speciality restaurants - q3fy13 result update - centrum 07022013.pdf

7/29/2019 Speciality Restaurants - Q3FY13 Result Update - Centrum 07022013.pdf

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Please refer to important disclosures/disclaimers insideCentrum Equity Research is available on Bloomberg, Thomson Reuters and FactSet

Strong growth expected aheadSpeciality Restaurants posted 14.2%YoY revenue growth on the back of

11.8% YoY growth in own restaurant business. With price hike announcedfrom April 2013 we expect this growth to be higher going ahead. Operatingprofit was down by 2.7% on the back of increase in raw material cost andemployee cost which impacted margins. However PAT was up 39% YoY on theback of lower taxes and high other income. Maintain BUY on back of longterm fundamental growth.

Q3FY13 results below expectations: Speciality Restaurants posted 14.2% toplinegrowth in Q3FY13 to Rs612mn on 11.8% growth in core restaurant business as thecompany did not take any price hikes in FY13. Operating profit was down by 2.7%as the company witnessed 294bps margin compression due to higher cost. PATwas higher by 39% on the back of higher other income and low tax rates.

Restaurants addition on track:New restaurant addition is on track as the companycurrently has 82 restaurants of which 23 are franchisee. The management maintainedthat they will open 16 restaurants each for FY13 and FY14 respectively. The companyis also launching its Italian restaurant, Mizona, in Pune in February which is an all day

bar and eatery catering to the age group of 16-30 years. It plans to further scale upthis brand in small areas with Caf Mizona by carving out areas from Mainland Chinawhich will help the company reduce cost.

Q2FY13 Q2FY12 YoY (%) Q1FY13 QoQ (%) Q2FY13E Var (%)

Net Sales 612 535 14.2 547 11.7 624 (2.1)

Employee cost 136 108 26.6 132 3.1 139 (2.1)

RM cost 171 147 16.7 150 13.9 170 0.5

Admin & Other Exp 201 175 14.8 190 5.7 207 (2.8)

EBITDA 103 106 (2.7) 75 38.3 108 (4.8)

EBITDA margin (%) 16.8 19.8 -294 bps 13.6 323 bps 17.3 -48 bps

Depreciation 38 37 1.1 36 5.3 40 (6.0)

Interest - 8 - -

Other Income 23 10 27 27

PBT 89 70 26.5 66 35.0 95 (6.8)

Tax 22 22 15 23PAT 67 48 39.0 51 30.5 72 (7.8)

Source: Company, Centrum Research

New initiatives to drive incremental growth: Company is planning to enter theinternational markets through the JV route which is expected to materialize in the next3 months. Here the company will hold majority stake and the capex requirement will belower. The company has successfully pilot tested catering business and now isconsidering operations on a big scale in Kolkatta and Chennai under the brand MOBI-CHEF. For increasing same store sales growth the company has tied up with Just Dialfor delivery model which is expected to have ~10% of revenues over next 2 years. Thecompany is also considering the addition of more Asian cuisines in Mainland Chinamenu which will help increase footfalls and revenues.

Margins set to expand: Operating margins in the quarter declined by 294bps onthe back of lower sales growth and fixed cost business model. Pre-operativeexpenses from Mizone further impacted margins. However going forward, withprice hikes of 4-6% across restaurants, focus on increasing same store sales growth,new initiatives on international front coupled with entry into catering business, webelieve the company will benefit from the operating leverage in FY14E. Hence wehave modeled operating margins of 20%+ for the next couple of years.

Estimates lowered; Maintain BUY: We have marginally lowered our FY13Eestimates on the back of lower consumer demand coupled with higher expensesfor new restaurants. The stock is currently trading at 36x and 19.9x FY13E andFY14E respectively. We value the company at 20x FY15E EPS of Rs11.6 with ourtarget price of Rs232 and maintain BUY rating on the stock. Focus on increasingsame store sales growth, on track expansion plans, foray into the UAE market,venturing into catering business coupled with margin expansion on the back ofeconomies of scale will help the company achieve its guidance for FY15.

Key Data

Target Price Rs232 Bloomberg Code SRL IN

CMP Rs174* Reuters Code SPRE.BO

Upside 33% Current Shares O/S (mn) 47.0

Stock to Sector Outperform Diluted Shares O/S(mn) 47.0

Sector to Market Neutral Mkt Cap (Rsbn/USDmn) 8.2/153.5

Price Performance (%)* 52 Wk H / L (Rs) 227/150

1M 6M 1Yr Daily Vol. (3M NSE Avg.)

SRL (8.9) (3.3) - Face Value (Rs) 10NIFTY (0.9) 12.8 11.1 USD = Rs53.2

Source: Bloomberg, Centrum Research*as on 06 February 2013

Revenue trend

468

495

535

464

526

547

612

116

87

106

67

105

75

103

24.7

17.5

19.8

14.4

20.0

13.6

16.8

0

100

200

300

400

500

600

700

Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13

10.0

12.0

14.0

16.0

18.0

20.0

22.0

24.0

26.0

Revenue Operating Profit Operating Margins

(Rs mn) (%)


New restaurants opening on track

FY11 FY12 Current

Brand Name All Fran. All Fran. All Fran.Mainland China 30 11 38 13 48 16

Oh! Calcutta 8 1 8 1 9 1

Haka 4 0 3 0 3 0

Sigree 4 0 5 0 6 0

Flame & Grill 7 2 7 2 7 2

Machaan 6 4 6 4 6 4

Others 4 0 4 0 3 0

Subtotal 63 18 71 20 82 23

Sweet Bengal 11 0 12 0 14 0

Total 74 18 83 20 96 23


Earnings revision

FY13E FY14E

Particulars Current Earlier Chg (%) Current Earlier Chg (%)

Revenue 2,252 2,289 (1.6) 3,207 3,212 (0.2)

EBITDA 375 407 (7.9) 648 650 (0.3)

EBITDA margin (%) 16.6 17.8 -113 bps 20.2 20.2 -3 bps

Adj PAT 227 242 (6.4) 411 412 (0.0)

PAT margin (%) 10.1 10.6 -52 bps 12.8 12.8 2 bps


Ankit [email protected]+91 22 4215 9634

Y/E Mar ( Rsmn) Rev YoY (%) EBIDTA EBIDTA (%) Adj PAT YoY (%) Fully DEPS RoE(%) RoCE (%) P/E (x) EV/EBIDTA (x)

FY111,731 34.4 379 21.9 160 66.0 3.4 19.0 15.0 51.0 21.3

FY12 1,962 13.4 375 19.1 172 7.6 3.7 16.2 13.9 47.4 21.9

FY13E 2,252 14.8 375 16.6 227 31.5 4.8 11.2 7.9 36.0 18.1

FY14E 3,207 42.4 648 20.2 411 81.4 8.8 13.2 10.7 19.9 10.4

FY15E 4,148 29.3 845 20.4 545 32.5 11.6 15.2 12.6 15.0 7.7

Source: Company, Centrum Research Estimates

Retail Buy

Q3FY13 Result Update 7 February 2013

INDIA

Speciality Restaurants


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2Speciality Restaurants

Financials

Exhibit 1: Income StatementY/E March (Rs mn) F Y11 F Y12 FY13E F Y14E FY15E

Net Sales 1,731 1,962 2,252 3,207 4,148

Growth (%) 34.4 13.4 14.8 42.4 29.3

Employee Cost 330 423 520 677 866

%of Sales 19.1 21.6 23.1 21.1 20.9

Rent 238 287 336 463 590

%of Sales 13.8 14.6 14.9 14.4 14.2

Material cost 445 510 600 833 1084

%of Sales 25.7 26.0 26.6 26.0 26.1

Admin & other expenses 339 367 421 586 763

% of sales 19.6 18.7 18.7 18.3 18.4

EBIDTA 379 375 375 648 845

EBIDTA Margins (%) 21.9 19.1 16.6 20.2 20.4

Depreciation 143 129 145 183 215

Interest expenses 13 27 5 2 2

PBT for operations 222 220 225 463 628

Other income 18 27 90 117 140

PBT 241 247 315 580 768

Provision for tax 81 74 88 168 223Effective tax rate (%) 33.4 30.1 28.0 29.0 29.0

Net Profit 160 172 227 411 545

Adj Net Profit 160 172 227 411 545


Exhibit 2: Balance SheetY/E March (Rs mn) F Y11 F Y12 FY13E F Y14E FY15E

Share Capital 349 352 470 470 470

Reserves & Surplus 628 797 2,443 2,854 3,399

Total Shareholders Funds 977 1,149 2,912 3,324 3,869

Loan Funds 198 223 0 0 0

Deferred Tax Liabilities (24) (43) (43) (43) (43)

Total Capital Employed 1,151 1,329 2,869 3,280 3,826

Fixed Asset

Gross Block 1,035 1,238 1,708 2,157 2,526

Less:- AccumulatedDepreciation

410 510 655 838 1,053

Net Block 625 728 1,053 1,319 1,473

Capital WIP 102 151 151 151 151

Total fixed assets 727 879 1,204 1,470 1,625

Investments 251 150 150 150 150

Inventory 20 20 25 34 45

Debtors 56 74 74 105 136

Loans & advances 352 511 563 802 1,037

Cash & bank balances 48 47 1,253 1,259 1,527

Other current assets

Total current assets 475 652 1,915 2,201 2,744

Current liabilities & provisions 303 353 401 541 694

Net current assets 173 299 1,514 1,660 2,051

Total 1,151 1,329 2,869 3,280 3,826


Exhibit 3: Cash flowY/E March (Rsmn) F Y11 F Y12 F Y13E FY14E FY15E

CF from operations

Profit before tax 235 247 315 580 768

Depreciation & amortisation 127 129 145 183 215

Others 4 2 5 2 2

CF before WC changes 366 377 465 765 985

Working capital changes 2 ( 161) (9) (140) (124)

Cash inflow fromoperations

368 216 456 625 861

Income tax paid (90) (95) (88) (168) (223)

Cash from Operations 277 122 368 457 638

Cash from investing

Capex (141) (312) (470) (449) (369)

Investments (195) 101 0 0 0

Others 16 21 0 0 0

Cash from investing (320) (190) (470) (449) (369)

Cash from financing

Borrowings/ repayments (39) 95 (223) 0 0

Interest paid (19) (27) (5) (2) (2)

Equity/ Share Capital 110 (0) 1,536 0 0

Cash from financing 52 68 1,308 (2) (2)

Net change in cash 10 (1) 1,206 6 267


Exhibit 4: Key RatiosY/E March FY11 FY12 FY13E FY14E FY15E

Margin ratios (%)

EBIDTA Margins 21.9 19.1 16.6 20.2 20.4

PBIT Margins 13.6 12.6 10.2 14.5 15.2

PBT Margins 13.9 12.6 14.0 18.1 18.5

PAT Margins 9.3 8.8 10.1 12.8 13.1

Growth ratios (%)

Revenues 34.4 13.4 14.8 42.4 29.3EBIDTA 43.2 (1.0) (0.1) 72.9 30.4

Adj Net Profit 66.0 7.6 31.5 81.4 32.5

Return Ratios (%)

ROCE 15.0 13.9 7.9 10.7 12.6

RoNW 19.0 16.2 11.2 13.2 15.2

RoIC 27.6 21.8 15.7 24.8 29.3

Turnover Ratios

Inventory period (days) 16 14 15 15 15

Collection period(days) 12 14 12 12 12

Payment period (days) 60 63 63 60 60

Working Capital Cycle (days) (32) (35) (36) (33) (33)

Per Share (Rs)

EPS 3.4 3.7 4.8 8.8 11.6

CEPS 6.5 6.4 7.9 12.7 16.2

Book Value 20.8 24.5 62.0 70.8 82.4Dividend 0.0 0.0 0.0 0.0 0.0

Valuations (x)

PER 51.0 47.4 36.0 19.9 15.0

P/BV 8.4 7.1 2.8 2.5 2.1

EV/EBIDTA 21.3 21.9 18.1 10.4 7.7

EV/Sales 4.7 4.2 3.0 2.1 1.6

M-cap/Sales 4.7 4.2 3.6 2.5 2.0



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Appendix A

Disclaimer

Centrum Broking Limited (Centrum) is a full-service, Stock Broking Company and a member of The Stock Exchange, Mumbai (BSE) and National Stock Exchangeof India Ltd. (NSE). Our holding company, Centrum Capital Ltd, is an investment banker and an underwriter of securities. As a group Centrum has InvestmentBanking, Advisory and other business relationships with a significant percentage of the companies covered by our Research Group. Our research professionalsprovide important inputs into the Group's Investment Banking and other business selection processes.

Recipients of this report should assume that our Group is seeking or may seek or will seek Investment Banking, advisory, project finance or other businesses andmay receive commission, brokerage, fees or other compensation from the company or companies that are the subject of this material/report. Our Company andGroup companies and their officers, directors and employees, including the analysts and others involved in the preparation or issuance of this material and theirdependants, may on the date of this report or from, time to time have "long" or "short" positions in, act as principal in, and buy or sell the securities or derivativesthereof of companies mentioned herein. Centrum or its affiliates do not own 1% or more in the equity of this company Our sales people, dealers, traders and otherprofessionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressedherein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein.We may have earlier issued or may issue in future reports on the companies covered herein with recommendations/ information inconsistent or different thosemade in this report. In reviewing this document, you should be aware that any or all of the foregoing, among other things, may give rise to or potential conflicts ofinterest. We and our Group may rely on information barriers, such as "Chinese Walls" to control the flow of information contained in one or more areas within us, orother areas, units, groups or affiliates of Centrum. Centrum or its affiliates do not make a market in the security of the company for which this report or any reportwas written. Further, Centrum or its affiliates did not make a market in the subject companys securities at the time that the research report was published.

This report is for information purposes only and this document/material should not be construed as an offer to sell or the solicitation of an offer to buy, purchase orsubscribe to any securities, and neither this document nor anything contained herein shall form the basis of or be relied upon in connection with any contract orcommitment whatsoever. This document does not solicit any action based on the material contained herein. It is for the general information of the clients ofCentrum. Though disseminated to clients simultaneously, not all clients may receive this report at the same time. Centrum will not treat recipients as clients byvirtue of their receiving this report. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations,or needs of individual clients. Similarly, this document does not have regard to the specific investment objectives, financial situation/circumstances and theparticular needs of any specific person who may receive this document. The securities discussed in this report may not be suitable for all investors. The securitiesdescribed herein may not be eligible for sale in all jurisdictions or to all categories of investors. The countries in which the companies mentioned in this report areorganized may have restrictions on investments, voting rights or dealings in securities by nationals of other countries. The appropriateness of a particularinvestment or strategy will depend on an investor's individual circumstances and objectives. Persons who may receive this document should consider andindependently evaluate whether it is suitable for his/ her/their particular circumstances and, if necessary, seek professional/financial advice. Any such person shallbe responsible for conducting his/her/their own investigation and analysis of the information contained or referred to in this document and of evaluating themerits and risks involved in the securities forming the subject matter of this document.

The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significantuncertainties and contingencies. Projections and forecasts are necessarily speculative in nature, and it can be expected that one or more of the estimates on whichthe projections and forecasts were based will not materialize or will vary significantly from actual results, and such variances will likely increase over time. Allprojections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company. These projections andforecasts were not prepared with a view toward compliance with published guidelines or generally accented accounting principles. No independent accountantshave expressed an opinion or any other form of assurance on these projections or forecasts. You should not regard the inclusion of the projections and forecastsdescribed herein as a representation or warranty by or on behalf of the Company, Centrum, the authors of this report or any other person that these projections orforecasts or their underlying assumptions will be achieved. For these reasons, you should only consider the projections and forecasts described in this report after

carefully evaluating all of the information in this report, including the assumptions underlying such projections and forecasts.

The price and value of the investments referred to in this document/material and the income from them may go down as well as up, and investors may realizelosses on any investments. Past performance is not a guide for future performance. Future returns are not guaranteed and a loss of original capital may occur.Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change withoutnotice. Centrum does not provide tax advice to its clients, and all investors are strongly advised to consult regarding any potential investment. Centrum and itsaffiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report. Foreign currencies denominated securities are subject tofluctuations in exchange rates that could have an adverse effect on the value or price of or income derived from the investment. In addition, investors in securitiessuch as ADRs, the value of which are influenced by foreign currencies effectively assume currency risk. Certain transactions including those involving futures,options, and other derivatives as well as non-investment-grade securities give rise to substantial risk and are not suitable for all investors. Please ensure that youhave read and understood the current risk disclosure documents before entering into any derivative transactions.

This report/document has been prepared by Centrum, based upon information available to the public and sources, believed to be reliable. No representation orwarranty, express or implied is made that it is accurate or complete. Centrum has reviewed the report and, in so far as it includes current or historical information,it is believed to be reliable, although its accuracy and completeness cannot be guaranteed. The opinions expressed in this document/material are subject tochange without notice and have no obligation to tell you when opinions or information in this report change.

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The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of Centrum Brokin g and aregiven as of this date and are subject to change without notice. Any opinion estimate or projection herein constitutes a view as of the date of this report and therecan be no assurance that future results or events will be consistent with any such opinions, estimate or projection.


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This document has not been prepared by or in conjunction with or on behalf of or at the instigation of, or by arrangement with the company or any of its directorsor any other person. Information in this document must not be relied upon as having been authorized or approved by the company or its directors or any otherperson. Any opinions and projections contained herein are entirely those of the authors. None of the company or its directors or any other person accepts anyliability whatsoever for any loss arising from any use of this document or its contents or otherwise arising in connection therewith.

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As per the declarations given by them, Mr. Ankit Kedia, research analyst and and/or any of his family members do not serve as an officer, director or any wayconnected to the company/companies mentioned in this report. Further, as declared by him, he has not received any compensation from the above companies inthe preceding twelve months. Our entire research professionals are our employees and are paid a salary. They do not have any other material conflict of interestof the research analyst or member of which the research analyst knows of has reason to know at the time of publication of the research report or at the time of thepublic appearance.

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Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulationsand/or Centrum policies, in circumstances where Centrum is acting in an advisory capacity to this company, or any certain other circumstances

Key to Centrum Investment Rankings:

Stock to Sector Sector to Market Stock to Market

Outperform Buy

Neutral BuyOutperform

Underperform Accumulate

Outperform Neutral

Neutral NeutralNeutral

Underperform Neutral

Outperform Reduce

Neutral SellUnderperform

Underperform Sell

Accumulate: Add on decline; Reduce: Sell on rise

Stock to Sector This is the relative rating of the stock to the sector and reflects its relative attractiveness vis--vis other coverage stocks in the sector. Sector to Market This is the relative rating of the sector vis--vis the other sectors in the coverage space. This is derived based on the conviction of the

analyst on a sector and macro view outlined in market strategy.

Stock to Market The final rating on the stock is obtained as a combination of the stock to sector and sector to market view as outlined in the table above.


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Member (NSE, BSE, MCX-SX), Depository Participant (CDSL) and SEBI registered Portfolio Manager

Registration Nos.

CAPITAL MARKET SEBI REGN. NO.: BSE: INB011454239, NSE: INB231454233

DERIVATIVES SEBI REGN. NO.: NSE: INF231454233 (TRADING & SELF CLEARING MEMBER) CDSL DP ID: 12200. SEBI REGISTRATION NO.: IN-DP-CDSL-661-2012

PMS REGISTRATION NO.: INP000004383

MCX SX (Currency Derivative segment) REGN. NO.: INE261454236

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Registered Office Address

Bombay Mutual Building ,

2nd Floor,

Dr. D. N. Road,Fort, Mumbai - 400 001

Correspondence Address

Centrum House

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