Fitch affirms Jubilant FoodWorks' Bank loan ratings

Dec 1 - Fitch Ratings has today affirmed Jubilant FoodWorks Limited's (JFL, earlier Dominos Pizza India Limited (DPIL)) National Long-term rating of 'A-(ind)'. The Outlook is Stable. Simultaneously, the agency has affirmed the ratings on its bank loans as follows: - Term loans aggregating INR850m: 'A-(ind)'; and - Fund based working capital limits amounting to INR30m: 'A-(ind)'/'F2+(ind)'; The rating affirmation reflects JFL's established presence in India's organised pizza industry with the largest market share. JFL is Domino's Pizza Overseas Franchising's (DP Overseas) exclusive master franchisee in India since 1995. 

The ratings are underpinned by JFL's strong and expanding operational network across India, its track record of managing the pizza business, its efficient working capital management and its strong brand recall. The ratings are also supported by the stable demand for JFL's products and the continued growth in the food services industry. In September 2009, JFL renewed its master franchise from DP Overseas for the period till 2024. However, concerns continue to emerge from its reliance on a single source of revenue - the master franchise from DP Overseas, and increase in competition from other pizza players and quick service restaurants. JFL has an ambitious plan to expand its chain in the coming years, which exposes it to execution and cost overrun risks. Fitch also notes that JFL was a loss making enterprise until FY05, and the net accumulated losses at FYE09 were INR732.72m. JFL continued to grow in FY09 both in operational size as well as revenues. While the number of stores increased from 182 at FYE08 to 241 at FYE09, the revenues increased by 32.89% from INR2.1bn in FY08 to INR2.8bn in FY09. 

Same store sales grew by 5.98%; however, net income declined to INR73.03m in FY09 from INR85.5m a year earlier due to increased interest costs arising from debt funded capex. The company continued to maintain its operating margins (op. EBITDA/revenues) at around 12%, in line with the trend over the earlier three years. Significant improvement in financial leverage (Total adjusted debt/op. EBITDAR), and substantial improvement in profitability on a consistent basis, backed by significant same-store sales growth, will positively impact its ratings. However, a higher than anticipated debt-funded capex leading to deterioration of financial leverage to over 5x (measured by Total adjusted debt/op. EBITDAR), and inability to achieve growth in revenues as anticipated will negatively affect ratings. At FYE09, the company had a total balance sheet debt of INR824.45m.

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