Burger King India IPO opens today — brokerages recommend ‘subscribe’ on attractive valuations

Burger King India IPO opens today — brokerages recommend ‘subscribe’ on attractive valuations
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  • Ahead of the IPO, the company has raised ₹364.5 crore from 55 anchor investors on December 1.
  • The grey market suggests a premium of 42% over the issue price band of ₹59-60 per share.
  • Brokerages are bullish on the IPO, led by attractive valuations and plans of new restaurant roll out on cards.
Burger King India’s ₹810 crore initial public offering (IPO) will hit the capital markets today (December 2) for subscription, and the shares are piping hot in the grey market. The grey market suggests a premium of 42% over the issue price band of ₹59-60 per share.

Ahead of the IPO, the company has raised ₹364.5 crore from 55 anchor investors on December 1. Few of the marquee names in its anchor investors list include ICICI Prudential, Samsung India Securities, Nippon Life, Fidelity Funds, Government of Singapore, IDFC MF, SBI MF, Monetary Authority of Singapore, among others.

The private equity firm, Everstone Group-promoted company, has gained a lot of market traction since its public issue announcement, and most of the brokerages have maintained a buy rating despite its record losses in the past few quarters.
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₹810 crore IPO opens tomorrow
  • Investors can bid for a minimum of 250 equity shares and thereafter in multiples of 250 equity shares — which also means that a retail investor can apply for maximum up to 3,250 equity shares at a higher price band.
  • The promoter entity QSR Asia will offload 6 crore shares, aggregating to ₹360 crore at the upper price band.
  • Company has reserved 10% of its offering for retail investors, up to 15% for non-institutional investors and nearly 75% for qualified institutional investors.
  • The company is proposed to list on both stock exchanges (BSE & NSE); net proceeds from IPO would be utilised to roll out new restaurants, and other corporate purposes.

Burger King India IPO opens today — brokerages recommend ‘subscribe’ on attractive valuations

Here’s what makes the share sale attractive

Attractive valuation

According to Angel Broking, Burger King has been priced at a significant discount compared to Jubilant Foodworks, and looking at the valuation and the growth of the company the issue is looking attractive to the analysts.

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FY20: Valuation picture

CompanyEnterprise value-to-sales (EV/sales)EV/EBITDA
Burger King*2.9 times 23.7 times
Jubilant Foodworks4.5 times48.4 times
Westlife Development 8.4 times37.6 times
Source: Capital Market Report (*calculations at the upper band of IPO at ₹60)

“BKI, because being late entrant and of smaller size, it has and is likely to continue to grow faster than Westlife Development in the near term,” Capital Market said in its IPO note.

New restaurant roll out on cards
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Since opening its first restaurant in November 2014, the company has grown into a pan-India QSR chain with 259 company-owned Burger King Restaurants and 9 sub-franchised Burger King Restaurants.

And despite the slowdown during the pandemic, Burger King India has expanded its footprint. In an exclusive conversation with Business Insider, the management revealed that they have opened up 12 new restaurants during March to October this year. And, at this pace, they are reasonably confident of hitting the target of 370 stores by December 2022 and 700 by 2026.

The sector is poised to grow, and its listed peers are proof of that

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Although the coronavirus may have impacted the restaurant business in the past few months, the outdoor-eating habit of India is gaining ground again. The gains in the share price of its other listed peers are proof of that.

Restaurant chainShare gain since June 30
Westlife Development (operator of MCD)44%
Jubilant FoodWorks (operator of Domino’s)43%

Exclusive national master franchise rights in India

The company 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. This arrangement provides the company with the ability to use Burger King’s globally recognised brand name to grow its business in India while leveraging the technical, marketing and operational expertise associated with the global Burger King.

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Its master franchisee arrangement also provides it with the flexibility to tailor its menu, promotions and pricing to the Indian tastes and preferences while meeting Burger King global quality assurance standards. The company also enjoys favourable royalty rates that are capped at 5% under its master franchisee arrangement, which is cheaper in comparison to Subway, KFC and Pizza Hut.

Brand positioned for millennials and vegetarians

Approximately 60% of Indians eating out are millennials, which represent the age group from 15 to 34 years old. India has a large number of millennials. BKIL connects with millennials, many of whom are just entering the workforce, through its value leadership and strong entry menu at attractive price points.

Its menu items are developed and made in India to cater to the local Indian palate. Of the 18 burgers that BKIL has developed specifically for the Indian market, 7 are vegetarian burgers targeting customers who seek vegetarian food options.
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Risk factors to consider before subscribing

Despite an attractive valuation, there are few risk points to be considered before subscribing to the issue.

Financial performance

According to the Capital Market report, the company has made losses in each of the financial periods reported in the prospectus. The losses have worsened due to the Covid pandemic. Moreover, till the company remains in fast expansion mode, which it has to as per its commitments under the master franchise agreement, the company may continue to be in losses.
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Burger King India IPO opens today — brokerages recommend ‘subscribe’ on attractive valuations

Burger King India CEO Rajeev Varman, in a conversation with Business Insider, argued that the company made losses because it opened a lot of restaurants in a short period of time and the losses are because of the investments in these new restaurants. However, their store EBITDA stands equally strong against other American food giants such as McDonald’s and KFC.

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