Rating Rationale
August 10, 2020 | Mumbai
Jubilant FoodWorks Limited
Rating Reaffirmed
 
Rating Action
Rs.100 Crore Commercial Paper CRISIL A1+ (Reaffirmed)
Rs.100 Crore Commercial Paper CRISIL A1+ (Withdrawn)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL A1+' rating on the commercial paper programme of Jubilant Foodworks Ltd (JFL). CRISIL has also withdrawn its rating on Rs.100 crore commercial paper programme at the company's request. The rating action is in line with CRISIL's rating withdrawal policy.
 
The rating continues to reflect an established market position in the quick-service restaurant (QSR) segment, healthy operating efficiency driven by a robust supply-chain network, and a strong financial risk profile. These rating strengths are partially offset by the weaker performance of the donuts division (Dunkin Donuts) and susceptibility of profitability to competitive intensity and cost pressures.

Analytical Approach

For arriving at the rating, CRISIL has combined the business and financial risk profiles of JFL and its subsidiaries, together known as JFL, as these companies have considerable operational and financial linkages.

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation

Key Rating Drivers & Detailed Description
Strengths: 
* Established market position in the QSR segment
The company is a market leader in the pizza segment through its exclusive rights to operate Domino's Pizza brand outlets in India, Sri Lanka, Bangladesh, and Nepal. Revenue growth is expected to be muted in fiscal 2021 due to the COVID- 19 situation across the country which has temporarily affected the normal operations (including dine-in) of the restaurants. However, strong fundamentals for long term QSR segment growth and established market position of company should see its operations normalising over medium term.
 
Also, continued association with the Domino's brand with timely renewal of the agreement, as and when due, remains key.
 
* Healthy operating efficiency driven by a strong supply-chain network
The company operates various regional supply chain centres, which source and supply primary raw materials, thus helping to ensure consistent quality and timely delivery of these to its stores. The company also benefits from higher share of home deliveries. In Q4 2020, the share of online orders increased to 89% from 75% in Q4 2019, of which contribution from application-based, mobile phone orders remained high at 96%. The strong operating efficiencies are reflected by EBITDA margin of 22.6% in fiscal 2020.
 
* Robust financial risk profile
The financial risk profile is supported by a debt-free status, a strong net worth, and high financial flexibility. The company has been debt-free since the past three fiscals. The net worth was Rs 1183 crore as on March 31, 2020, and is expected to increase further, backed by healthy accretion to reserves.
 
Weaknesses:
* Weak performance of the donuts division
The Dunkin Donuts division had incurred losses in the past, resulting dilution in overall profitability. The number of Dunkin Donuts stores was brought down to 30 as on June 30, 2019, from 55 as on June 30, 2017. The number of stores as on March 31, 2020 stands at 34. Management was able to achieve a breakeven performance in the last two quarters of 2019. Nevertheless, in the absence of profitable expansion of this division, reliance on the pizza division will remain high, and hence its performance remains a key monitorable.
  
* Susceptibility of profitability to competitive intensity and cost pressures
The Indian QSR market is highly competitive with players in both the organised segment and in the huge un-organised market, which may result in loss of market share and reduced profitability. Fixed costs (mainly lease rentals for store premises, employee cost, and electricity charges) form a significant portion of the operating cost for a QSR, resulting in high operating leverage. Thus, growth in same-store sales is essential to boost profitability. Hence, timely execution of the growth plan without any cost overrun, and improvement in the operating margin with sustained focus on cost optimisation, technology, low leverage, and economies of scale, remain key monitorables.
Liquidity Strong

Liquidity is adequate and is well supported by cash and cash equivalents of around Rs 639.22 crores as on March 31, 2020. The company is expected to have prudent expansion and dividend plans, supported by internal cash accrual and liquid balances. The capital structure should thus remain robust.

Rating Sensitivity factors
Downward factors
* Substantial decline in operating margin for instance drop by more than 40-45% (post normalization of COVID-19 related disruptions).
* Any large, debt-funded capex or acquisition, weakening the financial risk profile
About the Company

JFL is part of the Jubilant Bhartia group and is one of India's leading food service companies, with a network of 1,335 Domino's Pizza restaurants across 282 cities (as of March 31, 2020). The company and its subsidiaries have the exclusive rights to develop and operate the Domino's Pizza brand in India, Sri Lanka, Bangladesh, and Nepal. The company also has exclusive rights for developing and operating Dunkin Donuts restaurants for India and had 34 restaurants under this brand across 10 cities as of March 31, 2020.

Key Financial Indicators*
As on/for the period ended March 31 Unit 2020 2019
Revenue Rs crore 3997 3610
Profit after tax (PAT) Rs crore 279 318
PAT margin % 6.9%** 8.8%
Adjusted debt/adjusted net worth^ % NA NA
Interest coverage^ Times NA NA
*CRISIL-adjusted consolidated financials
**With Ind-AS 116 adjustments
^The company is debt-free

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs  crore) Complexity level Rating assigned  with outlook
NA Commercial Paper NA NA 7-365 Days 100.0 Simple CRISIL A1+
 
Annexure - Details of Rating Withdrawn
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs  crore) Complexity level Rating assigned  with outlook
NA Commercial Paper NA NA 7-365 Days 100.0 Simple Withdrawn
 
Annexure - List of entities consolidated
Name of the Company Type of Consolidation Rationale for consolidation
Jubilant FoodWorks Limited Full consolidation Common management and significant financial linkages
Jubilant FoodWorks Lanka (Pvt) Limited Full consolidation Common management and significant financial linkages
Jubilant Golden Harvest Limited Full consolidation Common management and significant financial linkages
JFL Employees Welfare Trust Full consolidation Common management and significant financial linkages
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  100.00  CRISIL A1+      20-08-19  CRISIL A1+  28-08-18  CRISIL A1+    --  -- 
All amounts are in Rs.Cr.
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Bank Loan Ratings
CRISILs Criteria for Consolidation
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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