Buy Jubilant FoodWorks Ltd For Target Rs. 2,750 By Emkay Global
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Popeyes - a new growth driver
* JUBI has entered into an exclusive master franchise and development agreement with PLK APAC Pte. Ltd., a subsidiary of Restaurant Brands International, to develop and operate the Popeyes brand restaurants in India, Bangladesh, Nepal and Bhutan. The Popeyes brand has a strong presence in the fried chicken market in the US, and it has been growing faster with entry into new markets.
* In our view, Popeyes can substantially increase the addressable market size for JUBI. The Chain QSR Chicken market size is estimated at more than Rs30bn, in which KFC is a major player with ~Rs20bn in revenues. Recently, Westlife Development has also entered into this space in South India.
* Founded in 1972, Popeyes is famous for its iconic chicken sandwich and other chicken offerings, such as spicy chicken and chicken tenders. It has a strong presence in the US (~2,500 stores) but currently has a smaller network of stores globally (at ~3,500 stores vs. 24,000+ restaurants of KFC). It has average revenue/store of USD1.4mn vs. USD1.2mn for KFC (based on CY19 global system-wide sales). Popeyes operates at 16-17% storelevel margins in the US (CY18 data) and has a payback period of 4-5 years there.
* Popeyes offers JUBI a new growth driver with a relatively young brand and a large addressable market. However, we believe Popeyes is smaller and lesser known outside the US, and JUBI would need to invest strongly to establish the brand and scale up the franchise in India. Management expects that Popeyes, along with four other brands – Domino’s, Dunkin’ Donuts, Hong’s Kitchen and Ekdum - would offer cost synergies and higher bargaining power for rentals/store locations at food courts, etc.
* JUBI’s recent aggression with the launch of new formats/brands offers better growth outlook over the medium term. Though the scale-up plans for Popeyes are not yet indicated, we believe the expansion is likely to be reasonably aggressive and may drive some upsides to our revenue forecasts. The stock currently trades at 53x FY23E EPS. We have a Buy rating on the name. Key risk: Lack of success in new formats/brands can be margin-dilutive.
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