Jubilant FoodWorks Limited (JUBLFOOD) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Jubilant FoodWorks' Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Lakshya Sharma. Thank you, and over to you.

Thank you, Yashashri. So a very good afternoon, everyone. A warm welcome to Jubilant FoodWorks' webcast and conference call for post-acquisition update on our businesses in Turkey and Bangladesh. We are today joined by our MD and CEO, Mr. Sameer Khetarpal; our EVP and CFO, Ms. Suman Hegde; our Senior Vice President, Finance and CIRO Mr. Deepak Jajodia. Please note that some of the information you will hear during our discussion today will consist of forward-looking statements, which reflects management's current views and estimates. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. Potential risks and uncertainties include such factors as general economic conditions, business dynamics and many of the factors that could cause our actual results to differ materially from those contemplated by the relevant forward-looking statements. We will now begin with our webcast, and we'll then open up the lines for your questions. Over to you, Sameer, sir.

Yes. Good afternoon, everyone. I'm so delighted to welcome you on our update call for DP Eurasia and along with Bangladesh that we are discussing. Let me quickly start by sharing the agenda. So like I said, the objective of the call today is to give you an acquisition summary and the rationale behind our investment in Turkey as a country and then Domino's and COFFY as businesses. We'll also update a bit on Bangladesh and together what -- how they are -- they come into Jubilant FoodWorks and what they're doing to our business. We'll talk about the key financial performance and the pro forma P&L. And then finally, we'll end the call with the JFL Store network. We'll, of course, take questions from all of you. This is a brief summary of both the acquisitions. DP Eurasia is the sixth largest Domino's franchisee, having exclusive rights to operate and open Domino's store in Turkey, Azerbaijan and Georgia. DP Eurasia opened the first store in Turkey in 1996 and began to open its franchisee stores in year 2000. The group took over the master franchise agreement in Azerbaijan and Georgia in 2013, it incubated a coffee brand called -- or a beverage brand called COFFY in Turkey. The system sales of DP Eurasia's continuing operation for calendar year 2023 was INR 2,897 crores. The overall cost of acquisition for 94.28% shareholding in DP Eurasia was INR 1,199 crores. To fund the acquisition, we have taken a facility of INR 947 crores at an interest rate of 5.39%. The balance was fund through internal accruals and cash reserves. On May 10, 2022, we also completed the acquisition of remaining 49% in Jubilant FoodWorks Bangladesh for INR 34 crores, fully funded through internal cash accruals. The revenue for 9 months for FY 2024 for Bangladesh is INR 40 crores. In addition to Domino's, we also have right to operate Popeyes in Bangladesh. With that background, let's talk about the strategic rationale. The underlying objective is to build a very attractive portfolio of brands in promising high-growth underpenetrated markets. We have been quietly building a unique platform, which has 3 systems that act as a virtuous flywheel. These are multi-brand, multi-country and food tech. Multi-brand of course, is the capability to be brand-agnostic. Multi-country allows us to replicate the India playbook which is an emerging market playbook into many countries which display similar India-like traits in terms of income, consumption patterns, growth opportunity and also leapfrogging digitally. Food Tech, which is the point that I was alluding to is the third system. We understand the interplay between tech and ops and also the interplay between aggregators and our own assets. Both the acquisitions give effect and further strengthen the platformization at JFL that we have been following as a strategy. If you look at Turkey as a geography, right? And having visited multiple times now, it is -- you can see the vibrancy. It is the fastest-growing economy in Europe, has made very material impressive gains over the last couple of decades. In the early 2000 broad-based macroeconomic and structural reform supported income catch-up towards more advanced countries in Europe. This moved Turkey firmly into upper middle income bracket. It has a large [Audio Gap] much bigger market. As per industry estimates by CY 2026, the food services market will grow to $28 billion at a 15% CAGR, and QSR will comprise of 46%. So very similar trends to India, but much ahead in terms of penetration and per capita consumption of QSR. Domino's is the second largest QSR in Turkey and as a dominant player in the pizza market with 50% market share in value terms. Again, very similar characteristics where Domino's in India is #1 QSR and nearly 70% market share. So that's why we like Turkey. Key drivers of Turkey foodservices market growth, what is even more comforting is the underlying growth potential of foodservices market in Turkey driven by 3 factors: a very strong economy; favorable demographics; increasing penetration and growing online orders. In fact, we do see a build-out of multi-brand organizations over there, which is a process that we are also following in India. Now specifically on Domino's Turkey. Domino's Turkey, it kind of has all the traits that one will desire in a successful franchisee. The team has been very successful in applying a Domino's business model by adopting -- adapting to its needs in the local market, adjusting for inflation. The CAGR between 2020 and 2023 for system sales of Domino's Turkey has been 20.4%, very impressive growth. I think the per capita consumption is panning out in the market and also Domino's capturing it. The -- we've had an inside view of the team over there for the last 3 years and we as a Board representation. So we've seen how the founder operates and the founder led experience management team has a stellar track record, very deep roots in the company, many of them started very early with -- and been there in the company, therefore, understand the market and the business very well. We have a track record of delivering resilient profitable growth, even when some of the macroeconomic challenges have been tough. The -- there is a continuous improvisation and their already strong data and retail capabilities, which help them to improve share of online ordering, and also the food is very differentiated in terms of that, again, being a QSR company, they have been really at the forefront of innovation, and you can see some of the images on the page. It's not stopping here, there are multiple possibilities. They've launched value range, wraps, salads, extra-large pizzas, very strong baking heritage. So very strong team and innovation culture that they've built in. So specifically on the operating metrics, I think these are important. In 2023, the number of Domino's stores is 690 exact, with a medium-term potential of 1,250 stores, very heavily franchisee model, nothing, again, very unique, something that we can definitely learn in India and also when the economy will start maturing, it opens up tremendous possibility as you see the nearly 90% of the stores now are owned by franchisees. Online orders contribution has increased to 84% and again, will grow rapidly. Turkey has also been one of the hotbed of digital startups. It has like aggregators and one of the earliest aggregators were actually founded in Turkey. The dominant channel, therefore, is delivery with 73% channel contribution. The system sales and LFL let's talk about that after adjusting for inflation, I think that is important in calendar year 2023, the system sales growth was 31% and like-for-like growth was 27%. This was despite a devastating earthquake in February. So again, the team has done a stellar job of giving inflation adjusted like-for-like growth. Let's look at the debt. The DP Eurasia debt was largely account of Russia, Domino's Pizza Russia. On August 2021, 2023 (sic) [ August 21, 2023 ], DP Eurasia announced it has initiated the steps to file for bankruptcy in DP Russia. The net debt of -- as of 31st December is TRY 466 million, and the external debt for DP Russia has been paid for in August 2023. Since Turkey operations generate high cash flow and are profitable, the debt at DP EU level is actually will reduce significantly from here on. So I think that was one of the big drivers for us to increase our stake beyond 50% when we saw that Russia is -- the hangover of Russia is no longer there. Very similar to India now like we are trying to do multi-brand, I think that is a journey that Aslan and team has been chasing or incubating. COFFY is, in fact, a big success. Unlike India, coffee consumption is very high with a very high frequency. And I have -- whenever I've traveled, I've seen very high average weekly orders and the stores just being full not only for COFFY as a brand but also for other coffee chains. At least 53% of the Turkish -- our Turkish coffee consumers are consuming more than 2 cups a day. It is also a country where there are no pubs, right? So I think it's important to note why coffee culture is higher for youngsters. Being a Muslim country, you will not find pubs like you find in India or Europe, anywhere and therefore, for the youth to hang out, coffee is one of the go to -- or the go-to place. Considering a very high frequency, DP Eurasia team came up with an idea of building its own brand after carefully evaluating all others and all other global brands were wanting to partner with them. So the COFFY is -- the proposition is very simple, very attractive price point. You can buy any coffee at a single price. And the deal over here for a consumer is hit coffee -- this coffee as a brand is not cheap, but just others are expensive. So pretty strong value orientation and therefore, you see how the brand has been built, very youth-centric versus other brands which are more mature and which are for older population. Very digitally savvy. The app works very functionally well with the loyalty program. So very well executed with the trial store opened in October 2019 in Istanbul. It's the tenth largest coffee brand in Turkey with 89 stores, and very strong promise to be among top 5 in the next couple of years. So I think it is catching up very quickly. COFFY has demonstrated strong performance and presents an additional growth factor for us. 74% of the network again is by franchise, so very quickly how the team operates, is very frugally without taking -- investing heavy in company-owned -- or investing CapEx in company-owned assets they've been able to franchise it very successfully. All of this is obviously done by a very strong leadership team. As you will see a rock solid, rock stable team. And let me call out a few of the names. Aslan, who is the founder, CEO, started with the first store literally, just was trying to help a friend with the first store. Since then its history, now has opened more than 700 stores. The average store and the -- since inception has been there in 1996 and led the team for now 28 years. So this is first job. And what a terrific performance to build such a large franchise. Including the CFO; and Kerem, who is the CEO for our Turkish operations -- runs COFFY, runs Domino's Pizza over there. Again, a very, very old hand, been in the company for I think more than 20 years, if I'm not mistaken. Then Muhsin been again there. He was doing COFFY as a side project, but now it's full time into COFFY. Again, comes with a very strong deep experience on supply chain, understanding operations, understanding the ecosystem of franchisees. Ege has recently joined us. One of the first 2 or first 3 food aggregator startups in the world, and so it's again, very deep experience. Again, the team is able to attract the best talent from the market and being able to retain it. So very rock solid leadership by Aslan. We have shared key metrics for DP Eurasia for 2023. Since this is a franchisee-led operations, what is really noteworthy is the -- just 1 second. Yes, the noteworthy the revenue and the PAT. So as you can see, the PAT margin of 9.5% is materially accretive to JFL's PAT margin. The -- the pro forma financials are created assuming the control was established on 1st January 2023. As you can see, the acquisition is EPS accretive for us, the efforts will be to ensure that we continue to deliver profitable growth. I'll quickly touch upon Bangladesh. I think I missed a few slides, but just giving you a very quick overview of Bangladesh. So Bangladesh also has a very strong record of growth and development. Over the last decade, the economic growth has averaged 6%. In fact, a couple of years ago, per capita income was higher than India. It is -- while we -- again it displays where India like characteristics. If Turkey maybe is 7, 8 years ahead of India, Bangladesh I can say is maybe 2 or 3 years behind India, right? So I think that's kind of the -- but still in the ballpark range of the opportunity it presents Domino's store when we started maybe a year, 18 months ago, we were probably #4. Now we quickly moved to #2 in terms of the QSR, #1 player by far in pizza throughput per store versus Pizza Hut is very similar. The differences will see is very similar that is in India. So the market in Bangladesh is about less than $1 billion. We entered the market in 2019, but -- been the fastest-growing brand in the country, we also recently signed a partnership with foodpanda over there. Jubilant FoodWorks Bangladesh, after having achieved the requisite demand economics with EBITDA margin of mid-single digits, payback periods of nearly a little over 3 years, we have accelerated the pace of network expansion. We're confident about the unit economics in Bangladesh now. We now have -- we have 26 stores, but we see a medium-term potential of about 200 stores. The ADS of mature stores is now nearing the levels of -- it is a very heavy non-veg eating market, as you can imagine. So therefore, the ticket -- average ticket price is much higher than India. Online contribution to delivery sales is inching up and very similar to the levels in Turkey and India, this metric has reached 99%, of course. Interestingly, the channel mix in Bangladesh have skewed in favor of dining. Again, the QSR-ization in the market is happening, and dining is 61%. And it's a market that -- or the consumers love to go out eat, eat in families and therefore, the ticket prices are also larger. Again, we have cruised the leadership team in this geography, realizing that this is an important year. So we have kind of put Avinash Kant, who's the President, nearly 9 years in Jubilant FoodWorks to lead the charge; Sanjay, who is Head of International Business; and Saumil, who's the local CEO. So again, as you will see, the team comes with excellent background and pedigree, very capable of scaling -- capable of scaling Bangladesh. So I think just taking a final look at the network. I think the message from this is this page is that we are becoming a multi-brand, multi-country. And of course, technology is underlying. So our vision of multi-brand, multi-country, food tech powerhouse. I think we continue to be on that course. And with the acquisition of Turkey and Bangladesh, we're cementing or demonstrating how our strategy is working. Our guidance on store expansion in the medium term is to operate 3,000 Domino's stores in India, 1,250 stores, Domino's stores in Turkey and 200 Domino's stores in Bangladesh. So we are first time kind of giving an outlook on Bangladesh on this call. Among other brands, Popeyes will reach 250 medium stores. We've talked about it and be the fastest to reach INR 1,000 crores in revenue. And COFFY will reach 150 stores network by end of this calendar year. So we'll have like India plus Turkey, plus Bangladesh has 3 demonstrated leadership position for Domino's and 2 scaled-up brands, Popeyes and COFFY. So that's the message from this page. Therefore, we are representing some of the strongest emerging market and have a network and a brand portfolio with leadership positions across all Domino's market and a strong challenger in form of Popeyes and COFFY. Our continuing focus will be to draw a superior trends from platformization at JFL and drive superior top line and bottom line performance. So I think that's pretty much from my side in terms of introducing you to Turkey and Bangladesh. With this, I request the moderator to open the floor for Q&A.

[Operator Instructions] We have our first question from the line of Amit Rustagi from UBS Securities.

Yes. Thank you, sir, for giving us great insights into these 2 businesses. You have mentioned about the growth in the stores for the both formats, COFFY and Domino's. Could you give us some aspirational numbers what we start to look at from these businesses? And second thing you mentioned was the franchise model. So do you think that we will learn a lot on the franchise model and if there is a possibility of implementing some of these brands in India?

Yes, I think the numbers are given on the presentation that we send. If you have a specific question, very happy to take in terms of medium-term potential and also the growth trajectory. I think on franchisee model is a very interesting one. Amit, I'll be honest here, it has opened our eyes, right? And how much of that is applicable to India? We need to study carefully. The way the team has operated this model with a very, I would say, science and arts combined into it. It is actually very commendable. It is actually a secret sauce. When secret sauces are typically hard to replicate -- very difficult to lift and shift. I'm also aware of the reality in India. In QSR, there are no such franchisee -- successful franchising model, as you would have noticed. Anybody and everybody who kind of soft franchise have ultimately gone to company-owned company-operated model. Having said that, this was the past. India is also changing materially. There is capital available. Other consumer-facing brand, like in jewelry or even in fashion and apparel, are beginning to teach us that this is an opportunity for a leading player like Jubilant, we need to look at this seriously. So we are evaluating. We are learning. And if there is some experiments that we need to do, we will not shy away from those experiments.

Yes. Just coming back to the first question, you have mentioned the system sales revenue, PAT from the continuing operations for CY '23. So my question was that how do we think about growth in '24 and '25. So what kind of system sales growth or LFL is possible to deliver in these businesses? And then you -- and you have already mentioned about the growth in the store numbers for both the products. So you can help us in giving some numbers on CY '24 and '25?

I think the track record of the team is actually to be ahead of the inflation. I think that's what the number that I really care about the most. 20% to 23% growth definitely we should expect. We are also, like in the process of formalizing our budgets, et cetera, as we're learning more about getting deeper into it. As we speak, the team is actually here in India. So allow us some more time to give a view of what I care about is growing ahead of the inflation that is the number that I am pushing and that definitely will happen.

The next question is from the line of Arnab Mitra from Goldman Sachs.

My question was that the currency has been -- Turkish currency has been depreciating, continuously for many years, and the current rate versus the INR also seems to be much lower than the pro forma base that analysis that you gave. So just wanted to understand how do you think this affects the INR business? How much is mitigated by pricing? If you could give us some sense on how to think about this currency depreciation and the impact on the profits?

Arnab, firstly, it's a great question. And I think that is something that we do have modeled this. You're right, currency depreciation is high and also unknown, right? But let me share further color with you. When we picked up the stake, we started with 9.8%. From our lens, we are more driven by the conviction behind the strength of the brand and the local market that the opportunities the local market presents. The track record of the team is to actually beat the inflation, right, consistently, and that is what they have proven. They have a very deep price increase science that they've built in. They know which markets to take how much price, at what time? So there's a very deep science into it. When it is viewed from the growth perspective, we hear less about the currency reporting as there is no fund infusion required from our business, from our side. But more to do with how large this business can become in the local currency. And I think as long as they beat the inflation grow faster than the inflation, the volumetric growth is there, underlying volume metric growth is there. They open the stores, I think it will be accretive to us. Fundamentally, I look at it more from a business lens versus an economic lens. I think also the recent game change have -- not change, but the recent policy changes have actually startups -- indicated more controlled inflation environment. So -- but anyway, I don't index on it, that's very hard to control and predict. But underlying business is rock solid and grows ahead of the inflation.

Got it. So just to clarify, what you're saying is that the underlying business, given that you think can grow ahead of inflation is okay. But the translation into INR is something that may be different based on how the currency is doing. And therefore, when we look at consolidated EPS, there could be some impact as we build in the lower currency levels.

I think is -- it will be EPS accretive, right? I mean -- so therefore, from that perspective, I think I indexed on that, the index on margins, percentage margins, as both are happening, and I actually don't see -- I think what you should look at is the deal will continue to be EPS accretive.

Understood. Understood. And one last question on the franchisee model because we have not tracked any company in this model as such. So what is the key driver for margins in this business? Is there -- like India, we know QSR has very high operating leverage there is, therefore, a big margin volatility based on growth. In a franchisee model, is it a lot lesser, and any key drivers for, let's say, profitability improvement or risks that could be there to profitability in such a model? That was my last question.

Yes. Nothing -- a very interesting model. Firstly, the rentals are lower versus India. That is one piece. Therefore, it will leave room, the room for expanded margins. Now the revenue sources for DP Eurasia are actually 4. One is the sale of food to the franchisees. So they have commissaries and therefore, get centralization benefits. Second is the royalty fees. The third is technology and fourth is marketing, right? These are the 4 pieces, sources of revenue for them. And I think I don't see any challenge. In fact, we will get some buying efficiencies together with Jubilant. We'll also have a better relationship with Domino's. Therefore, we do expect some swaps from them. And third is, as you would know, for a company of this size and this market cap, at least it doesn't make sense to be listed, right? And therefore, we have corrected that. The overheads of getting listed -- so do -- in fact, I expect the margins to expand.

Okay. Understood. That's it from my side.

We have a next question from the line of Shirish Pardeshi from Centrum Broking.

Just a question at the beginning. You mentioned that it is underpenetrated market. What it means that ? In the medium term, our store expansion will be faster and we will try and see the opportunity? Or you think the branded play is at play?

So here is how I look at it, right? I mean the store -- and so like you said, Domino's is going to 1,200-plus stores, right? That is a real opportunity. Burger King has still more stores than Domino's over there. And in fact, there is Burger King, McDonald's, Popeyes, all 3 of them are there. The frequency of pizza is about very close to India, which is 3, and we all know U.S. it is far, far more than that. So from a frequency of pizza eating, the concentration of stores near Istanbul and Ankara and therefore, other cities growing, the COFFY as a brand which is present in only 12, 13 cities versus Domino's, which is present in about 80 cites. So when I look at both the brands, the opportunity for growth is material, Shirish.

Okay, okay. And the related question on the franchise operation. So if this franchise is primarily having a local expertise, and that's why they are into the business? Or these are the newer generation, which is trying to capture the younger population and what we see here, the brands which are rolling out faster because of the platform, sir?

Very, I would say, like kind of a unique recipe of recruiting franchisees over there. So many of the franchisees are actually area managers, restaurant managers, right, who understand the operations, right, and all but entrepreneurs at heart. So as you would see, the percentage of franchisee stores has been increasing steadily, which means that they've been also selling their corporate stores to franchisees. That is a model that they have actually perfected. So these are not large, well-capitalized businesses getting into a new business form or a new business area or a vertical. These are individuals or families who are -- whose sole mission in life is to grow the Domino's business. So it's very carefully selected. The average franchisee would hold 2 to 3 stores. So -- but they start with 1 and they're obviously incentivized to open one more and one more, but that's pretty much it. So very, I would say, cottage industry but operated at scale, and that is the beauty. And that's why it's hard to replicate some of these pieces or for even somebody to copy these.

I do understand. Where I got a little mixed is that you said that there is a large food service opportunity and even aggregator is very strong enough. So I'm just trying to relate the India experience that we have here cloud kitchen and that can disrupt. So going forward, should not be a problem for us. That's what you're trying to say when you go to...

Yes, I think cloud kitchen, Shirish, I think I would love to learn, I think you track the industry very deeply. So I have not seen successful cloud kitchen models anywhere in the world now. I have tracked data. I've also been in this industry for nearly 10 years. I'm talking about e-commerce plus QSR. Very hard economics to make it work. Customers want to see the brand. Of course, you can have 15%, 20% of the stores as dark kitchens back of the alley. But ultimately, for a consumer brand, my learning is customers want to see the brand, and therefore, you want to -- they are definitely ordering online, they're definitely using aggregators, but the evidence of this dark stores eating like established brands, yet to happen, at least, at least I'm not seeing -- I don't see any risk from that perspective. In fact, they have a very strong playbook. Good thing is they have like 3 aggregators. So right? So from that, there is more competition, therefore, the take rates, et cetera are more benign over there. And like I said, the rentals are cheaper. So I would -- I mean, if I were to put up a restaurant in Turkey. In India, the rentals, as you know, are higher, right, and can be materially higher. So therefore, dark store may make an economic sense to -- from a rental savings standpoint. Over there, that is also not there. And COFFY, of course, is all about the location and sitting down and having coffee. So...

Okay. And last question on COFFY. If you can help us, I mean, of course, that also looks like very strong opportunity. But what kind of margin profile which this business has because you have again set out a very strong aspiration?

I think it is definitely double-digit margins. So it's very new stores. So ADS is TRY 19,000. Average store margin has already reached 12% to 13%. Payback period is less than 3 years, again, very similar. And I think we should do a better job of showing you some real pictures of the stores. We started the team in Turkey, started with COFFY stores as about 1,000 square feet in size, right? And now the stores that they're opening are all more than 2,000 square feet, very high throughput, extremely high throughput per store in terms of volume. It is, like I said, the very young population, coffee culture is growing massive, very high frequency. And like I said, there are no pubs available over there. So I also -- I don't know, my hunch is the proportion of population smoking is also much higher over there and certainly visibility I can see versus cities in India. So therefore, it is you'll see coffee or cafe is completely full. If there is a value offering or a very simplified price point like what COFFY has done, it has actually been a rage.

And just last follow-up on COFFY. Is it in the mass end of the market or this is premium?

So it is -- so I would say that's one way to look at it. It is actually targeting students and younger population. So of course, they are tighter on wallet versus somebody who's in late 30s or mid-40s going to Starbucks. So the offering is value. But I would not -- I don't want you to at least compare this to Cafe Coffee Day. So that is not what it is. So it does offer -- I think it's unique. Obviously, it is value-oriented, that bit is there. But so take, for example, the mascot of COFFY is a hipster rabbit. And there only some other pictures which are there. So it indicates a little bit of coolness, the colors are black and you will see -- they have the widest menu in terms of hot and cold beverages. So it's very -- so it is very contemporary, but focused on value. You would say -- you would think of Caffè Nero or Costa or Starbucks, they're all in the same genre, could be moderately contemporary but highly price point. So a very unique differentiation. I think it's -- again, the team has done a terrific marketing or consumer insighting job to find such a niche.

The next question is from the line of Tejash Shah from Avendus Spark.

First question, upfront apology if the question is too naive. But given Turkey's currency volatility, which often reflects socioeconomic stability concerns from outside, I was just curious to know how the track record of the country regarding honoring the contractual obligation of our investments? Has there been any track record or past history?

So I think some of the naive questions are the most deep rooted ones. So I appreciate that. The -- I think it's a great question. But Turkey has a terrific record of, I think, 2, 3 factors: one, a very open economy in terms of currency conversion, moving money, several of the -- several citizens over their carry multiple passports. It's a very open economy per se. And being very close to Europe, they, in fact, have the ability to honor the contracts enforced by law. It actually mirrors more advanced countries or more developed countries. So we have not seen any one of -- any such challenge over there. Like I said, I visited multiple times in the last 4 or 5 months. When I look at the stores, when I look at the expansion that the city is happening, it only indicates that it's a very stable economy and fast-growing economy. So no such concerns that we've seen or even heard of.

Great. Second question, you just mentioned that you have traveled 4 to 5 times in last 4, 5 months. I'm assuming that this is also because it's an initial stage of integration. But going forward, what kind of managerial bandwidth it will consume from your side and from India team? And just associated question, you also mentioned operational and sourcing synergies also coming through. So if you can elaborate on that as well.

Yes. I think firstly, as you see, the team is very independent over there. They have operated. We know this, right? And we've had a very ringside view of the team through Board representation in the business. So from that perspective, and the team has been stable in the last 3 years completely. And Aslan has been there for many years. So from that perspective, I don't -- we don't intend to make any changes to management. In fact, we love the management team over there, and they have a very strong agenda to expand where incentives are aligned to growing Domino's to 1,200-plus stores in the medium term and expanding COFFY. So they're very, very focused on these 2. They are going to -- on track to retire the debt, which is there on their books. So therefore, it will be a debt-free company. In terms of synergies, like I said, this is about the India playbook or the emerging market playbook, let me correct myself. And whether the sourcing synergies are there on multiple fronts, we're still import a few ingredients from U.S. that we believe we can maybe source from Turkey. Even I'm sharing very, very initial rough sketches. We are also evaluating can we take COFFY to more countries. We're also evaluating what can we provide them? Can we source few material from India? We have large commissaries. I think all of this is, as we speak, including technology synergies is under works. We have a -- Jubilant FoodWorks have nearly 150 member technology team. And from that perspective, we can do in India as a low-cost country, very large and high-quality talent for technology. So multiple, multiple cases at work. There are more ideas we need to kind of build a strong list, and Suman is kind of along with Neval, who is the CFO, will bring in all of this together.

The next question is from the line of Percy Panthaki from IIFL.

Congrats on the acquisition. Just looking for a few financials, you mentioned -- correct me if I'm wrong, that store operating margin for Turkey Domino's is 12% to 13%. Would that be the -- am I right in understanding that?

So actually, Percy that's COFFY what we have shared. In Domino's Turkey because obviously, the dominant share of system sales and revenue is currently coming from Domino's Turkey, we will evaluate this business directly at PAT level. PAT what we have shared in pro forma is around 9.5%. This has some drag on, but even COFFY is EBITDA positive and is highly profitable.

And would you be able to give me the sort of pre-IFRS EBITDA margin for Domino's Turkey?

So actually, Percy, 88% of the stores are actually sub-franchised. So in franchisee business, EBITDA margins from that perspective, below EBITDA, only the depreciation for commissary is there, and therefore, we request to you look at PAT margin. EBITDA margin has an accounting treatment of very high inflation, which puts the monetary gain above the PAT line. So we will be more comfortable in sharing the PAT margin for you, which is directly without any adjustment and just from continuing operations.

And does this PAT margin change with the Russia bankruptcy? And if so, by how much could you give us the adjusted PAT margin assuming that the debt comes down?

So actually Percy, there are 2 points to your question. One is the debt will definitely come down because as we have shared, this is higher free cash flow generating business, and we don't require any debt for opening any stores in Russia now. The second part is the bankruptcy proceeding has already been initiated in Russia starting August 2023. And we'll give you the update on any potential loss which might arise out of Russia as and when the bankruptcy proceedings are closed. But as a side note, we have already paid all the external debt on Russia and therefore, the net debt will continue to decline. The leverage ratio is currently 0.7, it will come down significantly by end of next year.

So what I'm trying to just understand, Lakshya, is that going ahead, let's say, 1 or 2 years ahead because of the amount of debt coming down, how much can we see advantage in the PAT margin only because of that 1 factor? That's what I'm trying to understand.

That will be one-off Percy and we will come back because that has a long process of bankruptcy, which is currently going on in Russia. As we speak, we've already taken closure of all the stores, but we will give you update as on when this gets to a large scale conclusion.

Okay. And one more question from my side. If I look at the Turkey business, both the brands, in INR terms and basically take the starting point from the very first time you took an initial stake in DP Eurasia versus let's say, current last 12 months trailing business or something like that. In INR terms, what is the total system level sales growth and the same-store sales growth?

So Percy, see -- the trigger for us to increase the stake was when they announced that they will be exiting Russia either through asset sales or as it through bankruptcy. And therefore, the past resilience of -- including Russia and therefore having a drag on the overall...

No -- if you talk about Turkey only...

In terms of currency perspective, that will not be a right factor because now the business will grow on account of very high growth in COFFY, which has just scaled 2 years back. So I think we will request you to evaluate this after 1 year when you will see the scaled up operations for COFFY and then after Domino's Turkey. So currency depreciation, as Sameer sir has already mentioned that from the pro forma number was INR 3.64 which you have taken in 2023 calendar year or maybe currency is depreciated by 27%, but we see very high growth on the local currency business. And therefore, even accounting for that depreciation impact on currency, we do see that the PAT would continue to be very high. And this will be an EPS accretive deal even if you were to say that the currency depreciate to even a lower level from where it is trading currently.

Okay. Okay. That's all from me. I'll take some more questions off-line with you, Lakshya.

The next question is from the line of Kunal Vora from BNP Paribas.

Can you talk about the dividend policy of DP Eurasia? Are there any reductions regarding repatriation of cash? What is the taxation policy on repatriation of dividends? And if you can give us some sense on like whether you expect some cash inflows into India in CY '24 or '25 in dollar terms?

So as far as the dividend repatriation is concerned, I mean we are studying that, and we will come back to you. But in terms of -- as you see the business is highly free cash flow generating. And there is very limited debt, which is currently sitting on the balance sheet. And obviously, more or less the businesses largely around the sub-franchisee model, we see, I mean, a repatriation of dividend out of DP Eurasia to India in the times to come.

When did you expect that to happen? Like what would be the time line to make the investment now and let's say, incremental you not be investing. So if you -- if I purely look from a cash perspective, how do I look at the transaction?

Yes. So broadly from 2025 onwards, you can expect that.

Any sense on the quantum, please?

Sorry?

Any sense on the number, like quantum, how much would you expect?

It's important to highlight here that we have taken debt to actually service the cost of acquisition apart from the INR 250 crores of internal cash accruals. So what is currently -- what will currently get us, say, is only the interest cost and therefore, we are not actually banking on the dividend repatriation to actually service the overall debt for now. It is this interest payment and the interest rate also we have quantified to 5.39%. We will update you as and when we have an update on when the dividend repatriation is happening. But nothing has a strong alarm to us right now to do it.

But the thesis is that, right, the free cash flow should over a period of time should service the debt and also retire.

But I mean like once that feed is behind, like, see, would you expect some repatriation into India?

Yes, yes, sure. That's the beauty of franchise business, which is highly free cash flow generating, highly profitable and CapEx requirement being very low.

And how many years away do you think this stage will be?

Let's evaluate and come back. I think we also...

We'll give you update quarter from that perspective.

So I think the important question we should answer it, but allow us some time to also fully flesh it out, get more learning of the business.

Understood. Sure.

But second is that we -- I think on how also we are thinking about it is what I wanted to highlight.

Sure. And secondly, sir, you mentioned that aggregators have started in Turkey. Can you talk more about it? How is the impact of aggregators? And are they expanding rapidly? Also how does the delivery happen for Domino's? What proportion of deliveries done by Domino's versus deliveries through aggregators?

So firstly, there are 3 aggregators, Getir, Yemeksepeti and Trendyol. All 3 of them seem to be like similar market share or just about ballpark there, right? So no one is like materially strong or -- so it is not a hegemony in that sense. So it is also not a duopoly like what it is there in India. So from that perspective, they're kind of competing, which is good for a brand from an economic standpoint. Domino's was the first to get onboarded on all 3 of them. Like in India or like anywhere in the world, Domino's delivered, the box present leave the Domino's hands, and economics are very favorable. And given the pricing is even more opaque in Turkey because of the inflation there, like every brand is doing price adjustments almost on daily basis. So it becomes even more like a difficult versus India to have a full -- like a very transparent price discovery. So from that perspective, the share of retail asset is growing for us and between our own app and aggregators, I think it is fairly healthy, right balance between the 2 -- between the 3.

If you can provide approximate mix of your own app and own assets versus...

Yes, I think we typically don't do that because like it will -- it puts that information gives the aggregators some bit of more information to kind of take certain advantage of in terms of negotiations. So that like we have refrained from giving that number in India will also do that for Turkey. But I would say that there is a very healthy mix of aggregator and own apps and between aggregators, there is no dominant player, and we have a very clear aggregator level aggregator-wise strategy to gain share. .

Understood. That's very clear. .

The next question is from the line of Avi Mehta from Macquarie.

Sir, I just wanted to check for the synergies, you have indicated that the sourcing related synergies, the Domino's partnership from the Turkey acquisition. Would you have a quantum of the likely benefit, which could come in from over the next year or so?

Yes, I think we'll share more -- again, these are all internal plans. I don't think we should disclose this publicly. We obviously will aim high -- but I wanted to like give you -- because there are, and I also didn't want to say we will not say anything. The synergies are in 4 areas. One is can we take COFFY to more countries. It has really established a very strong customer value proposition. Second is on technology, technology costs, harmonizing technological platforms. Number three is supply chain synergies around joint sourcing of raw materials. Turkey is a very rich agriculture economy also -- very fertile land, grows a lot of oregano, jalapenos, tomato, something which we import from, olives. So we are looking at each and every line item and also opening up our commissaries in India -- sourcing from India. And then last, of course, is there will be some offshoring opportunity in the G&A cost that we will look at.

Got it, sir. So the second bit is just a bookkeeping -- on the debt side, what is the currency for this debt that we have taken? And -- is there a hedging that has been done? Or if you could kind of just clarify that part, please?

So Avi, we have actually not shared this, but we'll circle back to you regarding the hedging as well as the currency. This will be a combination of loans which the entity has taken, and we will circle back to you offline.

We'll take the last question from the line of Latika Chopra from JPMorgan.

I had a broad question on your capital allocation plans...

I'm sorry. Can you use your handset mode, please. Your voice is not very clear.

Hello. Can you hear me now?

Yes, Latika, we can.

Sorry. Sorry about that. I was on road. I just wanted to check on your capital allocation plans for your overseas ambitions going forward, do you think your hands are quite full at this point? Or you're quite open to explore more overseas geographies for Domino's? And also on this plans to export [Technical Difficulty].

I'm sorry, we lost you.

[Technical Difficulty]

I'm sorry ma'am, you're sounding muffled.

Latika, I could understand until first part of your question around on what's kind of the strategy of -- are we looking at more countries or not? I think my immediate task is to make sure that we integrate our business that is that if you acquired in Turkey, and make sure the team integrates, make sure some of the other processes, and we have a very well-defined value-creation plan. So I'm more focused on that right now. I think what -- I think you should appreciate is that our emerging market playbook via Bangladesh and Turkey is actually coming alive and is playing out. So my immediate focus is to just bear if there are like great opportunities, we always evaluate. But at the moment, just focusing on what is on my current plate.

Sure. Understood.

Ladies and gentlemen, that was the last question for today. On behalf of Jubilant FoodWorks Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.