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01

JUBILANT FOODWORKS

RETAIL

Our wish list for Mr.Pota Mr. Pratik Potais joining Jubilant as CEO in the midst of challengingtimes.After a blockbuster performance over FY10-13, Jubilant has posted low single-digit SSSgfor the fourth consecutive year. Low SSSg and rapid store expansion led to a dramatic fall in OPM (from 17.4% in FY13 to 10.1% in FY17E), resulting in EPS decline of 17% over FY12-17E and RoE coming down to 11%.

Turning around a retailer that has been slipping for some time could be a challenging task. Wewish for the following strategic changes from the new CEO: (i) dramatically lower the pace of store expansion, (ii) scale down Dunkin’ Donuts,(iii) bring the ‘wow’ factor back by improving value equation (price and quality), introducing radical innovationsand improving on ‘gourmet quotient’ and (iv) improve investor confidence. A turnaround will not be easy to come by and we await strategic clarity from new management. Maintain HOLD with TP of Rs 950 (40x fwd PE).

17 MAR 2017 Company Update

HOLD Target Price: Rs 950

CMP : Rs 1,058 Potential Upside : -10% MARKET DATA

No. of Shares : 66mn

Free Float : 55%

Market Cap : Rs 70 bn

52-week High / Low : Rs 1,348 / Rs 761

Avg. Daily vol. (6mth) : 796,094 shares

Bloomberg Code : JUBI IB Equity

Promoters Holding : 45%

FII / DII : 29% / 12%

♦ Mr. Pratik Pota, the new CEO, is an alumnus of IIM Calcutta and BITS Pilani and was working as the COO for

Foods& Beverages at PepsiCo India. He was also with Bharti Airtel and HUL, and has a total work experienceof 24

years.We highlight the strategic changes that we would like him to undertake:

Bring the ‘wow’ factor back byimproving the value proposition, increasing the ‘gourmet quotient’ and

introducing radical innovations (probably outside the oven). Value proposition can be improved by withdrawing

all promotions, taking a one-time price cut across the board, improving quality and even considering reducing

the gross margin which is higher than those of other QSRs (including other Domino’s franchisees)

Accept this slow growth phase, and refrain from unnecessary store expansion (<50 Domino’s/ year) till its

consumer score improves (Domino’s has the lowest Zomato score across QSRs in Mumbai)

Scale down Dunkin’ Donuts to just 2-3 cities and work on improving the format

Improve investor confidence by stating a stable level of promoter shareholding and unlike in the pastfollowing a

consistent and realistic guidance policy which helps in reducing stock volatility

Financial summary (Standalone) Y/E March FY16 FY17E FY18E FY19E

Sales (Rs mn) 24,095 26,162 29,677 34,028

Adj PAT (Rs mn) 1,146 908 1,231 1,565

Con. EPS* (Rs) - 13.6 20.9 30.5

EPS (Rs) 17.4 13.8 18.7 23.7

Change YOY (%) (7.4) (20.9) 35.4 26.9

P/E (x) 60.7 76.8 56.7 44.7

RoE (%) 15.9 11.3 14.7 18.6

RoCE (%) 23.2 16.5 21.3 26.8

EV/E (x) 24.1 25.9 20.6 17.2

DPS (Rs) - - - -

Source: *Consensus broker estimates, Company, Axis Capital

Key drivers (%) FY16 FY17E FY18E

Domino's stores addition (nos) 150 105 110

SSS growth (%) – Domino’s 3.2 1.0 8.0

EBITDA margin (%) 11.8 10.1 11.1

Price performance

0

50

100

150

Jan-16 Apr-16 Jul-16 Oct-16 Jan-17

Sensex Jubilant Foodworks

2


JUBILANT FOODWORKS RETAIL

Recent performancedemands radical strategic changes After a blockbuster performance over FY10-13, starting Q4FY13 Jubilanthas posted

low single digit Same Store Sales growth (SSSg) for the fourth consecutive year.

Low SSSg and rapid store expansion led to a dramatic fall in OPM (from 18.7% in

FY12 to 10.1% in FY17E) resulting in 17% decline in EPS over FY12-17E. RoE

decreased from 44% in FY12 to 11% in FY17E.

While the slow growth at Jubilant was due to weak consumer sentiment and

increased competition over the period, we believe, that a part of Jubilant’s problems

has been due to internal issues. Continuous price hikes (CAGR of 8% over

FY11-16) coupled with no radical innovations (in our view) and same or

deteriorating quality (analysis of Zomato’s postings) resulted in lower consumer

satisfaction scores (as per Zomato). In fact, Domino’s restaurants has the lowest

average Zomato score among QSRs in Mumbai and significantly lower score than

other gourmet Pizza options in Mumbai.

Exhibit 1: Analysis based on Zomato postings QSR Zomato score* Gourmet Pizza Zomato score* Burger King 3.3 1441 Pizzeria 4.6

McDonald’s 3.1 Pizza By The Bay 4.4

Subway 2.8 Pizza Express 4.1

Domino’s 2.7 Café Mangii 4.0

Customer reviews on Domino’s

Domino's pizza has become quite mediocre… Disappointed with pizzas and service

A decade ago, these were my favorite pizzas, but now having tasted so many authentic pizzas at gourmet places it just doesn't cut it for me, still cannot deny its appeal for the young ones

I was really fond of Domino's. But recently they hiked the price a lot and despite that the quality has deteriorated.

Domino's really needs to do something with their taste. With so much competition around, why are they not looking at improving their taste. Tried the Burger Pizza… its not a burger but a pizza with base on both sides!! why would I want to eat more bread than the toppings

Tried Quattro Formaggi Chicken Fiesta pizza and it was amazing

Source: Zomato, Axis Capital *based on the average of scores of all stores in Mumbai

In our view, the top most agenda for the new CEO should be to bring the ‘wow’

factor back for the consumer. This can be done by improving the value proposition

while working on the ‘gourmet quotient’ and undertaking radical menu innovations.

Winning the consumer back could take time. In the interim, the new management

should accept this slow growth phase (accentuated by a weak economy and

manifold rise in competition) and refrain from unnecessary store expansion till it

wins back the consumer.

Exhibit 2: Same store sales growth has slowed substantially over past four years

17.0

23.020.0

6.0

22.0

37.2

29.6

16.2

1.6 0.13.2

1.0

0

10

20

30

40

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

E

(%)

Source: Company, Axis Capital

3



#1 Significantly lower the pace of store expansion The company has acceleratedthe pace of new store openingsover the years, from

less than 15 store additions in FY06 to 150 store additions annually for the past

three years (FY14-16). It has expanded its geographic reach from 123 cities in

FY13 to 265 cities by FY17E.

Aggressive store expansion was one of the reasons for declining sales per store

given lower sales throughput in tier 2 and 3 cities and cannibalization in

tier 1 cities. The SSSg had come off dramatically but themanagement continued to

chase growth by opening new stores. Hence, the focus was on chasing growth than

improving consumer experience or cost reduction. This led to EBITDA margin

declining from 18.7% in FY12 to 10.1% in FY17E. RoE also decreased from 44%

in FY12 to 11% in FY17E.

Exhibit 3: Margin and RoCEdeclined with store network expansion FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 Domino's 12 25 51 60 65 72 87 111 150 150 150

Dunkin' Donuts 10 16 28 17

Stores added 12 25 51 60 65 72 87 121 166 178 167

SSSg 17.0 23.0 20.0 6.0 22.0 37.2 29.6 16.2 1.6 0.1 3.2

Sales per store 9.8 11.8 13.6 13.3 15.5 19.8 24.1 26.8 25.8 24.7 23.8

Growth YoY 20.4 15.1 -2.1 16.6 27.9 21.7 11.0 -3.8 -4.3 -3.6

EBITDA margin 11.5 12.4 12.4 12.0 15.7 17.7 18.7 17.4 14.8 12.7 11.8

RoCE 14.2 23.6 23.4 17.6 36.5 45.5 44.1 36.7 25.2 20.0 15.9


Reacting to the weak performance, Jubilant has recently slowed down the pace of

expansion, guiding to open ~110 new Domino’s’stores in FY17 (vs. 150 each over

FY14-16). However, we believe,this is still an incremental approach.

Till its consumer score improves, the management should open new stores in

existing markets only where delivery time is getting compromised. We estimate that

opening just 50 Domino’s stores per year from FY18 onwards would increase

FY18/19E EPS by 10%/13% over our current estimates.Under this scenario,

operating cash flow (post-capex) would also increase significantly driven by higher

margin and lower capex requirement.

Exhibit 4: Improvement in EPS and cash flows in case of lower store openings FY17E FY18E FY19E FY20E EPS

Published 13.8 18.7 23.7 29.4

Adjusted 13.8 20.5 26.8 33.5

% change 0.0 9.9 13.2 14.0

Operating cash flow (post-capex)

Published 172 1,586 887 2,616

Adjusted 172 2,386 1,658 3,410

% change 0.0 50.4 87.0 30.3

Source: Axis Capital

#2Scale down Dunkin’ Donuts for now Jubilant has opened 8 Dunkin’ stores (and closed 6) in H1FY17 and guided for 15

new stores in FY17. The company has 73 Dunkin’ Donuts stores.

Dunkin’ Donuts stores are yet to break even at store level, and have had an

increasing negative impact on the margin of Jubilant.

4



Lately, there has been a shift in the management’s focus in terms of its strategy

towards Dunkin’ Donuts. Over the past three quarters, the company has closed

down 9 Dunkin’ stores which were not able to meet the company’s parameters for

returns. In our view, the Dunkin’ format has still not stabilized and given the issues

at Domino’s, it will be a difficult but prudent decision for the new CEO to

significantly scale down Dunkin’ operations to just two or three cities (say NCR and

Bangalore) and work on getting the format right before embarking on expansion.

We note that our FY19E EPS can go up by as much as 25% if the new

management restricts new store openings in Domino’s to <50 and scales down

Dunkin’ to just 2-3 cities.

Exhibit 5: Negative impact on margin from Dunkin’ Donuts

90

120

180200

250

0

50

100

150

200

250

300

FY13 FY14 FY15 FY16 FY17E

(bps)


Exhibit 6: Comparison if company lowers store openings for both Domino’s and Dunkin’ FY16 FY17E FY18E FY19E FY20E EBITDA margin

Published 11.8 10.1 11.1 11.7 12.1

Adjusted 11.8 10.1 12.7 13.5 14.2

bps change 0 0 163 186 213

EPS

Published 17.4 13.8 18.7 23.7 29.4

Adjusted 17.4 13.8 23.6 29.5 36.0

% change 0.0 0.0 27.6 24.5 22.6

Operating cash flow (post-capex)

Published 130 172 1,586 887 2,616

Adjusted 130 172 3,242 1,807 3,602

% change 0.0 0.0 104.4 103.7 37.7

Source: Axis Capital

#3 Improve value proposition Jubilant has taken an average annual price hike of 8% over FY11-16. Continuous

price hike hit the value-for-money score for Domino’s (mentioned by the

management in analyst conference call), more so given the lower pricing power at

Domino’s due to heightened competition. The pricing differential for a meal-for-two

between Domino’s and a fine-dining restaurant has come down substantially over

the past few years.

The industry in general, over the last two years, three years, has kind of taken price increases beyond what they should be taking

- Ajay Kaul

5



Interestingly, while prices increased and volumes slowed down, the management

resorted to excessive promotions to drive volumes. The company regularly offers

significant discounts in the form of BOGOF (Buy-One-Get-One-Free), NET07 (20%

discount) and other promotional coupons to attract the value conscious consumer.

In our view, consistent promotions not only destroy brand value but also tend to

irritate the loyal consumer; hence, the new management should withdraw all

promotions and take a one-time price cut across the board. The new management

should look at reducing gross margin(without considering packaging costs) from

75% to 70%. While this would hit margin in short term, it would improve sales

throughput and brand sustainability. In the medium term, gains from positive

operating leverage due to higher volumes should offset the decline in the gross

margin. We note that the gross margin of Jubilant is higher than other Domino’s

franchisees and other QSRs like McDonalds (gross margin in 60-65% range).

Exhibit 7: Price hikes

12

6

10

67

0

3

6

9

12

15

FY12 FY13 FY14 FY15 FY16

(%)


#4 Think beyond the oven Competition in the food service space in general and QSR in particular has

increased manifold in the past few years with heightened activity from both global

and domestic players. Increased funding options from private equity and venture

capitalists have led to theentry of many new players in the space. At the same time,

the entry of food aggregators like Zomatoand Swiggy have increased delivery

options for consumers which has been one of the core strengths of Domino’s. While

the menu/ cuisine options have increased for the consumer, innovations by

Domino’s outside the pizza space have not really worked.

Exhibit 8: Google trends: Search of Domino's declined while Zomato picked up in the last two years

(22)

26

(50)

(25)

0

25

50

75

Mar-1

5

Apr-15

May-

15

Jun-

15

Jul-1

5

Aug-

15

Sep

-15

Oct

-15

Nov-

15

Dec

-15

Jan-

16

Feb-1

6

Mar-1

6

Apr-16

May-

16

Jun-

16

Jul-1

6

Aug-

16

Sep

-16

Oct

-16

Nov-

16

Dec

-16

Jan-

17

Feb-1

7

Dominos Zomato

Source: Google Trends, Axis Capital

All products in Domino’s pass through the oven and hence have a common thread. Introducing a fryer or grill may help in introducing radically different products

6



The most important equipment in the Domino’s kitchen is the oven. All Domino’s

products including new innovations (detailed list of new innovations in exhibit 14)

like Burger Pizza and Lebanese rolls are essentially oven baked. Over the years,

while the company launched many new products, the DNA of the products did not

change as all passed through the oven.We believe that in addition to pizzas and

baked side dishes, the company could appeal to the Indian palateby introducing

other flavors and cooking styles like fried or grilled products.We understand that

this is easier said than done and could stress the supply chain including the 30

minute delivery promise. However, in our view, there is a high level of brand/

product fatigue with Domino’s (at least with a certain section of consumers), and the

management needs to look beyond incremental innovations.

#5 Work on improving investor confidence Promoter holding has declined consistently after IPO in 2010, with the pace of

decline only accelerating recently. There have been instances in the past where the

promoter indicated,in the analyst conference call,hisintention to maintain the stake

above 50% but subsequently lowered it to 45%. We believe that greater clarity

regarding sustainable promoter stake could go a long way in improving the investor

confidence.

Exhibit 9: Promoter commentary along with decliningstake

62

.1

61

.8

61

.4

61

.3

60

.2

58

.9

58

.0

57

.7

56

.8

56

.8

56

.7

55

.2

54

.5

51

.7

51

.7

49

.9

49

.6

49

.6

49

.6

48

.9

48

.8

48

.8

48

.8

48

.7

48

.7

45

.0

45

.0

45

.0

40

44

48

52

56

60

64

4Q

FY10

1Q

FY11

2Q

FY11

3Q

FY11

4Q

FY11

1Q

FY12

2Q

FY12

3Q

FY12

4Q

FY12

1Q

FY13

2Q

FY13

3Q

FY13

4Q

FY13

1Q

FY14

2Q

FY14

3Q

FY14

4Q

FY14

1Q

FY15

2Q

FY15

3Q

FY15

4Q

FY15

1Q

FY16

2Q

FY16

3Q

FY16

4Q

FY16

1Q

FY17

2Q

FY17

3Q

FY17

(%)Wish to maintain

stake in high 40%s Comfortablewith over 40% stake

Wish to maintain stake over 50%

Source: Company, Axis Capital*Management comments in the callouts

More importantly, we would like the new CEO to have a realistic guidance policy

and not obfuscating guidance with aspiration or hope. In the recent past, despite a

weak economy, Jubilant’s management has given aggressive SSSg guidance, which

when not achieved took the garb of aspiration.Aggressive guidance when far from

reality results in hugevolatilityin the stock(as was the case in 2015) which most

investors would like to avoid. Apart from a realistic guidance policy, we also look

forward to consistency in guidance from the new management. In the past, Jubilant

has had a policy of not sharing information on the current quarter, but recently the

management highlighted the strong recovery after a weak quarter.We look forward

to a consistent and realistic guidance policy from the new CEO and recommend the

following:-

♦ A realistic guidance/ range for SSSg, sales growth, store opening and margin

for every financial year in Q3earnings conference call of the previous financial

year or at least by April of that financial year

7



♦ Revise the above guidance after every quarterly results and refrain from

commenting on the current quarter in between the two quarterly results

♦ Only when there is a need for a drastic change in guidance, should it come up

with a mid-quarterly guidance change notification to the exchanges

♦ Lastly, try and declare results within 15-20 days of the quarter end rather than

the current practice of 30-40 days to reduce leakage of information or atleast

declare the SSSg number as soon as the quarter ends

Exhibit 10: Instances of inconsistent guidance policy in the past Management comments during results conference call (edited excerpts)

Q1FY16 earnings call

And as a company, we also do not want to give any comment about the next quarter, because those quarters are close by; and that is the reason we are saying – four quarters… otherwise we are giving a visibility of the immediately next quarter.

Q1FY17 earnings call

Overall, we landed at minus 3%(SSSg). Having said that, our July and August numbers have improved quite significantly and we definitely will be in the positive territory in quarter two.


Exhibit 11: Instances of unrealistic guidance in the past Management comments during results conference call (edited excerpts)

(A) Q3FY15 earnings call

We believe we have bottomed out and going forward we believe that it will take us at least three to six quarters to reach as we have said always in the past, consistently to reach a high single-digit SSG growth number is what our submission would be now

(B) Q4FY15 earnings call

We believe that two to four quarters, high single-digit almost touching double-digit is a number which probably is doable

(C) Q1FY16 earnings call

We believe that four quarters from today, reaching a high-single digit same-store growth consistently is doable

(D) Q2FY16 earnings call

We do believe that in four quarters time, we may start hitting high single-digit numbers, but there is a bit of optimism in that

(E) Q3FY16 earnings call

Yeah, in fact given that we did expect a certain turnaround… we actually are seeing now that in four quarters and it should become a high single-digit and I think one quarter has passed since then we would refrain from making a statement like that going forward.


Exhibit 12: SSSg performance vs. guidance

1.9

6.6 4.6

3.2 2.0

2.9 (3.2)

4.2

(3.3)

-4-202468

3Q

FY15

4Q

FY15

1Q

FY16

2Q

FY16

3Q

FY16

Q4

FY16

Q1

FY17

Q2

FY17

Q3

FY17

(%)

Touching double-digit doable

Contains a bitof optimism

Refrain from any such

statement inthe future

3-6 quarters to high-single digit

SSSg


Exhibit 13: Share price reached all-time high in Jul’ 15

800

1,000

1,200

1,400

1,600

1,800

2,000

Oct

-14

Dec

-14

Feb-1

5

Apr-15

Jun-

15

Aug-

15

Oct

-15

Dec

-15

Feb-1

6

Apr-16

(Rs)

(A)(B ) (C)

(D)(E)


8



Exhibit 14: New product launches Product Description Current status Q1FY14 Spicy Baked Chicken Baked chicken drumsticks tossed in exotic spicy seasoning Discontinued Lebanese Rolls Lebanese seasoned soft crust with a spicy roll and a cheesy layer Discontinued

Q2FY14

Calzone Pockets Calzone Pockets are prepared with the freshest of ingredients, zesty tomato, chili sauce, delicious stuffing and seasoned cheese

Discontinued

Q3FY14

Fresh Pan Pizzas Freshly made pan-baked pizza with a deliciously soft, buttery, extra cheesy and crunchy bite

Discontinued

Q4FY14

Junior JoyBox Complete kid’s meal consists of a cheesy pizza slice, two yummy breadsticks with oregano seasoning, a delicious custard dessert, a fruit based beverage and a toy

Discontinued

Q1FY15 Refreshed menu 10 new pizzas with a variety of offerings Available South Zesty Veggie and Southern Chili Chicken

A deliciously cheesy pizza with a new super spicy Andhra Chili Chicken topping made fromfavorite southern recipes

Discontinued

Q2FY15

Subwich A delicious chili jalapeno, three bean Veg Patty or juicy American style herbed Chicken Patty smeared on both sides with the creamy & spicy smoked pepper relish and a layer of exotic bell peppers packed between two freshly baked buttery crusts

Discontinued

Taco Mexicana A crispy flaky wrap filled with Mexican Arancini Bean Patty/ Hot & Smoky Chicken Patty rolled over exotic creamy Harissa sauce

Available

Q3FY15 Crispy chicken strips Soft, juicy & crispy boneless chicken strips with oriental flavor Available

Cheese Burst Pizza Crust filled with liquid cheese inside. This was launched in the regular size bases on popular demand and feedback from customers

Available

Cheesy Wonder Pizza Cheesy combination of chili cheeseand liquid cheese filled inside a buttery crust Discontinued

Q4FY15

Zingy Parcel An anytime anywhere snack with delicious Paneer/BBQ Chicken topping rolled over a layer of exotic Harissa Sauce inside a yummy Buttery Crust

Available

AHA Value Festival Products/offerings meant for different occasions

Q1FY16 Chef’s Inspiration Exotic Italian Pizza co-created by chef VikasKhanna and Domino’s chefs Discontinued

Q3FY16 Double Cheese Crunch Pizza

Two crackling, crunchy thin crusts filled with a river of creamy cheesygoodness Discontinued

Custard Bliss Filled with the goodness of vanilla custard, knotted into a sweet bun and dusted with powdered cardamom sugar

Discontinued

Q4FY16

Pizza Mania Extremes

Pizza Mania Extremes –an extension of the brands’ much loved Pizza Mania range. Pizza Mania Extremes aims to give value conscious pizza lovers – especially the Pizza Mania loyalists – a culinary experience by providing them a new menu packed with rich tastes, at an economical price point

Available

Q1FY17

Burger Pizza Burger Pizza is a result of the company’s focus on innovation and growth and is an attempt to create a new category and bring Pizza-ness in a consumption segment that is addressed by Burgers and Sandwiches

Available

Q2FY17

Navratra Menu The innovative offering includes a 100% Vegetarian Pizza, Sago Pudding and SabudanaCrispies. This is in line with the festive season ofNavratra, where there is significant reduction in consumption of non-vegetarian food

Q3FY17

Choco Pizza The Choco Pizza is the first Dessert Pizza in the Domino’s menu. It is topped with Choco Fudge sauce over a crispy baked wheat thin crust pizza base

Available

Quattro Formaggi Burst Crust

Crust with four cheese flavours of Gouda, Creamy Ricotta, Mozzarella and Cheddar as liquid cheese

Available


9



Exhibit 15: Net sales growth

32

43

52

33

51

60

50

38

22

20

16

9

13

0

10

20

30

40

50

60

70

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

E

FY18

E

(%)


Exhibit 16: Same-store sales growth

17

23

20

6

22

37

30

16

2 0

3

1

8

0

10

20

30

40

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

E

FY18

E

(%)


Exhibit 17: Store count

105

130

181

24

1

306 378 465 586 7

52 9

30 1

,097

1,2

10

1,3

30

0

300

600

900

1,200

1,500

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

E

FY18

E

(Nos.)


Exhibit 18: Raw material to sales

30.9

30.7

30.1 30.8

30.0 30.5 31.1 31.5

31.0

29.7

27.9 2

8.7

28.7

26

28

30

32

34FY

06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

E

FY18

E

(%)


Exhibit 19: EBITDA margin

11.5 12.4

12.4

12.0

15.7 17.7

18.7

17.4

14

.8

12.7

11.8

10.1 11.1

0

5

10

15

20

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

E

FY18

E

(%)


Exhibit 20: Net profit margin

2.1

4.0

3.7

2.6

7.8

10.6

10.7

9.6

7.3

5.9

4.8

3.5 4

.1

0

2

4

6

8

10

12

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

E

FY18

E

(%)


10



Exhibit 21: 1-year forward PE (on consensus earnings)

30

40

50

60

Mar-1

2

Sep

-12

Mar-1

3

Sep

-13

Mar-1

4

Sep

-14

Mar-1

5

Sep

-15

Mar-1

6

Sep

-16

Mar-1

7

PE (x) 5 yr Median


11



Financial summary (Standalone)

Profit &loss (Rs mn)

Y/E March FY16 FY17E FY18E FY19E

Net sales 24,095 26,162 29,677 34,028

Other operating income 4 4 4 5

Total operating income 24,098 26,166 29,681 34,033

Cost of goods sold (6,719) (7,508) (8,502) (9,698)

Gross profit 17,379 18,657 21,178 24,335

Gross margin (%) 72.1 71.3 71.4 71.5

Total operating expenses (14,532) (16,010) (17,881) (20,365)

EBITDA 2,848 2,648 3,298 3,970

EBITDA margin (%) 11.8 10.1 11.1 11.7

Depreciation (1,243) (1,433) (1,641) (1,844)

EBIT 1,605 1,214 1,657 2,127

Net interest - - - -

Other income 65 111 128 125

Profit before tax 1,670 1,325 1,785 2,252

Total taxation (524) (417) (553) (687)

Tax rate (%) 31.4 31.5 31.0 30.5

Profit after tax 1,146 908 1,231 1,565

Minorities - - - -

Profit/ Loss associate co(s) - - - -

Adjusted net profit 1,146 908 1,231 1,565

Adj. PAT margin (%) 4.8 3.5 4.1 4.6

Net non-recurring items - - - -

Reported net profit 1,146 908 1,231 1,565

Balance sheet (Rs mn)


Paid-up capital 658 659 660 661

Reserves & surplus 7,023 7,732 7,732 7,732

Net worth 7,681 8,391 8,392 8,393

Borrowing - - - -

Other non-current liabilities - - - -

Total liabilities 7,681 8,391 8,392 8,393

Gross fixed assets 12,576 14,471 16,487 18,631

Less: Depreciation (4,521) (5,954) (7,595) (9,439)

Net fixed assets 8,055 8,517 8,892 9,192

Add: Capital WIP 252 50 50 50

Total fixed assets 8,307 8,567 8,942 9,242

Total Investment 1,525 1,250 1,250 1,250

Inventory 538 494 644 643

Debtors 125 126 150 167

Cash & bank 314 808 1,331 819

Loans & advances 1,733 1,811 1,955 2,109

Current liabilities 4,197 3,999 5,213 5,170

Net current assets (1,473) (747) (1,122) (1,421)

Other non-current assets (678) (678) (678) (678)

Total assets 7,681 8,391 8,392 8,393


Cash flow (Rs mn)


Profit before tax 1,670 1,325 1,785 2,252

Depreciation & Amortisation 1,243 1,433 1,641 1,844

Chg in working capital 70 (232) 858 (253)

Cash flow from operations 2,309 2,036 3,654 3,122

Capital expenditure (2,108) (1,693) (2,016) (2,144)

Cash flow from investing (2,265) (1,307) (1,888) (2,019)

Equity raised/ (repaid) 2 1 1 1

Debt raised/ (repaid) - - - -

Dividend paid (164) (198) (198) (238)

Cash flow from financing (23) (197) (1,190) (1,524)

Net chg in cash 22 531 575 (420)

Key ratios Y/E March FY16 FY17E FY18E FY19E

OPERATIONAL

FDEPS (Rs) 17.4 13.8 18.7 23.7

CEPS (Rs) 36.3 35.5 43.5 51.6

DPS (Rs) - - - -

Dividend payout ratio (%) - - - -

GROWTH

Net sales (%) 16.2 8.6 13.4 14.7

EBITDA (%) 8.4 (7.0) 24.6 20.4

Adj net profit (%) (7.1) (20.8) 35.6 27.1

FDEPS (%) (7.4) (20.9) 35.4 26.9

PERFORMANCE

RoE (%) 15.9 11.3 14.7 18.6

RoCE (%) 23.2 16.5 21.3 26.8

EFFICIENCY

Asset turnover (x) 4.0 3.9 4.3 5.0

Sales/ total assets (x) 2.2 2.2 2.3 2.5

Working capital/ sales (x) (0.1) (0.1) (0.1) (0.1)

Receivable days 1.9 1.8 1.8 1.8

Inventory days 9.2 7.7 8.9 7.8

Payable days 50.4 39.0 48.5 38.9

FINANCIAL STABILITY

Total debt/ equity (x) - - - -

Net debt/ equity (x) (0.2) (0.2) (0.2) (0.2)

Current ratio (x) 0.6 0.8 0.8 0.7

Interest cover (x) - - - -

VALUATION

PE (x) 60.7 76.8 56.7 44.7

EV/ EBITDA (x) 24.1 25.9 20.6 17.2

EV/ Net sales (x) 2.8 2.6 2.3 2.0

PB (x) 9.1 8.3 8.3 8.3

Dividend yield (%) - - - -

Free cash flow yield (%) - - - -


12



Disclosures:

The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).

1. Axis Securities Ltd. (ASL) is a SEBI Registered Research Analyst having registration no. INH000000297. ASL, the Research Entity (RE) as defined in the

Regulations, is engaged in the business of providing Stock broking services, Depository participant services & distribution of various financial

products. ASL is a subsidiary company of Axis Bank Ltd. Axis Bank Ltd. is a listed public company and one of India’s largest private sector bank and

has its various subsidiaries engaged in businesses of Asset management, NBFC, Merchant Banking, Trusteeship, Venture Capital, Stock Broking, the

details in respect of which are available on www.axisbank.com.

2. ASL is registered with the Securities & Exchange Board of India (SEBI) for its stock broking & Depository participant business activities and with the

Association of Mutual Funds of India (AMFI) for distribution of financial products and also registered with IRDA as a corporate agent for insurance

business activity.

3. ASL has no material adverse disciplinary history as on the date of publication of this report.

4. I/We, authors (Research team) and the name/s subscribed to this report, hereby certify that all of the views expressed in this research report accurately

reflect my/our views about the subject issuer(s) or securities. I/We also certify that no part of my/our compensation was, is, or will be directly or

indirectly related to the specific recommendation(s) or view(s) in this report. I/we or my/our relative or ASL does not have any financial interest in the

subject company. Also I/we or my/our relative or ASL or its Associates may have beneficial ownership of 1% or more in the subject company at the

end of the month immediately preceding the date of publication of the Research Report. Since associates of ASL are engaged in various financial

service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies

mentioned in this report. I/we or my/our relative or ASL or its associates do not have any material conflict of interest. I/we have not served as director,

officer or employee in the subject company.

Research Team

Sr. No Name Designation E-mail

1 Akhand Singh Research Analyst [email protected]

2 Sankar Narayanan Database Manager [email protected]

5. ASL or its associates has not received any compensation from the subject company in the past twelve months. ASL or its Research Analysts has not

been engaged in market making activity for the subject company.

6. In the last 12-month period ending on the last day of the month immediately preceding the date of publication of this research report, ASL or any of

its associates may have:

i. Received compensation for investment banking, merchant banking or stock broking services or for any other services from the subject

company of this research report and / or;

ii. Managed or co-managed public offering of the securities from the subject company of this research report and / or;

iii. Received compensation for products or services other than investment banking, merchant banking or stock broking services from the subject

company of this research report;

ASL or any of its associates have not received compensation or other benefits from the subject company of this research report or any other third-party

in connection with this report

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This report has been prepared by ASL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is

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reliable and accurate. The intent of this report is not recommendatory in nature. The information is obtained from publicly available media or other

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made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. The report is prepared

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financial instruments for the clients. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same

time. ASL will not treat recipients as customers by virtue of their receiving this report.

13



DEFINITION OF RATINGS

Ratings Expected absolute returns over 12-18 months

BUY More than 10%

HOLD Between 10% and -10%

SELL Less than -10%

Disclaimer:

Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate

to the recipient’s specific circumstances. The securities and strategies discussed and opinions expressed, if any, in this report may not be suitable for all

investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient.

This report may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this report should make such

investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this report

(including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. Certain transactions,

including those involving futures, options and other derivatives as well as non-investment grade securities involve substantial risk and are not suitable for

all investors. ASL, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to

the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the

currency rates, diminution in the NAVs, reduction in the dividend or income, etc. Past performance is not necessarily a guide to future performance.

Investors are advise necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated

before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not

predictions and may be subject to change without notice.

ASL and its affiliated companies, their directors and employees may; (a) from time to time, have long or short position(s) in, and buy or sell the securities of

the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities or earn brokerage or other compensation or act as a

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ASL and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, the

recipients of this report should be aware that ASL may have a potential conflict of interest that may affect the objectivity of this report. Compensation of

Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. ASL may have issued other reports

that are inconsistent with and reach different conclusion from the information presented in this report.

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investors.

The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as

endorsement of the views expressed in the report. The Company reserves the right to make modifications and alternations to this document as may be

required from time to time without any prior notice. The views expressed are those of the analyst(s) and the Company may or may not subscribe to all the

views expressed therein.

Copyright in this document vests with Axis Securities Limited.

Axis Securities Limited, Corporate office: Unit No. 2, Phoenix Market City, 15, LBS Road, Near Kamani Junction, Kurla (west), Mumbai-400070, Tel No. –

18002100808/022-61480808, Regd. off.- Axis House, 8th Floor, Wadia International Centre, PandurangBudhkarMarg, Worli, Mumbai – 400 025. Compliance

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