The Indian food service industry has been dominated by the unorganised sector, which has a 66% market share in the overall industry. But the GST implementation in July 2017 changed the fundamentals of the industry and brought the price advantage and tax net benefit on a level playing field to the organised sector. Though there was a disruption in the initial stages of implementation of the GST in the country, it is a given that in the medium to long term, the benefits would accrue to the organised sector substantially. A very big positive was the reduction in the GST from the initial imposed rate of 18% to 5%, with the withdrawal of input tax credit. This has been regarded as a very progressive step by the food service industry, as it will improve consumer spending at restaurants. Major contributors to the total food service industry are the top eight cities, accounting for 42% of the pie, but smaller cities driven by youthful aspirations are slowly emerging from the shadows and embracing the main frame of food entertainment. The prospects of the restaurant chain market are huge and expected to grow to touch Rs 62,000 crore in the next few years. In the organised segment, quick service restaurants are forecast to drive growth, as it is the most preferred format across Tier 1 and Tier 2 cities. Jubilant FoodWorks Ltd is a classic example in the food service industry, poised to grow at a faster clip. It is part of the Jubilant Bhartia Group, having initiated operations in 1996 and getting listed on the Indian bourses in 2010. The company operates the Domino’s Pizza brand and is a market leader in the pizza segment with a network of 1,200 Domino’s Pizza restaurants across 270 Indian cities as of December 2018. Dunkin’ Donuts, a subsidiary of Dunkin’ Brands, is the world’s leading baked goods and coffee chain, selling more than 1 billion cups of coffee a year and serving more than 3 million customers per day. The company launched Dunkin’ Donuts in India in 2012 in Delhi. Currently, there are 32 Dunkin’ Donuts restaurants across 10 cities in India as of December 2018. With the launch of Dunkin’ Donuts, Jubilant FoodWorks is now well poised to address two distinct segments of the food service industry in India, namely the home delivery of Pizzas market and the all day food and beverage market. There is enough headroom for growth for the company as the frequency of eating out and expenditure on food are quite low in the country. Eating out frequency for customers in Singapore and Hong Kong is around 28 times a month, while it is only five times in our country. Even the per capita expenditure on meals outside of home is only US$110 in India against US$750 in China and US$1,800 in the US. The company reported stellar Q3FY2019 financial numbers, with net sales up 17% to Rs 929 crore y-o-y and net profit up 46% to Rs 96.51 crore y-o-y. The Jubilant FoodWorks stock quoting at Rs 1,355 is an excellent portfolio buy for a 20% price appreciation in the next one year.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.