Burger King India IPO: A delicious treat for investors?

ET Intelligence Group: Burger King India, a national master franchisee of the international brand, plans to raise Rs 450 crore through a fresh issue of shares, which will be used to expand store presence and reduce debt. It will raise another Rs 354 crore through an offer for sale of existing shares. Given the company’s faster growth and lower valuation compared with the listed peers, investors willing to benefit from the country’s long term consumption growth may consider the IPO.BusinessIncorporated in 2013, Burger King India has exclusive rights to develop, establish, operate and franchise Burger King branded restaurants in India. It is one of the fastest growing quick service restaurants (QSR) in India. After opening the first outlet at the end of 2014, it had 261 restaurants as of September 2020. The company aims to take the total to 370 by the end of 2022 and to 700 by the end of 2026. Its restaurants operate primarily in four different formats including high street locations, high visibility locations, shopping malls and food courts.Financials & ValuationsRevenue grew by 56% annually between FY16 and FY20 to Rs 841 crore helped by the rapid expansion. During the period, revenues of the listed peers Jubilant FoodWorks and Westlife Development grew by 12% and 17% respectively. Burger King’s outlets grew by 85% in the four years while the growth was in single digits for the peers. Its gross margin was at 64%, similar to Westlife’s. However, the Burger King management expects this to improve with scale kicking in and operating leverage playing out. The margin at the operating profit before depreciation (EBIDTA margin) for FY20 was 20%.Since the company is a relatively new entrant in the Indian market and is in the expansion mode, it is yet to post net profit. While this reflects in the IPO’s lower valuation, the phase of net loss seems to be temporary given its pace of growth and healthy operating cash flow.In addition, COVID-19 had a significant impact on the company’s performance in the first half of FY20. The same-store sales fell by 59%. This is expected to improve gradually in the coming quarters.The IPO is priced at 2.7 times FY20 sales. Westlife and Jubilant trade at 4.4 times and 8.5 times of sales respectively. In terms of the FY20 enterprise value (EV) relative to EBIDTA, the IPO is priced at 29.5 times compared with 31 and 39 for Westlife and Jubilant respectively.

from Economic Times https://ift.tt/36iNIMD