Burger King India’s IPO will open for subscription tomorrow. The speedy-meals key is just a tiny more than half-a-decade old, and is a single of the quickest increasing fast service restaurant (QSR) chains in the nation. Burger King and its promoters are hunting to raise Rs 810 crore in the IPO by means of a mixture of a fresh problem and an Offer For Sale (OFS). Burger King started operating in India in the monetary year 2015, and has considering that observed speedy expansion to now owning 261 restaurants across the nation.
Burger King’s fresh problem is worth Rs 450 crore, though the OFS, exactly where the promoter QSR Asia Pte is promoting six crore shares, is worth Rs 360 crore. Investors can subscribe to the problem in bid lots of 250 shares at a value band of Rs 59-60 per share. Post the problem the promoter group’s shareholding in the firm will drop from the present 94.3% to 60.1%. The Rs 450-crore fresh problem will be applied by Burger King to repay outstanding debt and for expansion of the small business by setting up additional firm-owned restaurants.
Financial overall performance
Financially, the firm is nonetheless in the rudimentary stages and has not managed to turn lucrative so far. However, the speedy expansion has helped raise total earnings of Burger King 48.4% CAGR among monetary year 2017 and 2020. “Same-store-sales growth (SSSG) stood at 12.2% and 29.2%, respectively, in fiscal year 2018 and fiscal year 2019, which also helped in achieving strong revenue growth in the past two years,” stated brokerage firm Sharekhan in a current note. Except for monetary year 2017, Burger King has reported optimistic operating money flow for just about every year considering that then.
Covid-19 effect
The pandemic and the final results lockdowns have had a critical effect on the small business of Burger King. In the present fiscal year, Burger King saw 5 retailer closures. Since operations started Burger King has observed only 7 restaurant closures. “For the nine month ended December 2019, SSSG stood at 6.1%, but due to Covid-19 pandemic led crisis and lockdown, SSSG declined by 0.3% in the previous financial year. It declined further by 56.9% in the first two quarters of this fiscal year,” Choice Broking stated in a note.
Axis Securities also took note of the substantial effect of the pandemic on Burger King’s small business. In the six months ended September 30, 2020 income from sales of foods and beverages dropped to Rs 134 crore compared to Rs 419 crore in the very same period final year.
Valuations
“At the higher price band of Rs 60 per share, Burger King’s share is valued at an EV/sales multiple of 5.2x, which is at a discount to the peer average of 8.9x,” stated Choice Broking. On the other hand Sharekhan says that the present is valued at 29.5x/29.3x its FY2020 EV/EBIDTA on the upper and decrease value band. Jubilant FoodWorks, the significantly mature peer in the QSR market has an EV/EBITDA worth of 38.7x. Price to sales Jubilant trades at 8.5x though Burger King is 2.7x.
Should you subscribe?
Although the firm is nonetheless not producing earnings, the speedy expansion that it plans could aid the firm. “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, it is expected to report improved financials over the period,” stated Choice Broking though advising investors to subscribe to the problem.
The future plans of Burger King have also impressed Angel Broking. “Burger King has priced its issue at a significant discount compared to Jubilant FoodWorks, so looking at the valuation and the growth the company is expected to do in the future, the issue is looking attractive to us at the first look,” stated Keshav Lahoti Associate Equity Analyst, Angel Broking.