We discuss Starbucks JV’s FY2015 financial performance in this note. Even as slower-than-expected pace of expansion meant that the JV’s revenues fell short of expectations, sharp GM expansion and operating leverage drove lower EBITDA and PAT losses versus FY2014. Acceleration in store expansion will likely resume only in FY2017E. We remain positive on TGBL given the still-inexpensive implied core business valuations.
FY2015 was another year of steady expansion for Tata Starbucks India (Starbucks); it added 29 stores (32 in FY2014) pegging the year-end store count at 72. Unlike FY2014 when the bulk of expansion was concentrated in Mumbai and Delhi, FY2015 witnessed expansion across cities and Starbucks also entered two new cities Chennai and Hyderabad. Revenues grew 77% yoy to R1.69 bn, aided by 2X+ jump in average store count.
However, footfalls/outlet and revenue/footfall fell by 6% and 12% respectively, as per our estimates. Average sales per day (ASPD) fell by 17% yoy to R80,487 as the company entered new cities and the revenue per store fell to R29.4 mn. EBITDA and PAT losses decreased to R308 mn (R429 mn) and R470 mn (R519 mn) respectively, aided by sharp GM expansion to 58% (from 44% in FY2014) driven by price hikes and better revenue mix (higher beverage sales), in our view.
We expect Starbucks to break even at EBITDA level in FY2018E. We expect EBITDA margins to improve gradually to 10-12% in FY2020E (driving PAT breakeven) and stabilising between 23-26% by FY2025E.
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