Burger King IPO: Check launch date, issue price, risk factors; other details

Burger King India Limited, one of the fastest-growing international Quick Service Restaurant (QSR) chains in the country, will open the bid/offer period in relation to its initial public offer (IPO) of equity shares of the face value of Rs 10 each on Wednesday, December 2, 2020. The price band of the offer has been fixed at Rs 59 to Rs 60 per equity share for its Rs 810 crore IPO, which will close on Friday, December 4, 2020.

Burger King will sell new shares worth Rs 450 crore to the public, while promoter entity QSR Asia Pte Ltd, owned by Everstone Group, will sell up to six crore shares worth Rs 360 crore at the upper-end of the price band. After the IPO, QSR Asia will hold 52.9 per cent shares in the company. Burger King raised Rs 92 crore (approx) as pre-IPO placement from Amansa Investments Limited, a reputed institutional investor, in November 2020.

The Company intends to use the fresh proceeds from the pre-IPO placement and the fresh issue to further ramp up its restaurant network, and intends to open and develop 700 restaurants by December 2026

Kotak Mahindra Capital Company Limited, CLSA India Private Limited, Edelweiss Financial Services Limited and JM Financial Limited are the Book Running Lead Managers to the offer.

Also read: Burger King India to launch IPO on December 2, price band at Rs 59-60 per share

Risk factors

1. Burger King India said in its red herring prospectus that the COVID-19 outbreak had a substantial impact on its operations since the last week of March. By the end of March 2020, the company temporarily shut 201 restaurants. However, by April 1, 2020, 130 restaurants reopened for operation. As of September 20, the company has a total of 261 restaurants running across the country.

"As of the date of filing of this Red Herring Prospectus (September 30), we 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," Burger King stated in the Red Herring Prospectus.

Further, due to the COVID-19 pandemic, the company's sales decreased in the six months ended September 30, 2020 to Rs 134.6 crore compared to Rs 419.3 crore in the six months ended September 30, 2019.

2. As an operator of QSR restaurants, the company's business is susceptible to health concerns arising from food-borne illnesses, health epidemics, and other negative-food related incidents.

3.Burger King's exclusive right to develop, operate and franchise in India is dependent on the Master

Franchise and Development Agreement, which imposes certain restrictions and other obligations on its operations. Additionally, the termination of the Master Franchise and Development Agreement will also have a material adverse effect on Burger King's business, results of operations, and financial condition.

4. Burger King reported a restated loss of Rs 82.23 crore, Rs 38.27 crore and Rs 76.57 crore in Fiscal 2018, 2019, and 202020, respectively. It also reported a loss of Rs 17.48 crore and Rs 118.94 crore in the six months ended September 30, 2019, and September 30, 2020, respectively. Additionally, it had negative retained earnings of Rs 461.52 crore as of September 30, 2020, which has resulted in the erosion of a substantial portion of its other equity.

5. Burger King India's reputation is dependent in part on the continued international success and reputation of its brand globally. Any negative impact on the Burger King brand may adversely affect our business, results of operations and financial condition in India as well.

Burger King's comparison with other QSR brand outlets

The QSR sub-segment in India is largely dominated by Domino's Pizza, which had approximately 19 per cent of the market share by the number of outlets as of September 30, 2020. The Indian market has reacted positively to the entry of American cuisine restaurants, in particular burger, chicken and sandwich companies, such as McDonald's, Subway, Burger King and KFC.

Domino's total outlet count in India is 1,354, followed by Subway (54), McDonald's (481), KFC (454), Wow! Momo (317), and Burger King (261). Burger King saw sales growth of 56.3 per cent over FY16-20 against Westlife Development's (McDonald's) 17 per cent and Domino's 12 per cent during the same period.

The number of outlets by established international brands has grown at a rate of 1.1 to 1.5 times between fiscal 2015 and fiscal 2020. During the same period, Burger King, a relatively new entrant in the Indian market, has grown at a rate of 21.6 times, according to the company's Red Herring Prospectus.

Expansion plan

Under the Master Franchise and Development Agreement, Burger King has been granted the exclusive right to develop, establish, operate, and franchise Burger King restaurants in India. Since the opening of the first Burger King restaurant in India in November 2014, the company has grown to a pan-India QSR chain with 261 restaurants, including eight sub-franchised restaurants, across 17 states and union territories and 57 cities across India as of September 30, 2020.

Now the company plans to expand by setting-up new restaurants in various cities across India with the focus to meet the growing demand for western QSR culture amongst the consumers within these markets. Further, under the Master Franchise and Development Agreement, Burger King is required to develop and open at least 700 restaurants (including company-owned Burger King restaurants and sub-franchised Burger King restaurants) by December 31, 2026.