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Focus on expanding store network

* Jubilant Foodworks (JUBI) hosted a concall to give updates about its Turkey (DP Eurasia) and Bangladesh businesses. JUBI has recently increased its stake in both the businesses to close to 100%. It had acquired a 33% stake in DP Eurasia in 2021, which has over the years increased to 94.3% now (49% stake in Nov’2023). The total acquisition cost is INR12bn, which is funded with INR9.5b debt and INR2.5b equity. Besides, JUBI has also increased its stake in the Bangladesh business from 51% to 100% for an incremental cost of INR340m.

* As per pro forma financial metrics provided by the company, the standalone PAT was INR2.6b in CY23, while international business (DP Eurasia, Bangladesh, Srilanka) combined contributed INR1.4b to PAT in CY23. After adjusting the interest cost, PAT for its international business should be around INR1b.

* Turkey is a strong urban consumer-driven (75% population in urban) country with healthy c.5% real GDP growth. Foodservice market in Turkey is growing at a 10% CAGR (2019-2024E), while QSR market is growing at an 18% CAGR during the same period. Domino’s is the second largest player (network of 690 stores) in QSR market in Turkey after Burger King. DP Eurasia registered revenue of INR17.5b in CY23 with PAT of INR1.6b (PAT margin at 9.5%). Its profitability margin is better than India margin. However, high inflation and currency devaluation are key risks to business performance.

* COFFY is a rapidly expanding and profitable coffee chain in Turkey. Turkey’s coffee market, consisting of 22 coffee brands with ~2.4k outlets, is estimated to be worth around USD1.2b in 2023. COFFY has become the 10th largest café brand in Turkey, with 89 stores, of which 74% are franchised.

* Bangladesh is a growing economy and is experiencing a shift from a lowincome to a middle-income economy. Domino’s is the second player in the QSR market in Bangladesh after KFC. Currently, it operates 26 stores with plans to expand to 200 stores in the medium term.

Turkey - Foodservice and QSR market

* Turkey is one of the fastest-growing economies in Europe and among the G20 countries.

* Turkey has grown at an average rate of around 5.5% each year for the past decade.

* Most people in Turkey live in cities, about 75%, and it has the youngest population in Europe, with the average age being ~34 years.

* Digitalization is transforming Turkey's foodservice sector, witnessing significant growth in online ordering due to increased smartphone and internet usage, along with a rise in online spending habits.

Valuation and view: We valued JUBI on the SOTP basis, with Domino’s India business at 55x P/E and all other initiatives separately. However, with the delisting of DP Eurasia and the separate classification available for international profit, we are now changing the valuation method. We value the India business at 55x P/E and international business at 35x P/E on FY26E to arrive a TP of INR480 (unchanged). We maintain our Neutral rating; we believe India business recovery will be more critical for the stock’s performance.

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SEBI Registration number is INH000000412