If I ask you what is the most popular food in the world?
Then one name that would immediately pop up in your head is “Pizza”.
And when you think of Pizza in India, one name that strikes your brain is “Dominos Pizza”. Specially the “Cheese Burst Pizza”. (Personally, I am a big fan of Domino's cheese burst.)
As an investor, we all want to invest in good companies.
But how to identify good companies?
One of the ways is to look at the common brands that we use in our day to day life. And when we think of food, one brand that is a favorite of many people is Domino's Pizza.
But Dominos Pizza is an American company. So how can you invest in Dominos pizza?
Well, you can invest in Jubilant Foodworks.
So let’s start the fundamental analysis of Jubilant Foodworks:
Company and its management
- Jubilant FoodWorks Limited (JFL/Company) is one of India’s largest food service company.
- The Company holds the master franchise rights for two international brands, Domino’s Pizza for India, Bangladesh, Nepal & Sri Lanka and Dunkin’ Donuts for India addressing two different food market segments. So Jubilant foodworks in the master franchise. If anyone has to take a franchise of Dominos in India, Bangladesh, Nepal and Sri Lanka, they need to contact Jubilant Foodworks.
- The company was incorporated on 16 March 1995 as Domino's Pizza India Private Ltd and began operations in 1996. It changed its name to Jubilant FoodWorks Ltd in 2009. The company opened India's first Domino's Pizza outlet in New Delhi in 1996.
- In March 2019, Jubilant FoodWorks launched its first homegrown brand – "Hong’s Kitchen" in the Chinese cuisine segment.
- Currently, the company has 1264 outlets for Domino’s Pizza, 26 outlets of Dunkin' Donuts, and 4 outlets of Hong's Kitchen in 281 cities and is a market leader in the pizza segment.
- As of now, Jubilant FoodWorks has a market cap of Rs ~34,000 Cr.
Hence, looking at the company and its management,
I would rate it 10/10.Competitive Strength
- Strong brand name: Dominos and Dukin Donut needs no introduction.
- Investment in digital products, user experience and technology: Implemented GPS ridder tracking for live orders on mobile app, Installed dashboards in all restaurants where the restaurant managers can see all relevant information in real time, including driver score card, delivery times, etc.
- Countrywide presence and International Expansion: Company is continuously launching new stores of Dominos pizza all over the country, it has also added Dominos stores in Sri lanka and Bangladesh which shows strong growth potential.
- Robust Integrated Supply chain system: In order to control the quality standards of its products Domino’s has strict requirements on the ingredients, assembly, and cooking of its products. To maintain quality standards, the company requires franchise stores to purchase the dough, cheese, and sauce from its corporate distribution centers. The dough is made at the distribution centers to further ensure consistency and reduce preparation activities at stores. The distribution center also provides toppings, equipment, and other restaurant consumables like boxes and cleaning supplies franchisees are required to purchase all these items from the distribution centers.
- Continuous innovation: Dominos is continuously launching new products in the menu. They have recently launched new pizza’s like Indi Tandoori Paneer, Paneer Makhani, etc. They have also launched various new
- Customer focus and innovative marketing: How many of you remember the “delivery within 30 min” or free pizza campaign of Dominos? That was a big success! In fact, Dominos is one company that does not compromise with customer satisfaction. If you have ordered pizza in-store and you are not satisfied with the taste, they will immediately bake a new pizza. And if you order online, then even before you complete your pizza, they would ask for feedback. And if you are not satisfied, you can complain and you will receive an apology call from the store manager with a free pizza to compensate for the bad experience. I have personally experienced this. So Jubilant FoodWorks know the importance of customer satisfaction because they get repeat purchase and word or mouth publicity. They have also launched “E Gift Vouchers” where you can gift pizza vouchers for various occasions like Diwali, Karvachauth, Rakshabandhan, etc. I think this is a great idea!
If we talk about the competitors, Jubilant FoodWorks is facing strong competition from
Swiggy and
Zomato in the food space.
Hence, on competitive advantage, I would rate Jubilant Foodworks 9/10.
Future Growth
If we discuss the short-term future,
COVID has a significant impact in the sales and profitability of Jubilant food.
In fact, the revenues in the June quarter fell down to
Rs 388 Cr. Last year's June quarter revenue was
Rs 949 Cr. That’s a fall of
60% in revenue. The company reported losses for the first time.
But Jubilant FoodWorks was determined to bounce back. They started “Zero contact delivery” where the Dominos pizza were delivered without any physical contact with the delivery guy.
Moreover, consumers became more concerned about hygiene and this resulted in more sales for Dominos. While most of the restaurants and food chains are still struggling, Dominos has shown a great performance in the July-Sep quarter. The sales jumped from Rs 388 Cr in June quarter to Rs 816 Cr in Sep. The company has also cut down the cost and in order to cut down the costs, they had closed 100 stores of Dominos and 4 stores of Dunkin Donut in the July-Sep quarter. As a result, the Sep quarter operating margins stood at 26% which is the highest margin for the company.
If we discuss the long-term growth prospects, according to the National Restaurant Association of India (NRAI), the Indian food service industry is estimated to grow at a Compound Annual Growth Rate (CAGR) of 9% to reach `5.9 lakh crore by FY 2023. Indian society is evolving with a rise in the working population, nuclear/individual households and more outdoor activities such as leisure trips and outings with friends, families and colleagues. These factors are driving the frequency of eating out. There is an increased brand consciousness and people want to experiment with new cuisines, which is contributing to the country’s expanding food service sector and the dominance of full-service restaurants in India.
In the food service industry, the trusted credible brands in the organised service sector are expected to gain market share while the unorganized sector shrinks.
Recently, Jubilant FoodWorks has announced its entry into the ready-to-cook sauces, gravies, and pastes market capitalizing on the growing home-cooking trend in India. These products are sold under the brand Chefboss and available on Amazon and Flipkart. The brand will expand product availability by adding more e-commerce platforms as well as retailing through supermarkets and hypermarkets. Certainly, the demand for ready-to-cook food products has been increasing over the last few years on account of the busier lifestyles of consumers and their desire to explore different cuisines at home. During Covid, there is an acceleration of this trend and therefore an exponential growth in demand for ready to cook products. Jubilant FoodWorks with its deep understanding of the taste preference of Indian consumers, well-positioned to grow.
With strong brand equity, a large network, delivery expertise, deep innovation capabilities, growing strengths in technology, data science, and digital infrastructure, and the right strategy and levers, JFL is well poised to drive growth in the Indian Food Service Industry. Hence, on future growth prospects, I would rate it 10/10
Financials
1) Growth Ratio
Revenue has grown consistently year on year at a CAGR of 25% in the last 10 years from Rs 678 Cr to Rs 3,927 Cr.
Profit has grown at a CAGR of 25% in the last 10 years from Rs 72 Cr to Rs 280 Cr.
Hence, looking at the revenue and profit growth I would rate Jubilant Foodworks 10/10
2. Profitability Ratio:
Operating profit has initially fallen between Mar 2012 till Mar 2017. This was the period when Jubilant Foodworks was expanding the business and giving huge discounts. Later, the discounts were reduced and the operating margin rose from 9% to 22%.
Both ROE and ROCE fell from high in Mar 2012 till Mar 2017. However, it consistently increased between Mar 2017 till Mar 2019. The last FY data shows ROE or 20.26% and ROCE of 24.69%. Overall, profitability is good.
3. Debt to Equity Ratio
Jubilant Foodworks was a debt free company till Mar 2019. However, in the last FY, they have taken debt to fuel the growth. The latest debt to equity ratio is 1.47 which is on the higher side. Hence, on debt to equity ratio, I would rate Jubilant Foodworks 5/10.
4. Management Efficiency Ratio
Debtors day suggest how many days it takes for the debtor to repay the money. It is consistently 2 days for Jubilant Foodworks. Inventory turnover fell from 20.76 to 13.4 between Mar 2013 till Mar 2017 and later it was recovered to 14.94. However, the last year again witnessed a fall in inventory turnover.
Company's reserves are rising every year (except for a slight fall in last year).
Overall, on management efficiency ratio, I would rate Jubilant Foodworks 9/10.
Hence, the total fundamental score of Jubilant Foodworks is 61/70.
Let us look at the valuations of the company:
In the last 10 years, the company has given a return of 2055%! That's simply amazing!
Currently, the company is trading in the range of Rs 2,500. The current PE of the company is 250+. The last 3-year median PE is 81. So clearly, Jubilant Foodworks is trading way above its median PE. There are 2 reasons: 1st reason is the fall in earnings per share in the June quarter due to COVID. Hence, due to the lower denominator, the PE has increased. And 2nd reason is a lot of investment and demand for the shares of Jubilant Foodworks. Now, even if the earnings increase in the future, the share is still trading at an overvalued zone.
Looking at the business model, competitive advantage, future growth prospects, Jubilant Foodworks is definitely worth investing but the only concern at the current level is its overvaluations. Hence, a better strategy would be to wait and watch and invest in dips to accumulate for the long term.
PS: If you want to learn every aspect of fundamental analysis of stock and other important concepts of personal finance, you can explore my video course on "everything about money management".
Disclaimer: This article is only for education purpose. Consult your financial Advisor before investing your money.
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