The Economic Times
English EditionEnglish Editionहिन्दी
| E-Paper
Search
+

    Burger King IPO kicks off: Should you subscribe?

    Synopsis

    Strong franchisee model, negative working capital, market share gains from standalone players and strong store expansion plans would help improve the growth prospects of quick serve restaurants (QSR) in the coming years, said analysts, who have recommended 'subscribe' on the issue.

    Agencies
    The brokerage said that strong franchisee model, negative working capital, market share gains from standalone players, and strong store expansion plans would help in improving growth prospects in the coming years.
    NEW DELHI: Burger King India's Rs 810 crore initial public offer (IPO) kicked off on Wednesday and was fully subscribed within just two hours. The issue, which is being sold in Rs 59-60 range, consists of a fresh issue of Rs 450 crore and an offer for sale (OFS) of up to 6 crore shares, aggregating Rs 360 crore at the upper limit of the price band.

    Retail investors, who are willing to invest in the IPO, can buy a lot of 250 shares and a maximum of 3,250 shares.

    A strong franchisee model, negative working capital, market share gains from standalone players and strong store expansion plans would help improve the growth prospects of quick serve restaurants (QSR) in the coming years, said analysts, who have recommended 'subscribe' on the issue. Analysts said that the near-term financials of the company may remain under pressure due to the Covid pain and the fact that it is in an expansion phase. They believe the valuation discount to listed peers factors in the same.

    Here's what 10 brokerages said on the IPO:

    Anand Rathi: Subscribe
    At upper price band of Rs 60, the IPO is valued at price to sales ratio of 2.7 times based on FY20 sales, compared with peers Jubilant FoodWorks' 8.4 times and West Life Developments's 4.4 times, the brokerage said. On a per store basis, market cap to total stores stands at Rs 8.8 crore compared with Jubilant FoodWorks' Rs 26.2 crore and Westlife's Rs 23.80 crore, the brokerage said.

    "The valuation seems reasonable when compared to peers. While the Covid-19 crisis have impacted short term growth, we believe the company remains well placed for long term growth, given its strong brand position, diverse food offerings, well established supply chain, aggressive expansion plans, cost management efforts and benefit from the gradual recovery in the QSR industry post Covid," the brokerage said.

    ICICI Securities: Subscribe
    Benefiting from reduced competition from unorganised smaller local restaurants due to Covid related disruptions and expansion of food delivery businesses, the company is well positioned to expand its footprint in India, said ICICI Securities.

    "We believe BKI would be able to capture the growth largely aided by changing habits of eating out/ordering outside food. The company was quick to scale up its operating margins to double digit in the last two years.
    However, it is still making a loss at the bottomline level due to high depreciation provision. We have a subscribe recommendation on the stock," the brokerage said.

    Religare Securities
    The brokerage said that Burger King operations are at a nascent stage in India and they would pick up pace in the long term. It believes that investors having a long term investment horizon can subscribe to the IPO.

    "The chain QSRs grew at a CAGR of 19 per cent in FY15-20. Going ahead, they are expected to grow at a CAGR of 23 per cent by FY25 on the back of increasing demand and more penetration and expansion of international brands in India. We believe Burger King is well placed in this category as it is one of the fastest growing companies in the space," the brokerage said.

    Choice Broking: Subscribe
    Choice Broking said that the company is in growth phase and has scheduled an aggressive restaurant expansion plan. "Considering Covid-19 as an exceptional phase for the sector, we feel that with positive advancement in vaccine development and considerable relaxation in the economic activities, Burger King is expected to report improved financials over the period. Considering the discounted valuations, we assign a 'subscribe' rating to the issue," it said.

    Prabhudas Lilladher: Subscribe
    PL expects the near term financials of Burger King India to remain under pressure with the company already suffering a loss of Rs 118 crore in the first half of FY21. The brokerage is expecting a turnaround by FY23/24 led by benefits from rising economies of scale and new store openings.

    "Burger King is offered at 2.9 times FY20 EV/Sales in comparison to 8.4 times for Jubilant FoodWorks and 4.4 times for Westlife Development," the brokerage said while advising a 'subscribe' on the issue.

    Geojit Financial Services: Subscribe with long-term perspective
    At the upper price band of Rs 60, a share of Burger King India is available at 29 times FY20 EV/Ebitda and 3.6 times FY20 EV/sales, which Geojit said is attractive. This is considering the company's robust growth in store additions and expected rise in future revenues. The brokerage has recommended 'subscribe' rating on the issue with a long-term perspective.

    KRChoksey: Subscribe
    This brokerage noted that the company has reported losses in FY18, FY19, FY20 and H1FY21. It said that the QSR may incur losses in future as well. "However, BKIL’s target to open 700 restaurants by December 2026 is the key driver to the business. Also the effective marketing strategy, and the well-defined standard store opening process will be catalysts in increasing the number of footfalls in BKIL’s restaurants," it said.

    Although the COVID-19 crisis has adversely affected its ability to open new restaurants and expand its network temporarily, they continue to evaluate the pace and quantity of new restaurant openings and the expansion of its restaurant network, the brokerage said.

    Angel Broking: Subscribe, listing gains possible
    Keshav Lahoti of Angel Broking noted that Burger King has opened 268 stores in the last six years of operations in India. Looking at the current run rate, he said, the company management will be able to achieve the target of 700 stores by Dec’26.

    "As the store count will increase, operating leverage will kick in and the company will be able to report profit. We believe there is ample scope available for the company to increase its business in India," Lahoti said.

    At the upper end of the price band, the stock will trade at an EV/sales of 2.2 times on FY20 basis, which Lahoti said is quite reasonable.

    "We believe that there is a good possibility of listing gains given lower valuations as compared to other listed peers. We are also positive on the long term growth prospects of the Industry and the company, and hence recommend to “Subscribe” to the issue for long term as well as for listing gains," he said.

    BP Equities: Subscribe for medium-to-long term gains
    BP Equities said that the company is valued at 23.7 times EV/Ebitda considering the diluted equity shares, which looks attractive when compared with peers Westlife development (37 times) and Jubilant Foodworks (38.5 times) based on FY20 numbers.

    "Considering its robust franchisee model, increasing market and strong store expansion plans would enable the
    company to improve its growth prospects in the upcoming years. Hence, we give a “SUBSCRIBE” rating on this issue for the medium to long-term," it said.

    Sharekhan: Not available
    This brokerage said that the company's revenue compounded at 50 per cent over FY18-FY20 and since it is in the growth phase, it continued to make losses.

    "However the highlighting factor for the company is sustained improvement in the gross margins which stood at 64 per cent in FY2020 and negative working capital, aiding operating cash flows. FY2021 will be the year of disruption for the QSR industry as June quarter performance was disrupted by shutdowns in India," it said.

    The brokerage said that strong franchisee model, negative working capital, market share gains from standalone players, and strong store expansion plans would help in improving growth prospects in the coming years.
    Join the 4th edition of ETMarkets Global Summit 2021 from 20-22 January and brainstorm with thought leaders of the financial world. Click here to register now!

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    5 Comments on this Story

    Amit Kumar54 days ago
    Amit Kumar
    Devassy Varkey54 days ago
    There will be good scope for this co in the long run especially in Indian Metro cities.
    Siddhant55 days ago
    EV/EBITDA is 129 times. How are they saying it 23or 29x?
    The Economic Times