The Biryani foray is quite interesting as Biryani is the most ordered food item on food aggregators like Swiggy. It also targets a new set of buyers who may not necessarily be pizza fans, thus expanding the addressable market manifold. Margins in Biryani are bound to be lower than Pizza, so if the business grows fast composite margins at the company level will fall. That is still quite far away of course. Until then the company should benefit from improved cash flows I guess as it buys on credit and sells on cash.
The brand name should have been better though. I am a Biryani fan and “Ekdum!” doesn’t particularly tickle my senses !
Jubilant Foodworks Netherlands B.V. to acquire Fides Food Systems Coöperatief U.A., Netherlands for 32.81% stake in DP Eurasia N.V.
Jubilant Foodworks Limited (JFL), the largest foodservice company in India, today announced it will fully acquire Fides Food Systems Coöperatief U.A., Netherlands (Fides) for an agreed investment of approximately GBP 24.80 million through its wholly owned subsidiary - Jubilant Foodworks Netherlands B.V. Fides is the beneficial owner of 32.81% of equity shares of DP Eurasia N.V. (DP Eurasia). DP Eurasia is a public
company listed with London Stock Exchange PLC and is the exclusive master franchisee of the Domino’s Pizza brand in Turkey, Russia, Azerbaijan and Georgia. DP Eurasia (together with its subsidiaries) offers pizza delivery and takeaway/ eat-in facilities at 771 stores (568 in Turkey, 190 in Russia, 9 in Azerbaijan and 4 in Georgia as on 31 December 2020)
To this end, Jubilant Foodworks Netherlands B.V. and Jubilant Foodworks Limited (acting as a guarantor for investment obligation of its wholly owned subsidiary) has entered into a Purchase Agreement with Turkish Private Equity Fund II L.P., which is the sole member of Fides.
Mr. Shyam S. Bhartia, Chairman and Mr. Hari S. Bhartia, Co-Chairman, Jubilant Foodworks Limited said, “We are happy to announce our acquisition of Fides for 32.81% equity stake in DP Eurasia, one of the large master franchisee of the Domino’s Pizza brand. We have been partners with Domino’s in India for more than twenty-five years, with that experience we hope to add value in DP Eurasia’s business and also create value for our shareholders.”
This is quite a large acquisition. DP Eurasia is listed in London but is basically of Turkish origin. It is growing its revenues rapidly but is making losses. Current market capitalization is (equivalent of) around Rs.1000 crores, so Jubilant seems to have got the 32.81% stake at a considerable discount to its CMP (around Rs.250 crores). The challenge will be to turn it around and make it profitable. But it is not clear whether they are going to get management control.
Being a listed company, their information is freely available. Latest results release:
Jubfoods will probably have management control as they would be the largest shareholder. Rest of the holding is with public and KMP.
What we should note here is the excellent relationship between Dominoes Inc and Jubilant Foodworks. They gave the Bangladesh, Sri Lanka Business. They also don’t mind Jubilant foods getting into related businesses like Dunkin, Hongs, Ekdum. I guess they are sold on Jubilant’s excellent execution skills. India is one of the largest growth contributors to the overall global dominoes sales. Compare this with McDonald’s India which has struggled in the past in India & has split the business between 2 partners.
One concern in DP Eurasia would be the sub- Franchise store model. Jubilant is great with execution as it own all the stores. Managing and turning around Sub franchise store is a tough task
Good information, but the report is silent on whether Jubilant will have management control of DP Eurasia. Even with 33% stake, it is possible to consolidate the numbers if you have powers to control the board. Will DP Eurasia’s financials get consolidated under Jubilant, or it will appear only as a financial investment in Jubilant books / as an Associate Company?
I am not very sure of that. The word ‘control’ seems to have been used loosely here rather than in a strict legal sense. For the purpose of consolidation, the company should have power to appoint Directors & the KMP, take strategic and policy decisions etc. Since Jubilant itself is silent on these points, I think the answer is more likely to be in the negative.
Further update:
Though there is one point which I missed earlier. Jubilant is now the largest shareholder in DP Eurasia and can be said to exercise considerable practical control even when they do not have absolute legal rights. So it may boil down to how the auditors look at it and what are the other precedents in similar situations elsewhere.
Further update:
This article clarifies that there will be no consolidation:
Are there any Valuepickrs in Gurgaon that have tried food from either Hong’s Kitchen or Ekdum?
Both the new ventures have ratings that vary from 3.3 - 3.9 on Swiggy and Zomato across their branches.
If I were ordering from a new place, seeing a rating below 4 stars definitely makes me think twice and wonder whether there’s something wrong with the food/delivery, especially if it has food I can easily order from another restaurant.
Since these ventures are so new, using these ratings offers a way to compare them to the prices/range/taste offered by other restaurants and could be used as a touchstone to understand whether people are accepting of the new brand.
The Domino’s stores themselves have ratings in the 4.1-4.2 range, so these new stores are doing something wrong. While the stores are new, there is a total of 200 2900 delivery reviews for Hong’s kitchen, and 400 at each Ekdum branch, which significant enough to show an initial trend.
Of course, the order volumes depend on factors more complicated than just the ratings that a company has got, but I’d want my company that wants to take on the unorganised sector to blow the market away, and right now, it looks like a mediocre product which would make brand creation very difficult.
It’s yet to be seen if they can iron out whatever is wrong by the time they venture into South Indian markets.
Barbeque nation is coming up with an IPO with share price at 498-500 rupees. Jubilant recently bought 36.5 lakh shares (10.76% ownership) at 92 crores rupees. It means they got each share at 252 rupees only.
Does that mean that the investment has already given 100% returns? Am I reading it correctly?
Seems like it. Bull Markets always bring grossly inflated IPO valuations with them because they believe crazy investor frenzy will gobble it w/o considering the intrinsic values. Another question is did they have any insider knowledge about this ?
The Barbeque Nation DRHP available on SEBI website was filed in Feb 2020 and contains financial upto September 2019. That’s too old for investors to take an informed view today. Have they published updated numbers anywhere?
Jubilant Foodworks Limited (“Company”) has entered into an exclusive Master Franchise and Development Agreement with PLK APAC Pte. Ltd., a subsidiary of Restaurant Brands International Inc.,to develop, establish, own and operate, and to license Franchisees to develop, establish, own and operate, Popeyes® Restaurants in India, Bangladesh, Nepal and Bhutan.
Popeyes is like KFC! So, we finally will have a worthy competitor of KFC.
This is excellent news actually. Jubilant Foodworks is steadily making their portfolio more diversified and solid. Now they have become like Devyani International which will launch their IPO soon. Devyani International is the franchise partner of KFC, Pizza Hut, Costa Coffee, and is owned by RJ Corp which also owns Varun Beverages.
Where does Barbeque Nation fit into the scheme of things?
The sooner they take Hong’s Kitchen and Ek Dum to East India…the better traction they will get from these brans…given the popularity of Chinese cuisine & Biryani in the east.
Before that they need to optimize these recipe. The reviews suggest that these brands are still in the pilot level only. Trust them to expand only when they find that sustainable. Also expanding to different segment of India means they will have to adjust the tastes according to that demography.
This is also a question from my side. Perhaps that is only a financial investment and maybe a way to push their Chefboss brand of sauces to the B2B channels of Barbeque Nation.
At the Barbeque Nation IPO Analyst Meet, BN management said the Jubilant investment is purely financial investment at the moment with no commitments from either side. But if any proposal comes up in future, they will look at it at that time.
I hope CEO Pratik Pota is fine with Popeyes since this adds a lot to his already expanding workload. This foray can drag overall earnings for few years or may not even break even soon (like Dunkin under Ajay Kaul). I reckon the Bhartias may have a separate CEO/mgmt for this. But that can lead to conflict between the Dominos team and the new Popeyes team since the former’s cashflows will be used to fund the latter.
