A View from Asia

Samir Mehta, manager of the JOHCM Asia ex Japan fund, provides an in-depth look at Jubilant Foodworks, the largest holding in his portfolio.

  • Samir Mehta

Staggering: that which causes one to stagger; astonishing; overwhelming

Sometimes, investing is just clearing the clutter. Keeping it simple. A good approach would be to observe a business in a particular geography, follow its progress for a long period (maybe two decades or more and particularly during periods of disruption), try to understand the underlying drivers of that business, then observe a similar business in a different geography and repeat the process. If the results are similar, there is a very high probability that this business is geography agnostic. I know this sounds simplistic. Management quality is still a crucial variable – the ability to manoeuvre global tectonic shifts (inflation; technology disruption; changing habits; social norms) while adapting to local conditions (regional preferences; regulations; competition; disposable income levels). Yet, the premise based on observed success for that business is a good starting point for assuming a repeatable outcome. 

Not a pie in the sky

Returns from 30th June 2005 to 30th September 2021

  Total return (%) Annual equivalent return (%)
Domino's Pizza Inc 4303.2 26.2
Domino's Pizza Enterprises Ltd (Australia) 11779.7 34.2
NASDAQ Composite Index 741.6 14.0
MSCI World Net Total Return Index 260.2 8.2

Source: Bloomberg; returns in US$

By any measure, the annualised returns delivered by the share price performance of Domino’s U.S. listed entity (the parent) and the Australian listed one (franchisee) is spectacular. There are several compelling reasons for this outcome.

Bon appétit

Pizza is a universally appreciated dish. The gourmands amongst you are shaking your heads at this sacrilegious comment. Yet according to Statistica Research, “in 2020 in France, meal delivery was particularly popular and a way for many restaurants to compensate for losses caused by the closure of restaurants to the public to avoid the spread of the Covid-19 virus. With 26.5% of the total meal orders, the most ordered specialty by the French in 2020 was pizza. Burgers and Japanese specialties came second and third respectively with 20% and 17% of the total meal orders for delivery.” If the French agree, who am I to argue?

Apart from pizza’s universal likeability, its physical characteristics and cooking process make this business stand out. Size choice is restricted; the base, cheese and the sauces are common; only the toppings vary. A mechanical approach to preparation means no real expertise is required of the chef. The oven is standardised, with minimal baking time for each pizza. Slicing and packing are a monotonous activity. Not an elegant description of preparing a dish, yet that is entirely the point when it comes to efficiency. Gross margins are around 75% - amongst the highest for any quick service restaurant (QSR) chain.

This consistently high gross profit margin allows for adoption of processes, which stay evergreen but adapt with time and technology. Delivery has always been part of the pizza experience. Ordering a pizza, once by phone, then websites, and now through apps is second nature. Once you expand your customer base away from table occupancy, the economics of every store shifts away from optimising space to efficiency of cooking times, takeaways and delivery. It becomes an exercise in operations research and logistical planning. Innovation in new toppings and flavours, freshness of ingredients and scale in sourcing drive sustainable advantages. These few attributes capture the essence of a quality business.

More than just pizza

Jubilant Foodworks Limited (JFL), currently our largest holding in the portfolio fits this description to a T. They are the sole franchisee of Domino’s Pizza for India, Bangladesh and Sri Lanka. Starting in 1996, over the past 25 years they have established a solid business. They also run Hong’s Kitchen, a homegrown brand specialising in Chinese cuisine. Recently they added Indian cuisines like biryani, kebabs, Indian breads and much more to the portfolio by launching another branded restaurant chain - Ekdum! Incidentally, the top three favourite cuisines to take-away in India are biryani, pizza and Indian Chinese. 

In response to shifting consumption habits, JFL started a ready-to-cook range of sauces, gravies and pastes under its brand, ChefBoss. To top it all, in 2021, JFL signed an exclusive Master Franchise and Development Agreement with Restaurant Brands International Inc. (RBI), to own and operate Popeyes ( for restaurants in India, Bangladesh, Nepal and Bhutan.

These in my opinion, provide a tangible combination for a quality, long-term sustainable business:

  1. Domino’s globally is a money spinner of a business
  2. Pizza is universally liked and well established in the sub-continent
  3. JFL has lived through some really bad times (inflation; demonetisation; GST implementation; Covid-19) and thrived 
  4. Superior economics (gross margins; ROCE; cash flows)
  5. Far bigger than any other QSR in India
  6. Fought back against the rise of food aggregators
  7. Re calibrated launch of Dunkin Donuts and rethought its positioning 
  8. De-risked franchisee risk to some extent with other brands and businesses
  9. Staggeringly large total addressable market (TAM)

Businesses are tested during tough times. Covid-19 forced JFL to rethink several aspects of its business. The easier part was to reengineer cost structures, make them variable where possible, and close unprofitable stores or those in bad locations (shopping malls). Importantly, it gave them a chance to not only reorganise stores by reducing dine-in areas and increasing kitchen space to cater for takeaways but also to renegotiate rents. Finally, JFL introduced a delivery fee. During Covid-19 lockdowns, customers had little choice but to accept delivery costs. Food aggregators like Zomato and Swiggy rationalised subsidies helping JFL in the bargain. These remarkable moves have structurally enhanced cash flows and profitability for JFL.

Dine-in still relevant but takeaways and delivery are highly profitable

Jubilant Foodworks - Channel-wise revenue mix (%)
  1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21 4QFY21 1QFY22 2QFY22
Delivery 53.0 56.5 55.1 55.3 87.4 73.3 65.1 62.3 84.5 68.4
Takeaway 10.0 12.2 13.2 12.8 10.7 22.4 21.7 19.7 10.7 18.6
Dine-in 37.0 31.3 31.7 32.0 2.0 4.2 13.2 18.0 4.8 13.0
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: Company; Kotak Securities


JFL was one of the first companies in India to introduce online ordering in 2011. In FY2018, they set up a dedicated digital team in the organization. Online orders for delivery comprise ~98% of orders with 97% placed using a mobile phone. Domino’s mobile app is amongst the most downloaded app in India. It has features such as advanced ordering, GPS rider tracking, single-page checkout and an in-built wallet. At the store level, JFL has installed dashboards where managers can visualise real-time information such as rider scorecards and delivery time. 

Best-in-class per store economics

Per Store Quarterly breakdown (Rs. M)
  Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Sep-21
Net Revenues 6.95 7.41 7.62 7.93 6.58 2.76 6.02 8.04 7.53 6.3 7.78
Gross Profit 5.28 5.59 5.74 5.94 4.9 2.15 4.75 6.29 5.83 4.86 6.09
Gross Profit Margins (%) 76.0% 75.4% 75.3% 74.9% 74.5% 77.9% 78.9% 78.2% 77.4% 77.1% 78.3%
EBIT 0.86 1.09 1.17 1.24 0.57 -0.48 0.84 1.45 1.2 0.88 1.36
EBIT Margins 12.4% 14.7% 15.4% 15.6% 8.7% -17.4% 14.0% 18.0% 15.9% 14.0% 17.5%

Source: Company; Kotak Securities


As of today, JFL’s store economics generate an annualised sales per store of around Rs.32m (US$435,000) on which they should earn EBIT of Rs.4.8m (US$65,000) based on a 15% margin assumption. Their latest store count is 1,425 but their medium-term target is 3,000. I have seen some modelling based on urbanisation and disposable income trends, which suggest that JFL could easily accommodate 5,000 stores in the next 10 years. Over time, innovation in menus, premiumisation and inflation means sales and net profits per store could rise by 2% per annum. Very simplistically, with 5,000 stores, JFL could generate sales of US$ 2.6b and EBIT of US$400m. Add in the optionality of Bangladesh and Sri Lanka and the possibility of success on Popeyes, Ekdum! and Hong’s Kitchen and it seems JFL are on to a winner.

I rest my case. Let’s order a pizza. 

Domino's Pizza stores 

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Source: Domino's Pizza US as at September 2021



Past performance is no guarantee of future performance. This is a marketing communication. The value of an investment and the income from it can fall as well as rise as a result of market and currency fluctuations and you may not get back the amount originally invested. Investing in companies in emerging markets involves higher risk than investing in established economies or securities markets. Emerging Markets may have less stable legal and political systems, which could affect the safe-keeping or value of assets. The Fund’s investments may include shares in small-cap companies and these tend to be traded less frequently and in lower volumes than larger companies making them potentially less liquid and more volatile. The information contained herein including any expression of opinion is for information purposes only and is given on the understanding that it is not a recommendation. Information on the rights of investors can be found here.

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