Jubilant FoodWorks rallies 5% on partially acquiring stake in O2 Renewable

Jubilant FoodWorks stock: In January 2024, Jubilant FoodWorks had received approval to invest and enter into a Power Purchase Agreement and Shareholders Agreement with O2 Renewable Energy

Jubilant FoodWorks stock price zoomed 5.4 per cent to Rs 462.8 apiece on the BSE in Tuesday's intraday trade, after the company said it has partially completed acquisition of compulsory convertible debentures (CCDs) and equity shares of O2 Renewable Energy XVI Private Limited.

"The company has acquired 20,484 CCDs of face value of Rs 1,000 each, and 2,27,603 Equity shares of face value of Rs 10 each in O2, and the acquisition of remaining securities is likely to be completed on or before June 30, 2024," Jubilant Food said in an exchange filing.

At 1:35 PM, Jubilant Food stock was trading 4.9 per cent higher at Rs 460.6 per share as against 0.3 per cent gain in the benchmark S&P BSE Sensex. 

In January 2024, Jubilant FoodWorks had received approval to invest and enter into a Power Purchase Agreement and Security Subscription and Shareholders Agreement with O2 Renewable Energy XVI (O2 Renewable), a wholly-owned subsidiary of O2 Energy SG, Singapore.

Jubilant Food was to acquire up to 6.32 per cent stake of O2 Renewable for purchase of renewable energy power (electricity) generated from the Captive Generating Plant (CGP). 

"The arrangement is for the purpose of accessing renewable power (up to 4.51 MW) through captive arrangement and to meet the captive requirement as defined under the Electricity Rules, 2005. This will help meet the green energy requirements for the company’s commissary located at Adinarayana Hosahalli Industrial Area, Karnataka, and optimise energy cost," Jubilant had said in its statement.  

Jubilant FoodWorks has the largest market share in the pizza segment in India and is one of the leading players in the food service industry.  The group has been continuously expanding its brand portfolio in different cuisines.

It has master franchise rights with Domino's Pizza Inc. to develop, establish, own and operate restaurants in India (since 1995), Sri Lanka, Bangladesh, Nepal, Turkey, Azerbaijan, and Georgia. 

The group operates Dunkin' franchise in India since 2012. The group has gained exclusive rights to develop, establish, own and operate Popeyes restaurants in India, Nepal and Bhutan since 2022, and through the acquisition of DP Eurasia, it added COFFY brand to its portfolio. The company has also entered into the Chinese cuisine category through its homegrown brand Hong’s Kitchen. 

JFL benefits from Domino's strong foothold in the Indian market, with a healthy revenue CAGR of 11 per cent over FY18-FY23, supported by the continued addition of stores and brand portfolio, increased consumer preference, growth in online sales and menu innovation. 

"The group's net adjusted leverage ratio increased to (net debt+ leases/Ebitda) of 2.2x in H1FY24 (FY23: 1.9x) and the interest coverage ratio (Ebitda/interest expense) declined to 5x (5.8x). Also, out of the total debt of Rs 2,607.8 crore in H1FY24 (FY23: Rs 2,553.7 crore), lease liability accounted for Rs 2,422.2 crore (FY23: Rs 2,371 corre) and the balance Rs 185.6 crore of long-term loan availed by the group for increasing its stake in DP Eurasia," rating agency India Ratings said in a recent note on April 25.

Ind-Ra expects the credit profile of the group is likely to have slightly moderated with a net adjusted leverage of 2.5x-3x in FY24; however, the interest coverage ratio remained strong at 4.5x-5x. The group's plan to continuously open new stores leads to increased capex requirement. Ind-Ra expects the capex to be largely funded through internal accruals; therefore, the metrics are likely to improve from FY25 on account of higher Ebitda generation post-acquisition.

Given this India Ratings has re-affirmed its ratings on Term Loan (Rs 200 crore), and Proposed Working Capital Limit (Rs 100 crore) as 'IND AA+/Stable' and 'IND AA+/Stable/IND A1+', respectively. It has also assigned 'IND AA+/Stable' rating to Term loan (Rs 110 crore) and 'IND AA+/Stable/IND A1+' rating to Proposed Working Capital Limit (Rs 140 crore).

"The affirmation reflects JFL's dominant market position in the quick service restaurant segment, strong business model with its presence in multiple brands and geographies, the acquisition of Netherlands-based DP Eurasia to expand business presence and diversify revenue base, moderate credit profile due to the acquisition which is likely to improve FY25 onwards, and the sustenance of its strong operational performance in FY25. However, the ratings are constrained by its concentration risk mainly in Dominos, execution risk, competitive pressure and raw material cost inflation," India Ratings said.