Focus on increasing Domino's outlets: Jubilant FoodWorks

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Jubilant Foodworks, the company that runs the Domino's Pizza food chain in India, listed on the stock markets on Monday.

The heavily-subscribed issue saw a positive listing as it surged soon after listing . At 09.35 am, the stock was trading at Rs 197 on the NSE, a gain of almost 36% over its listing price of Rs 145.

Jubilant has raised about Rs 328 crore by selling 2,26,70,477 shares via the IPO.

In an interview with CNBC-TV18, Jubilant's CEO Ajay Kaul said the company saw a lot of headroom for growth. "The consumption of pizzas in India is quite low - only about 2% of the overall food market. We are looking at expanding the market by improving penetration," Kaul said, adding that Domino's would increase the number of its stores aggressively.

The company's PAT margin stood at 9.7% in the third quarter while the fourth quarter would see a margin of over 10%, the CEO said.

Jubilant has a 25-year exclusivity agreement with Domino's for India and Kaul said it was the fastest growing franchisee in the world.

The company is also talking to other brands for franchisees, said Hari Bharti, the company co-chairman, but he did not comment on speculation that it was in talks with US' leading coffee shop chain Starbucks.

Here is a verbatim transcript of the exclusive interview with Ajay Kaul and Hari Bhartia on CNBC-TV18. Also watch the accompanying video.

Q: Could you first talk about the business prospect? Given penetration levels for pizzas, what kind of a revenue growth trajectory do you see over the next two-three years?

Bhartia: The organised food industry is about 12-13% only. So there is a lot of headroom for growth. The growth depends on how you are able to expand into multiple cities and Jubilant Foodworks is now present in almost 65 cities with 296 stores. We see a huge opportunity for creating more stores.

Q: If you look at your FY10 guidance, you probably will end up with Rs 420 crore in sales and Rs 32 crore in profit. I think your investors would want a little bit more comfort on the bottomline, so that valuations optically do not look very big or very large. When can you get your profit after tax (PAT) margins up to double-digit levels because now they are closer to 8% odd?

Kaul: If you look at our last quarter number it is at 9.7%, which is vicinity of double-digit. Practically speaking, as we are running into close of this year, we should close at around 10% for the last quarter as well. Going into next year we hope to continue at the same pace if not better.

Q: For now you are holding out a target of an earnings per share (EPS) of Rs 5 for the stock. Is there any chance of that being upped and what do you think might look like a more doable target then?

Kaul: As we move into next year, we obviously are looking at improving our margins and profitability. That's all I can say at the present moment. We hope to grow our EPS as we go along.

Q: You already own or hold about 65% of the organized market share in terms of home delivery for pizza. How much you think that can scale up within this calendar year even?

Bhartia: If you are asking me will we increase our market share? I think more than market share our objective is to increase the market because if you see though we are present in 65 cities, but I do not think we have been able to saturate this 65 cites yet. As and when we do saturate the markets, we see that the markets are growing because the consumption level of pizza is quite low at this moment and we hope to increase that for each customer.

Opportunity-wise it's difficult to estimate but we see a huge upside in terms of number of stores. So more than market share we would work on expanding the market.

Kaul: To add to what Hari just said, Pizzas and Pastas put together form just about 2% of the total food market. So you can imagine how small that number is and the headroom to grow thereby. Secondly, if you go by our last three-four years system level growth, we have been growing compound annual growth rate (CAGR) at around 42-43% whereas the estimate of the market growth by all the qualified reports is just about 20-25%. So we believe that something like that should continue in future as well.