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Domino’s India Franchisee Profit Misses Estimates on Costs

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May 12 (Bloomberg) -- Jubilant FoodWorks Ltd., the Indian distributor of Domino’s Pizza Inc., reported fourth-quarter net income that trailed analysts’ estimates amid an increase in costs. Its shares sank to the lowest level in a week.

Profit jumped 86 percent to 193.3 million rupees ($4.3 million) in the three months ended March 31, the company said today. That’s less than the mean estimate of 195.6 million rupees in a Bloomberg survey of five analysts. Sales jumped 57 percent to 1.94 billion rupees, helped by orders during the cricket World Cup that began Feb. 19 and lasted 43 days.

Jubilant increased prices 5.5 percent in April to pass on to consumers the higher cost of dairy products, its main raw materials, Chief Executive Officer Ajay Kaul told reporters on a conference call. Milk costs in India have climbed an average 18 percent in the past year, fueling food inflation, according data from the commerce ministry.

“There’s inflationary pressure on food items, especially cheese and milk prices have been going up significantly,” said Kaul. Increased sales and purchases of inputs in bulk helped “absorb a lot of the increase” in costs, he said. Total costs surged 50 percent to 1.69 billion rupees in the quarter.

Operating profit margin may be 17.7 percent in the year started April 1, matching that in the March quarter, Kaul said.

Jubilant’s stock tumbled as much as 8.8 percent to 671.2 rupees before closing down 5.3 percent at 696.65 rupees, the lowest level since May 5. The stock has more than tripled since its debut in February 2010, valuing the company at $1 billion. Domino’s Pizza, which sold shares in July 2004, is worth $1.4 billion, according to data compiled by Bloomberg.

New Stores

Jubilant, one of the fastest-growing franchisees for Domino’s, plans to open 80 stores in the year ending March 31, 2012, Kaul said. Jubilant spent about 700 million rupees on 72 new outlets in the year ended March 31, taking the total to 378, he said. Expenditure for the year started April 1 “should increase significantly” over the previous 12 months, he said.

Indians living in cities eat out about six times a month, compared with 2.7 times in 2003, according to a report in 2009 by a trade body. Rising incomes and consumer spending may make the South Asian nation the fifth-largest consumer market by 2025, Deloitte Touche Tohmatsu Ltd. said in January.

Jubilant FoodWorks in February signed an agreement to sell U.S.-based Dunkin’ Donuts Inc.’s products in the country. The company expects to open its first Dunkin’ Donuts store by the end of this year or early next year, Kaul said.

“We plan to roll out about 80 to 100 stores in a span of five years,” he said.

To contact the reporter on this story: Shikhar Balwani in Mumbai at sbalwani@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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