Every now and then comes a story which catches everyone's fantasy. Creates frenzy like there is no tomorrow or as if there is nothing else which is good enough to be paid attention to. I dont think it would be an overstatement if I suggest that Jubilant Foodworks is one such story.
(Disclaimer : I have tried my best as far as background work is concerned before writing my opinion/observations here. But would be grateful to readers who find out any mistake and point it out, particularly silly mistakes. They really make one look like a complete idiot. I will be really obliged.It also helps avoid future mistakes!)
For the uninitiated, Jubilant Foodworks runs a highly successful pizza store chain by the brand name, "Dominos Pizza". It has a particular focus on the home delivery business and has set new benchmarks there.
Rising disposable income, favourable demography and changing palates have helped create a story, which could not have been missed by any investor in the Indian markets, domestic or foreign.
Fantastic growth, great profitability and a raging bull market have taken Jubilant Foodworks to dizzying heights, looking eerily similar to the one time favourite technology stocks in 2000.
As I said, no investor would have been left untouched by this story and I am no exception. But writing on such a well discovered story and attracting attention will require that I come up with something that has not been discussed before, or at least I think has not been discussed before.
I hope what I have written below is ,at least, worth the time spent in reading it!!
- Dominos had 306 stores as of March 2010 and ended March 2011 at 378 stores. So roughly 342 stores were operational for the year FY11 on an average.If we go by the number of pizzas that were sold, as per the information in the Annual Report, it roughly comes out to a number of 300 pizzas sold per store per day. Going by the growth numbers in the first nine months of FY12, this number should roughly be around 350 for FY12.
If the company is averaging 350, I think it would be reasonable to assume that the mature stores in cities like Mumbai, Bangalore, Delhi etc would be clocking closer to 450-500 pizzas per day on an average, with stores in smaller towns clocking lower volumes. The stores are open from 11am to 11pm. I think its fair to assume that out of these 12 hours, roughly 10 hours would constitute almost the whole volume with some part of the morning and late afternoon being really slow.
That roughly means around 45 pizzas in an hour. Company has indicated that roughly 50% of the volumes are towards home delivery and the remaining are dine-in orders.Going by that it looks like a pizza is delivered every 2-3 minutes. So a bike moves out of the store every 2-3 minutes. If there are 2 pizzas per order, it would be 5-6 minutes. I have to say, these numbers are really fascinating and suggest how frenetic a place the store would be.And mind you, these are average numbers, the peak hours would be even more exciting!!!
And can you imagine how it will look once the store volumes grow by another 15-20% next year, which is what the company seems to be indicating right now.
- As I have said before, Dominos specialises in home delivery and thus has smaller stores. My guess is that the average size of the stores is around 700 sq. ft. (Its a guess, if somebody has better calculations, it would help). The company paid a rent of about 53.6 cr for FY11. If we take the average number of stores calculated above, average size of 700 sq. ft., then some mathematics would conclude that the average rent paid per sq. ft per month is around Rs. 186!! (I pinch myself every time I read that number!!!)
- Dominos requires roughly 8 mn Rs. for every new store that they open.Given the modest interiors of a Dominos store, I think its safe to assume that it will not cost more than Rs 1000 per sq. ft. of interiors. They need to have around 25 bikes for the deliveries. So roughly Rs 7 lacs for the interiors and 8 lacs for the bikes. So about 60-65 lacs is spent on the kitchenware, which will include ovens, freezer, cutlery etc!!! I am sure its worth that much money!!
- The final interesting observation is the "Sundry Creditors". If we were to compare them with the "Raw Material Consumed", it turns out that they get a credit period of around 6 months!! It is called the "economies of scale"!!
Jubilant had done a successful campaign called "Pizza Mania".
With the stock trading at close to 60x P/E on FY12 , "Pizza Mania" is well and truly on!!!
Enjoy while it lasts!!! :)
(Disclaimer : I have tried my best as far as background work is concerned before writing my opinion/observations here. But would be grateful to readers who find out any mistake and point it out, particularly silly mistakes. They really make one look like a complete idiot. I will be really obliged.It also helps avoid future mistakes!)
For the uninitiated, Jubilant Foodworks runs a highly successful pizza store chain by the brand name, "Dominos Pizza". It has a particular focus on the home delivery business and has set new benchmarks there.
Rising disposable income, favourable demography and changing palates have helped create a story, which could not have been missed by any investor in the Indian markets, domestic or foreign.
Fantastic growth, great profitability and a raging bull market have taken Jubilant Foodworks to dizzying heights, looking eerily similar to the one time favourite technology stocks in 2000.
As I said, no investor would have been left untouched by this story and I am no exception. But writing on such a well discovered story and attracting attention will require that I come up with something that has not been discussed before, or at least I think has not been discussed before.
I hope what I have written below is ,at least, worth the time spent in reading it!!
- Dominos had 306 stores as of March 2010 and ended March 2011 at 378 stores. So roughly 342 stores were operational for the year FY11 on an average.If we go by the number of pizzas that were sold, as per the information in the Annual Report, it roughly comes out to a number of 300 pizzas sold per store per day. Going by the growth numbers in the first nine months of FY12, this number should roughly be around 350 for FY12.
If the company is averaging 350, I think it would be reasonable to assume that the mature stores in cities like Mumbai, Bangalore, Delhi etc would be clocking closer to 450-500 pizzas per day on an average, with stores in smaller towns clocking lower volumes. The stores are open from 11am to 11pm. I think its fair to assume that out of these 12 hours, roughly 10 hours would constitute almost the whole volume with some part of the morning and late afternoon being really slow.
That roughly means around 45 pizzas in an hour. Company has indicated that roughly 50% of the volumes are towards home delivery and the remaining are dine-in orders.Going by that it looks like a pizza is delivered every 2-3 minutes. So a bike moves out of the store every 2-3 minutes. If there are 2 pizzas per order, it would be 5-6 minutes. I have to say, these numbers are really fascinating and suggest how frenetic a place the store would be.And mind you, these are average numbers, the peak hours would be even more exciting!!!
And can you imagine how it will look once the store volumes grow by another 15-20% next year, which is what the company seems to be indicating right now.
- As I have said before, Dominos specialises in home delivery and thus has smaller stores. My guess is that the average size of the stores is around 700 sq. ft. (Its a guess, if somebody has better calculations, it would help). The company paid a rent of about 53.6 cr for FY11. If we take the average number of stores calculated above, average size of 700 sq. ft., then some mathematics would conclude that the average rent paid per sq. ft per month is around Rs. 186!! (I pinch myself every time I read that number!!!)
- Dominos requires roughly 8 mn Rs. for every new store that they open.Given the modest interiors of a Dominos store, I think its safe to assume that it will not cost more than Rs 1000 per sq. ft. of interiors. They need to have around 25 bikes for the deliveries. So roughly Rs 7 lacs for the interiors and 8 lacs for the bikes. So about 60-65 lacs is spent on the kitchenware, which will include ovens, freezer, cutlery etc!!! I am sure its worth that much money!!
- The final interesting observation is the "Sundry Creditors". If we were to compare them with the "Raw Material Consumed", it turns out that they get a credit period of around 6 months!! It is called the "economies of scale"!!
Jubilant had done a successful campaign called "Pizza Mania".
With the stock trading at close to 60x P/E on FY12 , "Pizza Mania" is well and truly on!!!
Enjoy while it lasts!!! :)
4 comments:
The parent company's market cap is 2200 million USD and Jubliant Foodworks India mcap stand at 1300 million. So either Indian arm is overvalued is global is undervalued.
Wont rising labor cost, petrol prices hurt the operating profits ?
labour/fuel costs are not big chunks of his cost so that is not such a big issue....
What I am still trying to figure out is whether a bike moves out of a Domino's every 5 minutes...??
Initially I was surprised by the rent number....but after taking feedback from few other places...it looks like rent number should be fine...
the other bit is the capex per store....Shoppers Stop spends 2000 rs. per sq.ft....Dominos spends a multiple of that...Dominos interiors are much more modest than a Shoppers Stop...so this capex number is difficult to understand right now...
Here comes the fall...Patience pays Rahul. Good piece of writing and analysis.
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