Neutral on Jubilant Foodworks - Tie up with Dunkin Donuts - Motilal Oswal

JUBILANT FOODWORKS: Dunkin' Donuts brand rights up to 25 years; To pay off over long term; Valuations rich; Neutral

Jubilant Foodworks (JFL) will be the exclusive franchisee of Dunkin' Donuts in India for a period of 15 years which can be further extended for 10 years.

JFL will also have right of first refusal for opening stores in Bangladesh, Sri Lanka and Nepal.

JFL will have to open 500 stores in 15 years. JFL cannot open any other chain which sells coffee and donuts in India.

The company will have full flexibility regarding 1) store size, 2) localizing and customizing the menu, including Indian food items, and 3) coffee procurement.

We believe that the agreement to launch Dunkin' Donut stores is positive as it would increase growth and share in the organized food segment.

We believe JFL has necessary cash flows to support an emerging business for some time; however, any slowdown in economy or consumer demand impacting the core business of Dominos can put pressure on financials. We will factor in the impact of Dunkin' Donuts agreement once we get more clarity on the store rollout and various cost parameters. The stock trades at P/E of 36x FY12 EPS of Rs14.6 and 24.3x FY13 EPS of Rs21.7. Maintain Neutral.

Source : Equity Bulls

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