This is a continuation of analysis of the Pizza Business of Jubilant Foodworks, which runs the "Dominos Pizza" chain in India.
Here is the link to the previous note.
Pizza Mania!!
The points mentioned in that note broadly stand as were discussed. Just that the analysis in the note was for FY11 and we now have FY12 and also some data from FY13.
This article is to discuss some new aspects.
- I just happened to go through the latest presentation by Dominos Pizza USA. Almost all international Dominos' stores are franchised out and income for the US parent is in the form of royalty.
The interesting thing mentioned in one of the slides was that EBITDA per franchise store in US is in the range of 50000 - 80000 USD annually. The same analysis, if done for the Indian operations gives out an average EBITDA per store number of around 85000 USD.
So operations in India seem to be generating more EBITDA per store basis. Admittedly the competition in US Pizza market is much more and population is 1/4th that of India. But the per capita income is US is around 30x that of India. At least, I find it amazing that absolute profitability in India is more than the US and moreover it is growing every year at the same rate as the store sales are growing and that number could be anywhere between 10-20%.
Please keep in mind that INR has depreciated 25% against the USD in the last 2 years. And still the per store dollar profitability is higher in India than the US!!
- Second interesting point in the presentation was what Dominos' US thought was the potential market size in India. According to the presentation the potential number of stores in India is around 1000.
I assume the "potential" of 1000 stores in India would have been put in the presentation after their own market research and analysis, which would have been reasonably exhaustive.
Jubilant Foodworks has already opened 560 odd stores in the country. In FY13, they are expected to add around 110-120 stores. Going by this run rate and some growth in the store addition number per annum ,we will be very close to 1000 stores in India within 3 years. And I do not think it is unreasonable to expect that the store roll out will slowdown, now that they are getting closer to the potential. With stock trading around 60x FY13 P/E, I am not sure investors will have any appetite for any kind of growth slowdown.
- Third point I want to raise is about the capex per store. As mentioned in the previous article, it was around 85 lacs per store. In FY12, that number has gone up to around 1.15 cr per store. FY13 balance sheet has not come out yet but some rough calculation from the number that have been declared is that the capex per store has gone up even further from the number in FY12.
Here again, its interesting that as Jubilant goes into Tier 3 towns to take its franchise forward, it expenses to open the store are going up and costing more than what it was costing in Tier 1 or Tier 2 towns. While the stores in smaller towns are likely to be larger, the jump in capex in FY12, has come more from the machinery side and not so much from the construction side.
What is also interesting is that the average revenue per store for Jubilant is going up, as more and more stores come up outside the metros. Given the purchasing power difference in metros and outside, that is a intriguing result to end up having.
Hopefully you have enough to chew till I find something more to write about this phenomenon.
