IPO Analysis: Burger King India

IPO Rating - Invest

About the issue

Burger King India Limited (BKIL), the national master franchisee of Burger King® brand in India, is entering the capital market to raise Rs 810 crore at an upper band, and at the lower band, it will raise Rs 796.5 crore. The price band is fixed at Rs 59-Rs 60 for every share of the face value of Rs 10. The total number of shares for sale is 13.5 crore, out of which, 7.5 crore is a fresh issue while 6.00 crore is offer for sale. The money so raised will be primarily used for the repayment of debt of Rs 165 crore, funding the roll-out of new company-owned Burger King restaurants. Almost Rs 360 crore will go to the promoter’s group, who are offloading a part of their holdings in the company. At the upper end of the price band, the company will be valued at close to Rs 2,290 crore.

About the company

Burger King brand was founded in 1954 in the United States and is owned by Burger King Corporation, a subsidiary of Restaurant Brands International Inc., which holds a portfolio of fast-food brands. Some of the brands owned by them include Burger King®, Popeyes®, and Tim Hortons® brands. It is the second-largest fast-food burger brand globally going by the total number of restaurants, with a global network of over 18,675 restaurants in more than 100 countries at the end of September 30, 2019. BKIL was incorporated on November 11, 2013, and QSR Asia is their holding company. As of September 30, 2019, it had 261 restaurants, including eight sub-franchised Burger King restaurants across 17 states & union territories and 57 cities across India. Of its 261 restaurants as of September 30, 2020, 226 were operational; it had 259 company-owned Burger King restaurants and nine sub-franchised Burger King restaurants, of which, 249 were operational, including two sub-franchised Burger King restaurants.

BKIL’s master franchisee arrangement provides it with the flexibility to tailor its menu to Indian tastes and preferences, as well as its promotions and pricing. Its customer proposition focusses on value leadership, offering customers variety through innovative new food offerings at different dayparts, catering to the local Indian palate, offering a wide range of vegetarian meal options, and its taste advantage and flame grilling expertise. This enables BKIL to grow its customer base by attracting customers looking for everyday value and giving them opportunities to access its brand for the first time. This also increases the frequency and occasions when customers can visit its restaurants, which drives footfalls and same-store sales. This has driven footfalls and same-store sales in its restaurants and enabled it to become one of the fastest-growing QSR brands to reach 200 restaurants among international QSR brands in India during the first five years of its operations.

Their restaurants operate primarily in four different formats, which include high street locations, having high impact and visibility locations for brand awareness along with shopping malls & food courts, both ready catchments to drive footfalls and transit locations. It presents a significant opportunity, given India’s current promotion of infrastructure projects across the country.

Financials

The revenue from the sale of food & beverages grew from Rs 375.20 crore in FY18 to Rs 835.32 crore in FY20. However, COVID-19 crisis has had a significant impact on its results of operations at the end of FY20 and in the 6 months ended September 30, 2020, resulted in a decrease of its revenue from the sale of food & beverages to Rs 134.69 crore in the six months ended September 30, 2020, compared to Rs 419.37 crore in the six months ended September 30, 2019. In addition, although its same-store sales grew at 29.21 per cent in FY19 and 6.11 per cent in the nine months ended December 31, 2019, the same-store sales decreased by 0.30 per cent in FY20 and by 56.9 per cent in the six months ended September 30, 2020, primarily due to the impact of the COVID-19 crisis. The gross margin grew from Rs 232.21 crore in FY18 to Rs 536.80 crore in FY20 and decreased to Rs 85.95 crore in the 6 months ended September 30, 2020, compared to Rs 269.94 crore in the 6 months ended September 30, 2019.

Valuation

At the upper price band, the issue is asking for a market cap to sales (FY20) of 2.72 times, compared to Jubilant FoodWorks and Westlife Development (which holds the master franchisee for McDonald's) that are available at 4.3 times and 8.3 times, respectively. In terms of EV to EBITDA, the shares of BKIL is available at 23.7 times, considering the diluted equity shares, compared to other listed players such as Jubilant FoodWorks and Westlife Development that are available at 37 times and 38.5 times, respectively, based on FY20 numbers.

Looking at the robust franchisee model, expansion plan & attractive valuation, the readers can subscribe to the issue.