanis across the country. Currently, Jubi serves 20 varieties of Biryani. We believe if Jubi is able to deliver on taste and apply its learnings from other franchise stores, this business can turn profitable and add value.

- Turnaround and expansion of Bangladesh and Sri Lanka business: Jubi has been successful in turning around both of these geographies with both the countries becoming EBITDA positive in 3QFY21. Bangladesh and Sri Lanka in itself have growth opportunity as management believes that there is a potential to open 150+ stores in Bangladesh and Sri Lanka.

- Downside and concerns: We like the management intent to create potential in-the-money options by utilising cash for investments at a time when the economy is recovering and poised for faster growth. However, our biggest concern is the limited management bandwidth to drive these businesses along with the expansion of the core business (Domino's India franchise), which in itself has the potential to treble its footprint in long term.

- Valuations and risks: Our medium-term earnings estimates remain unchanged; modelling revenue / EBITDA / PAT CAGR of 10 / 17 / 30 (%) over FY20-23E. Maintain ADD with DCF-based revised target price of Rs3,300 (was Rs3,000). Key downside risk is raw material costs turning inflationary.

Shares of Jubilant FoodWorks Ltd was last trading in BSE at Rs.3037.85 as compared to the previous close of Rs. 2995.8. The total number of shares traded during the day was 27775 in over 3009 trades.

The stock hit an intraday high of Rs. 3049.95 and intraday low of 2970.5. The net turnover during the day was Rs. 83507708.


Source: Equity Bulls

Click here to send ur comments or to feedback@equitybulls.com


Disclaimer:The article above is a gist / extract of the original report prepared by the research firm / brokerage firm. This article is not to be considered as an offer to sell or a solicitation to buy any securities. This article is meant for general information only. www.equitybulls.com, its employees or owners or the research firms, its employees or owners won't be responsible for any liability that may arise from information, errors or omissions in these articles. www.equitybulls.com or its employees or owners / the research firms or its employees or clients or owners may from time to time hold positions in securities referred in this article. For detailed research reports, please contact the concerned research firm directly.


Other Headlines:

Q4FY21 Result Update - Pidilite Industries - ICICI Direct

Escorts Ltd - Q4FY21 First Cut - ICICI Direct

Jindal Stainless - Q4FY21 First Cut - ICICI Direct

Maintain BUY on Sonata Software - Growth visibility improves - HDFC Securities

Maintain BUY on KEC International - Near term challenges persist - HDFC Securities

Maintain BUY on Kalpataru Power Transmission - In-line performance - HDFC Securities

Tata power Q4FY21 Results Review - Inline result; alternative to InvIT on cards - HDFC Securities

Mahindra Lifespaces Q4FY21 Results Review - On track - HDFC Securities

Mphasis - Q4FY21 first cut: Muted performance - YES Securities

Voltas - Q4FY21 first cut: All round beat with strong operating performance led by EMPS segment - YES Securities

HG Infra Engineering - Q4FY21 first cut: Stellar performance - YES Securities

Polycab India - Q4 FY21 First cut - YES Securities

JMC Projects (India) Ltd - Q4FY21 Result Update - YES Securities

Asian Paints Ltd - Q4FY21 Result Update - YES Securities

Lupin - Q4FY21 Result Update - YES Securities

Godrej Consumer Products Ltd - Q4FY21 Result Update - YES Securities

Orient Electric Ltd - Q4FY21 Result Update - YES Securities

Matrimony.com - Q4FY21 Result Update - YES Securities

Birla Corporation Ltd - Q4FY21 Result Update - YES Securities

Lupin Q4FY21 Results Review - Positives in the price - HDFC Securities

Jindal Steel & Power - Net debt to remain comfortable as 6mtpa Angul expansion commences - ICICI Securities

Hindalco Industries - Saturation of an earnings trigger - ICICI Securities

Indigo Paints - Differentiation is the key; initiate at ADD - ICICI Securities

Lupin - Margin improvement factored in valuations - ICICI Securities

Blue Star - Focusing on core competencies - ICICI Securities

KEC International - Strong growth, healthy cashflow - ICICI Securities

Kalpataru Power & Transmission - Healthy growth, asset sales to aid cashflow - ICICI Securities

Asian Paints - Leader demonstrating leadership - ICICI Securities

Prince Pipes and Fittings - Beat on all counts - Q4FY21 Result - ICICI Securities

Polymer price tracker - PVC prices fall after a year; volatile journey ahead - ICICI Securities

Westlife Development - Good 4Q; retains store expansion target - ICICI Securities

Pidilite Industries - Input cost inflation impacts performance - ICICI Securities

UPL - Strong volume growth maintained - ICICI Securities

Piramal Enterprises - DTA derecognition and interest reversals weigh on earnings; strategic priorities remain in place - ICICI Securities

Q4FY21 Company Update - Saregama India - ICICI Direct

Q4FY21 Result Update - Asian Paints - ICICI Direct

Cadila Healthcare - Divests animal health business - ICICI Securities

Q4FY21 Result Update - Granules India - ICICI Direct

Q4FY21 Company Update - Firstsource Solutions - ICICI Direct

Q4FY21 Company Update - Sonata Software - ICICI Direct

Company Update - Cadila Healthcare - ICICI Direct

Q4FY21 Result Update - Kalpataru Power - ICICI Direct

Q4FY21 Result Update - KEC International - ICICI Direct

Q4FY21 Company Update - Matrimony.com Ltd - ICICI Direct

Maintain REDUCE on Asian Paints - Exceeds expectations - HDFC Securities

JMC Projects Results Report - Poised for growth - HDFC Securities

Maintain ADD on Godrej Consumers - Miss in 4Q margin; inspiring addition to team - HDFC Securities

Maintain BUY on Birla Corporation - Healthy performance - HDFC Securities

Subscriber watch - Bharti wins more market share across categories - ICICI Securities

Siemens Ltd - Healthy margins with growth recovery - ICICI Securities


Website Created & Maintained by : Chennai Scripts
West Mambalam, Chennai - 600 033,
Tamil Nadu, India

disclaimer copyright © 2005 - 2020