Burger King India Limited (BKIL) is coming out with an initial public offer (IPO), which consists of a fresh issue of equity shares amounting to Rs 450 cr and an offer for sale (OFS) of 6 cr equity shares (amounting to Rs 354 cr – Rs 360 cr) with a face value of Rs 10 per share. The price band for the said issue is Rs 59-60 per share. At lower and upper price band the fresh equity issuance stands at 7.5-7.6 cr shares. Burger King India did pre-IPO placement of Rs 150 cr through rights issue of 1.32 lakh shares at Rs 44 each (amounting to Rs 58 cr) and preferential allotment of 1.57 cr shares at a price of Rs. 58.50 to Amansa Investments Limited; amounting to Rs 92 cr. The issue opens on December 2nd and closes on December 4th. The issue size is close to Rs 804 cr – 810 cr. The bid lot size is of 250 shares and in multiple of 250 shares there after.
About Burger King India:
Burger King India Limited (BKIL) is one of the fastest growing international Quick Service Restaurants (QSR) chains in India with 261 stores as on September20 (first store was opened in November 2014). Its master franchisee arrangement aids Burger Kings’ globally recognised brand name to grow its business in India while leveraging the technical, marketing, and operational expertise associated with the global brand. BKIL has 5% market share in India’s Rs 348 bn QSR market. The Burger King India’s revenue grew by 2.2x over FY2018-FY2020 to Rs 841 cr with store addition by 2.95x to 260 stores in FY2020 (same-store-sales growth stood at 12.2% and 29.2% in FY2018 and FY2019, respectively). The company’s average ticket value stands at Rs 500-550 and OPM at 12%-14% (post Ind AS116) is in-line with close peers. Covid-19 had a significant impact on the first half of FY2021 performance of BKIL with same store sales growth down by 59%, as a large number of stores was non-operational during the period (revenue down by 68% and the company registered an operating loss of Rs 3.9 cr).
However, according to RHP, the second half of FY2021 is expected to be better than H1 as most cities have removed restrictions. Exclusive national franchise rights in India, strong customer proposition, vertically managed and scalable supply chain coupled with well-defined restaurant roll out, and experience and passionate team are some of the key strengths of Burger King India, which will help post good operational performance in the coming years. Its franchisee agreement facilitates flexibility to tailor its menu according to Indian taste and preferences along with promotions and pricing, while its customer preposition such as variety, wide range of vegetarian offerings, taste advantage, and flame grilling experience attract customers to drive footfall in the stores. Burger King India aims to have 370 stores by the end of December 2022 (700 stores by December 2026). Fund raising through the IPO will largely be utilised for expanding its store base in India and reducing debt on its books.
At IPO price band of Rs 59-60, the offer is valued at 29.5x/29.3x its FY2020 EV/EBIDTA (Post Ind AS116) considering the diluted equity at upper and lower price band (and price/sales of 2.69x and 2.72x at lower end and upper end of price band). BKIL’s revenue registered a CAGR of 50% over FY2018-FY2020. Since Burger King India is in a growth phase it continued to make losses at the PAT level. However, the highlighting factor is sustained improvement in the gross margins which stood at 64% in FY2020 and negative working capital aiding operating cash flows to improve over FY 2018-20. FY2021 will be the year of disruption for the QSR industry as Q1FY2021 performance was disrupted by shut down of stores during the lockdown period in India. 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
Industry – QSR segment grew at a CAGR of 17% over FY20215-FY2020:
The food services market in India has shown consistent growth since FY2014 and was estimated at Rs 4096 bn in FY2019. The organised food services market in India (chain and standalone outlets, excluding restaurants in hotels) was estimated at Rs 1600 bn in FY2020. The QSR segment stands at Rs 348 bn (CAGR of 17% over FY2015-FY2019). The growth of chain QSR is primarily driven by international brands such as Domino’s Pizza, McDonald’s, Burger King, KFC, and Subway, which combined account for approximately 45% of the total chain outlets in India. Some of the key near-term growth levers are improving demographics (rising young population and growing urbanisation), trend of increasing eating out, rising trend of online ordering, and higher traction for value meals.
The rise of digital technology, with increased penetration of internet and smartphone use, is driving major changes in the online delivery market in India, allowing online floor delivery platforms to capture the market by offering a wide range of food products. This has helped QSR companies increase their reach and has had a positive impact on their sales. However, key challenges/risks to growth are unavoidable events (such as the pandemic environment), slowdown in the macro environment, higher real estate prices, and regulatory hurdles, which are likely to impact business fundamentals of QSR companies. In FY2021, most companies are expected to post dismal performance as the spread of Covid-19 will have a severe impact on the performances of most hotels and QSR companies.