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Mr. Pratik Pota’s resignation comes as a surprise

According to a press release by Jubilant FoodWorks (JUBI), Mr. Pratik Pota tendered his resignation from the post of CEO of JUBI, which was accepted by the Board on 11th Mar’22 (Link)

The move comes as a surprise since the Board of Directors, in Jun’21, had approved Mr. Pota’s re-appointment as the CEO for three years from Apr’22 until Mar’25 (Link).

According to Mr. Pota’s Twitter account, he is leaving the company to pursue a quasi-entrepreneurial opportunity (Link)

Mr. Pota joined the company as CEO designate in Jan’17 and replaced Mr. Ajay Kaul as the CEO in Apr’17

During his tenure, some of the initiatives taken by Mr. Pota included pricing discipline, focus on ‘Everyday Value’, entry into new categories (IndoChinese with Hong’s Kitchen, Biryani with Ek dum!, and fried chicken with Popeyes), and investing ahead of the curve in technology. Since Apr’17, JUBI’s stock has returned a 40.1% CAGR v/s 12.3%/10% for the NIFTY50/NIFTY India Consumption indices, respectively

Update on the DP Eurasia investment

JUBI had acquired 32.81% stake in DP Eurasia (the exclusive master franchisee of the Domino’s Pizza brand in Turkey, Russia, Azerbaijan and Georgia) in Feb’21 via its wholly owned subsidiary, Jubilant Foodworks Netherlands (JFN).

JFN had announced the acquisition of a further 17.18% stake in DP Eurasia in Sep’21 through a reverse book building process at a price of GBX95 per share. As of 31st Dec’21, JFN’s total stake in DP Eurasia stood at 40.29% for which the company paid a total consideration of ~INR2b.

DP Eurasia (together with its subsidiaries) offers pizza delivery and takeaway/ eat-in facilities at its 809 stores (621 in Turkey, Azerbaijan, Georgia and 188 in Russia as of 31st Dec’21)

DP Eurasia’s stock came under pressure since the conflict in Ukraine and it currently trades at GBX40 on the LSE, a decline of nearly 60% from JFN’s acquisition price.

Though the resignation comes as a near-term surprise, structural opportunity remains intact; maintain BUY

Changes to our model have led to a 5.4%/6.5% cut in our FY23E/FY24E EPS, respectively, as we factor in the effects of slowing delivery sales growth, increased commodity costs, and higher fuel inflation.

The resignation of the CEO comes as a negative surprise and we believe the exit of Mr. Pota could have an adverse short-term impact on the stock, considering the phenomenal efforts during his tenure. While he has developed a good second rung, we will have to watch out for his successor and the strategic outlook ahead.

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