Jubilant Foodworks: DP Eurasia Acquisition- leveraging the India Playbook

13 Mar 2024 , 11:02 AM

Jubilant Foodworks (JUBI) held a call on Tuesday regarding the update on its acquisition of controlling interest in DP Eurasia, the master franchises of Domino’s Pizza in Turkey, Azerbaijan and Georgia. This acquisition enables JUBI to deepen its footprint into another large emerging market —Turkey — and also gain entry into the country’s large café market through DP Eurasia’s ‘COFFY’ brand. While there is reasonable growth potential via store expansion in both Domino’s and COFFY, there is also scope for JUBI to increase margins on the back of synergy in joint sourcing of raw materials, shared G&A costs and shared technology infrastructure. However, the depreciating lira remains a concern. Analysts of IIFL Capital Services have cut their Ebitda estimates for FY25/26 by ~5%. They maintain add with a TP of Rs 505.

The transaction:

Through its WoS Jubilant Foodworks Netherlands B.V., JUBI increased stake in DP Eurasia in January’2024 to 94.28% from 49.04% earlier. Cost of this acquisition is Rs11.99bn — of which 2.52bn will be paid through equity, while the balance 9.47bn through debt at 5.34% rate of interest. The transaction is effective in the company’s financials from 1 st January, 2023.

Reasonable growth opportunity with synergy benefits:

Domino’s is already the #2 player in Turkey’s QSR space and DP Eurasia is Domino’s sixth-largest franchisee globally. It plans to scale up the Domino’s stores in Turkey from 690 stores currently to ~1250 in the medium term. It has delivered a system sales Cagr of 20.4% from FY20-23. DP Eurasia has also scaled up its home grown café brand – COFFY from 25 stores in 2022 to 100 currently – COFFY is already the #10th coffee brand in Turkey and management plans to scale it up further to 150 stores in the medium term.

Leverage the India playbook:

The acquisition enables JUBI to have full control on an entity that has reasonable potential in terms of both growth and margins. However, given the prolonged history of currency headwinds in Turkey (Turkish Lira has depreciated 73% vs INR in the past six years), analysts of IIFL Capital Services believe a lower valuation multiple is warranted. They value the DP Eurasia business at 20x P/E (translates to Rs30 per share or 6% of their TP) and maintain ADD rating on the stock, with a TP of Rs505. Analysts of IIFL Capital Services have not yet published consolidated estimates as they await further details.