Burger King IPO Note

Burger King IPO Note
IPO
by Nikita Bhoota 12/01/2020

Burger King India Ltd IPO

Rating: Subscribe
 

Issue Opens: December 02, 2020

Issue Closes: December 04, 2020

Price Band: Rs59-60

Issue Size: ~Rs810cr (at upper price band)

Bid lot: 250 Equity shares

% Shareholding

Pre-offer

Post-offer

Promoter Group

94.3

60.1

Public

5.7

39.9

Total

100%

100%

Source: RHP, Post Issue percentage is at upper price band 


Company Background

Burger King India (BKI) is the national master franchisee of the BURGER KING® brand in India, with exclusive rights to develop, establish, operate and franchise Burger King branded restaurants in India. In comparison to other chains that have Indian partner as a Master Franchise, BKI is promoted by QSR Asia Pte Ltd (Singapore) which is a Joint Venture between BK Asiapac Pte Ltd, a subsidiary of Buger King Holdings and F&B Asia Ventures (Singapore) Pte Ltd. The Long term franchisee rights under the Master Franchise and Development Agreement are valid till December 31, 2039. The Company is obligated to develop and open at least 700 restaurants by December 31, 2026.

Since the opening of its first restaurant in November 2014, it has reached 200+ stores in less than five years. Its total restaurant count stands at 261 as on September 30, 2020 including eight Sub-Franchised Burger King Restaurants, across 17 states and union territories and 57 cities across India.

 

Offer Details:

The total issue size is ?810Cr consisting of Fresh Issue of ?450Cr and Offer for sale of 6 Cr shares amounting to ?360Cr at the upper end of the price band. The proceeds from the fresh issue are proposed to be utilized towards:

  • Repayment or prepayment of outstanding borrowings of the company obtained for setting up of new company owned Burger King Restaurants; and
  • Capital expenditure incurred for setting up of new Company owned Burger King Restaurants

 

Financials
 

Particulars (? Cr)

FY18

FY19

FY20

1HFFY21

Revenue

378

633

841

135

EBITDA (%)

2.1

12.5

12.4

-21.2

PAT

-82

-38

-77

-119

EPS (?)

--

--

--

--

PE (x)

--

--

--

--

EV/Sales (x)

5.8

3.7

2.9

--

Source: RHP, 5paisa Research, Note: EPS & P/E is on upper end of price band.


Key Points

We believe that BKI is poised to capitalize on consolidation opportunities in post Covid era. QSR Chains have been gaining share in the food services space and the trend is likely to continue owing to preference for outlets that observe best hygiene practices. Being a late entrant to India has worked to its advantage in terms of more matured market, technology evolution, etc. vs. a developing market in 1996 during Dominos’ and McDonald’s entry. Going ahead, obligation to add at least ~440 more outlets by December 31, 2026 would drive growth which is plausible considering the favorable results seen form its existing cluster approach and penetration strategy.

BKI has an exhaustive menu across price points, especially the entry level segment, which along with its positioning (for millennials) should aid in scaling up of new stores in existing as well as new clusters. It is favorably placed vs. peers with regards to lower capex per store and similar productivity levels. BKI will have a net cash position post the IPO which should assist the company in achieving the above mentioned goal. Moreover, with increasing number of maturing outlets, we expect leverage to kick in.

 

Key Risk Factor:

  • Covid (second wave led lock down) or outbreak of any other severe communicable disease could have a potential impact on its business and results of operations.

     

  • The termination of the Master Franchise and Development Agreement would have a material adverse effect on its business, results of operations, financial condition and prospects.

 

Outlook & Valuation:

BKI had shown good improvement in same-store-sales (SSS) growth over FY17-9MFY20 before the pandemic derailed the momentum. Although the new additions have paused and SSS growth has declined by ~57% in 1HFY21, we believe that BKI can rebound strongly going ahead. We recommend SUBSCRIBE to this issue from a longer term perspective.


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