| Jubilant FoodWorks Limited | ||
| Rating Reaffirmed | ||
| Rating Action | ||
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| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its 'CRISIL A1+' rating on the commercial paper programme of Jubilant Foodworks Ltd (JFL).
The rating continues to reflect an established market position in the quick-service restaurant (QSR) segment, robust supply-chain network, supportive changes in operating environment and a strong financial risk profile. These rating strengths are partially offset by the concentration of profitability to Domino’s Pizza and susceptibility of profitability to competitive intensity and cost pressures. |
Analytical Approach For arriving at the rating, CRISIL Ratings has combined the business and financial risk profiles of JFL and its subsidiaries, together known as JFL, as these companies have considerable operational and financial linkages.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths * Established market position in the QSR segment The company is a market leader in the pizza segment through its exclusive rights to operate Domino’s Pizza brand outlets in India, Sri Lanka, Bangladesh, and Nepal. Revenue growth was muted in fiscal 2020 due to the COVID- 19 situation across the country which has temporarily affected the normal operations (including dine-in) of the restaurants. However, in FY 2021, JFL saw sales recovery reaching FY 2020 levels in Q3 2021 and registered healthy growth in Q4 2021 on quarter basis.
Further, the pandemic accelerated the adoption of app-based ordering and delivery which has created a favourable structural shift. To further fortify its market position, it is expanding its existing brand portfolio through a combination of own-brands (Hong’s Kitchen and Ekdum!) and franchised brands (Popeyes). While the expansion enhances the avenues of growth, scalability will remain a monitorable. Additionally, with Domino’s contributing majorly to the sales of JFL, continued association with the Domino’s brand with timely renewal of the agreement, as and when due, remains key.
* Robust supply-chain network The company operates various regional supply chain centres, which source and supply primary raw materials, thus helping to ensure consistent quality and timely delivery of these to its stores. In Q4 2021, the share of online orders increased to 98% from 89% in Q4 2020, of which contribution from application-based, mobile phone orders remained high at 97%. Additionally, company showed resilience during testing times, introduced delivery fees and took various cost measures to sustain profitability which are reflected by EBITDA margin of 23.5% in fiscal 2021.
* Robust financial risk profile The financial risk profile is supported by a debt-free status, a strong net worth, and high financial flexibility. The company has been debt-free since the past three fiscals. The net worth was Rs 1497 crore as on March 31, 2021, and is expected to increase further, backed by healthy accretion to reserves.
Weaknesses * Concentration of profitability to Domino’s Pizza division The majority of JFL’s profitability is derived from its pizza division i.e. Dominoes which leads to high concentration. Company has entered into other divisions such as Dunkin Donuts, however, it experienced hurdles here to achieve comparative profitability and store economics. Subsequently, number of Dunkin Donuts stores was brought down to 27 as on June 30, 2021, from 55 as on June 30, 2017.
Additionally, in the past two years, JFL has been focusing on diversifying its portfolio through expansion of brands like Hongs Kitchen and introduction of Ekdum! Brand. However, the scalability and contribution of these brands to overall profitability will have to be seen.
* Susceptibility of profitability to competitive intensity and cost pressures The Indian QSR market is highly competitive with players in both the organised segment and in the huge un-organised market, which may result in loss of market share and reduced profitability. Fixed costs (mainly lease rentals for store premises, employee cost, and electricity charges) form a significant portion of the operating cost for a QSR, resulting in high operating leverage. Thus, growth in same-store sales is essential to boost profitability. Hence, timely execution of the growth plan without any cost overrun, and improvement in the operating margin with sustained focus on cost optimisation, technology, low leverage, and economies of scale, remain key monitorables. |
Liquidity: Strong Liquidity is adequate and is well supported by cash and cash equivalents including bank deposits and investments of around Rs 602 crores as on March 31, 2021. The company is expected to have prudent expansion and dividend plans, supported by internal cash accrual and liquid balances. The capital structure should thus remain robust. |
Rating Sensitivity Factors Downward factors * Substantial decline in operating margin for instance drop by more than 40-45% * Any large, debt-funded capex or acquisition, weakening the financial risk profile |
About the Company JFL is part of the Jubilant Bhartia group and is one of India’s leading food service companies, with a network of 1,360 Domino’s Pizza restaurants across 293 cities (as of March 31, 2021). The company and its subsidiaries have the exclusive rights to develop and operate the Domino’s Pizza brand in India, Sri Lanka, Bangladesh, and Nepal. The company also has exclusive rights for developing and operating Dunkin Donuts restaurants for India and had 27 restaurants under this brand across 8 cities as of June 30, 2021.
JFL has ventured into Chinese cuisine segment with its first owned restaurant brand, ‘Hong’s Kitchen’, which now has 11 restaurants across 3 cities. Recently, the Company has added Indian cuisine of biryani, kebabs, breads and more to the portfolio by launching Ekdum! which now has 7 restaurants across 3 cities. |
Key Financial Indicators*
*CRISIL Ratings-adjusted consolidated financials **With Ind-AS 116 adjustments ^The company is debt-free |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
Criteria Details
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