Good Morning Toasters!

Sssup friends!! The markets started us off well, with all green everywhere. For the first time in I don’t know how long FIIs participated in the rally, closing the day in a Net Positive buying position. What inflation? What recession? Let’s hope this continues 🤭

In today’s issue, we look at Jubilant FoodWorks aka Domino’s quarterly numbers, with the OG pizza maker of the country recording another strong couple of months of delivery channel sales. The company had been battered (a bit) due to high valuations and churn at a management level, with the reverse now happening. A new CEO announcement took the stop >9% during market hours. Nice!!

Zee Entertainment reported its numbers last week, and even with EBITDA misses across business lines, the stock reacted in the positive, closing >3% during the day. The company is probably going to miss the initial 8-9 month merger closure deadline it had set, and with other external factors hampering growth, short-term pain exists in what could soon enough be India’s largest entertainment company.

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Market Watch

Nifty 50: 16,661.40 | +308.95 (+1.89%)
FII Net Bought: INR 502.08 crore

Sensex: 55,925.74 | +1,041.08 (+1.90%)
DII Net Bought: INR 1,524.49 crore

Company News

Zee5 and Zee Music drive revenues for Zee Entertainment; what’s up and what do you need to know?

Quarterly Financial Update

• Zee Entertainment’s consolidated revenues grew by 18.2% year on year to INR 23.2 Bn, largely due to higher income from the movie production business
• Advertisement revenues, which make up ~50% of the overall kitty were down 0.3% YoY as advertisers continued to face higher inflationary pressures, with this likely to persist going forward
• EBITDA % was down by ~6.5% for the quarter, as programming costs increased by 49% to INR 12.6 Bn, signifying the overall challenges being faced by broadcasters the world over
• Zee5 revenues came in at INR 1.6 Bn, which were up 11% from the last quarter, as the company continues to build out a healthy subscription-based B2C model (more details below)

Business Update

• The company launched more than 90 new shows during the quarter, and yet recorded a market share loss, touching 17.1% (at a network level), which is concerning given the higher capital investment made by the company
• On the plus side, Zee5 and Zee Music continued to record positive traction through higher MAUs and DAUs (see image below), with Zee5 now recording ~105 Mn MAUs and ~10.5 Mn DAUs
• That being said, given the overall macro environment (think: Netflix), the company at the moment has guided for continued investments in production, which will likely lead to EBITDA loss (in OTT business) in the near future
• The company is still awaiting final approval from the exchanges on its proposed merger with Sony Entertainment, which makes the initial 8-9 month deadline seem far-fetched (we think)

Interesting! Final thoughts? What to expect going forward? Anything on stock/valuations?

• Z IN is facing several near term challenges presently –
  • Slowing advertisement revenue, due to the high inflationary environment makes advertisers cautious
  • Continued EBITDA losses in Zee5 business, due to continued investments in content production and library
  • Linear TV revenues are likely to remain impacted due to the delay in NTO 2.0 implementation (pricing mechanism implemented by GoI)
  • Slower than expected headway in the regulatory process of merger with Sony Entertainment
• That being said, the combined Sony + Zee Entertainment entity will be massive in terms of sheer size & scale of OTT + traditional linear TV revenues, likely keeping the company ahead of its competitors
• The stock was up during market hours, closing higher by ~3% in reaction to the quarterly results, with the market enthused on the headway made in the OTT business (we think)

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Around the World 🌎

• Netflix quadruples down to find its next Squid Game: In an effort to re-discover the Mojo and find its next blockbuster, Netflix went all in promoting the latest season of its OG show, Stranger Things. Like spending a reported USD 30 Mn per episode on the 9 part show wasn’t enough, Netflix transformed 15 global landmarks into giant ST Ads, think a Polish castle. Netflix produced 500 shows last year, in an effort to stay ahead of the content game, although with increased costs the company plans to reduce the total number of shows, while maintaining its original USD 20 Bn content budget 🤭
• Shareholders of Fortune 500 companies put their foot down: The median pay for CEOs of American companies hit a record high of USD 15 Mn last year, which was also the year the S & P 500 grew by 27%, makes sense right? So this year, as the market tumbled, so did votes for executive pay. Regulatorily required to have a majority of investors ‘Ok’ proposed salary hikes/reduction, investors at blue-chip stocks like JP Morgan and Intel declined to approve updated compensations, while Coke just about got through. This is just the beginning?
• The United Kingdom hits oil companies with windfall gains tax: In true blue Robinhood fashion, the United Kingdom Government announced plans to impose a temporary levy on oil-and-gas producers to help soften the pain of soaring energy prices on consumers, a rare-so-called windfall tax. This decision comes at a time when soaring commodity prices have led to record profits for oil and gas companies, sorely blunting consumers & businesses in the process, however

Company News

Jubilant FoodWorks rises >9% on new CEO announcement; what’s up and what do you need to know?

• Master franchise holder for Domino’s in India (& other neighbouring countries), Jubilant Foodworks created a new all-time record, opening 80 new Domino’s stores, taking the cumulative India store strength to 1,567 stores across 337 cities
• Revenue for Q4FY22 grew to INR 11,579 Mn (up ~13%), entirely driven by robust growth in the delivery channel; dine-in and takeaway channels recorded low growth, partly due to a washout in Jan’22 due to omicron wave
• The company closed FY22 on a record note, as revenue grew by 32.5% to INR 43,411 Mn, EBITDA grew by 44.1%, while PAT increased by 87.2%, signifying the serious push in numbers provided by Covid & other factors
• Jubi entered 17 new cities during the quarter, while expanding operations to 48 new cities during the financial year, across its offerings, including Domino’s, Popeyes, Dunkin Donuts, Hong’s Kitchen and Ekdum Biryani

Damn, that’s some serious growth! Share some more information?

• Jubi recorded 7.7 Mn new mobile app downloads during the quarter, up from 6.1 Mn in Q4FY21; Mobile ordering as a % of Online Ordering now stands at ~97.4%, while Online Ordering as a % of Delivery Sales stands at ~97.9%
• This is a remarkable recovery for the company, who at one point struggled to get a working application in the market; mobile ordering is now key for activation & closure and will likely only grow further from here on
• Internationally, weirdly enough, the macro & political situation in Sri Lanka did not deter the company from recording strong delivery sales growth of ~84%, with the company also opening 3 new stores during the quarter (total count of 35)
• Jubi’s new fortressing strategy is kicking in, with the company now splitting stores (within area circumferences) to increase accessibility, and reduce delivery cost and wait time, leading to higher system-wide sales & profits

Nice! What’s the situation with the CEO? And going forward?

Background

• Outgoing CEO, Mr. Pota has been largely responsible for the streamlining of operations, strong growth via improved product offerings (better quality Pizzas), and successful rollout of the mobile application, transforming the company into a Food-tech player (amongst multiple other initiatives)
• His resignation, which triggered a sharp drop in the stock (down 15% on the day of the announcement), wasn’t taken very positively by the markets, with the stock also getting hammered due to a combination of expensive valuations and slowing growth, eventually touching its 52 Week low in March’22

New CEO, New Positivity 😝

• In announcing their quarterly numbers, Jubilant also appointed a new CEO, Mr. Khetarpal, who joins from Amazon, with the market extremely enthused with the new MD & CEO, as the stock rallied by >9% (some entry 🤭)
• According to the release, Mr. Khetarpal spent 6.5 years at Amazon, launching & scaling several businesses including Amazon Fresh, Food and Pharmacy, leveraging technology to scale
• A CEO from a traditional Tech business is an interesting hire, significantly altering the image of Jubilant, from just a pizza delivery chain to now a food-technology platform company, with multiple opportunities to linearly and nonlinearly scale the current business (we think)

Going forward?

• The stock touched an all-time high in October’21, but has ~halved in value since then, with growth stagnating due to post covid-19 rejig in consumer preferences, coupled with expensive valuations
• FY22 was a solid year for the company, growing on delivery channel preferences, while streamlining the supply chain and maintaining quality

More of the same going forward?

What else caught our eye? 👀

ONGC becomes India’s 2nd most profitable company

• The Oil producer, ONGC beat Tata Steel, TCS, and HDFC Bank to become India’s second most profitable company, after Reliance Industries
• ONGC reported a net profit of Rs 40,305 cr for FY22, a 10% jump in Q4 consolidated net profit, possibly due to crude oil prices soaring to almost $140 a barrel
• This profitability seems to be unsustainable, especially since Russia Ukraine tensions settlement would result in colling the soaring crude

Tata Motors to acquire Ford’s Sanand plant

• Tata Passenger Electric Mobility Limited, Tata Motors’ subsidiary, has signed a Memorandum of Understanding (MoU) with the Gov of Gujarat for acquiring Ford India’s Sanand vehicle manufacturing facility
• The deal includes the land, building, vehicle manufacturing plant, machinery & equipment, and transfer of all eligible employees of the Sanand plat’s manufacturing operations
• The plan is to invest in new machinery and equipment at the plant, which would establish an installed capacity of 300,00 units per annum, scalable to 400,00 units

Educational Topic of the day

Reward-To-Risk Ratio (RRR)

The reward-to-risk ratio (RRR) measures a trade’s potential returns against its predetermined risk of loss. The ratio is computed by dividing the profit that trade is expected to yield by the loss that the trade may incur.

Edited by Raunak Karwa

Let’s connect, I always love hearing from you. Hit me up at Raunak_Karwa on Twitter or Raunak.karwa@finlearnacademy.com