ICICI Securities believes that Jubilant Foodworks’s recent acquisition of stakes in DP Eurasia and Barbeque Nation as well as the investments in new ventures (Hong’s Kitchen and Ekdum!) are steps in the right direction. ICICI Securities likes this utilisation of cash on balance sheet (Rs 8.4 bn as of Sep’20) to buy potentially in the money options. Some investors believe that the stakes in DP Eurasia and Barbeque Nation are likely for trading purposes; however, ICICI Securities believes its strategic. ICICI Securities maintains Add rating of Jubilant Foodworks with target price of Rs 2995. Jubilant Foodworks share price today is Rs 3100, up Rs 62 or 2%.

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Furthermore, ICICI Securities reckon there can be structural benefits:

(1) turnaround of DP Eurasia (replicating India execution)
(2) better dine-in experience in India ventures (using learnings from Barbeque Nation).

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That said, ICICI Securities biggest concern is limited management bandwidth to handle such diverse, multiple opportunities along with the expansion of the core (Domino’s India), which in itself has the potential to be 3X by FY2030. Retain ADD rating on the Jubilant Foodworks.

Utilising cash in balance sheet for buying in-the-money options:

Jubilant Foodworks had Rs 8.4 bn of cash on Sep’20. Jubilant Foodworks believes that with the recent acquisitions (32.81% stake in DP Eurasia and 10.96% stake in Barbeque Nation) as well as the investments behind new ventures (Hong’s Kitchen and Ekdum!), Jubilant Foodworks is buying in the-money options which could potentially be value accretive. ICICI Securities also note that there are potential structural benefits that the company could derive out of these acquisitions turnaround the Eurasia business or gain knowledge on casual dining from Barbeque Nation. The diversification into different geographies and cuisines also makes the business less cyclical.

Potential turnaround in DP Eurasia:

Jubilant Foodworks’s acquisition of stake in DP Eurasia is strategic, in our view, with the intent to turnaround the business. The business is operating Domino’s stores in Turkey (which has a good opportunity to grow), Russia (intense competition), Georgia and Azerbaijan. ICICI Securities believes that Jubilant Foodworks has the potential to turnaround the business applying its learnings from India. With the acquisition, Jubilant Foodworks has become the largest shareholder in DP Eurasia.

Investment in Barbeque Nation may drive learning’s for casual dining business and drive synergies in the medium term:

ICICI Securities believes that investment in Barbeque Nation could also be strategic. Jubilant Foodworks could gain significant knowledge about casual dining and can apply that to drive better dine-in experience (and hence growth) for its core Domino’s and the new ventures (Hong’s Kitchen and Ekdum!). ICICI Securities further believes that Jubilant Foodworks and Barbeque Nation can also drive synergies like better negotiating power with various stakeholders like suppliers, food aggregators etc.