Burger King India IPO opens: Should you subscribe to the share sale?

Burger King India, a quick service restaurant chain, has launched its initial public offering (IPO) today. The share sale, which will close on December 4, is being held in a price band of Rs 59 to Rs 60 per share. Shares are available in a lot size of 250 shares and thereof. The company plans to raise Rs 810 crore through the share sale at the higher end of price band.

The offer will comprise a fresh issue of 7.5 crore shares amounting to  Rs 450 crore, while the promoter entity QSR Asia Pte Ltd will sell up to 6 crore shares, aggregating to  Rs 360 crore at the upper end of the price band.

Kotak Mahindra Capital Company, CLSA India, Edelweiss Financial Services and JM Financial are managers of the share sale. The company's shares are proposed to be listed on the BSE and the NSE.

Allotment of shares will be done on December 9 and shares of the firm are likely to be listed on December 14.  

Meanwhile, the arm of US-based quick service restaurant (QSR) chain, on Tuesday raised Rs 364.5 crore from anchor investors.

Burger King IPO: A tasty treat that investors may bite into

"The IPO committee of the board of directors of the company vide resolution on December 1, 2020, and the promoter selling shareholder in consultation with the book running lead managers or BRLMs have finalized allocation of 6,07,50,000 equity shares in aggregate, to anchor investors at the anchor investor allocation price of Rs 60 per equity share," according to a BSE circular.

Anchor investors who subscribed to the issue were Government of Singapore, Sundaram Mutual Fund, SBI Mutual Fund, Integrated Core Strategies Asia Pte Ltd, HDFC Trustee Company and ICICI Prudential Mutual Fund.

This is the 13th major IPO to hit Dalal Street this year. Analysts and brokerages are bullish on the prospects of the IPO.

Burger King India IPO in progress: Price band, lot size and other details

Keshav Lahoti, Associate Equity Analyst at Angel Broking Ltd said, "In the last 6 years of operations in India, Burger King has opened 268 stores. Looking at the current run rate, we believe management will be able to achieve the target of 700 stores by Dec'26. As the store count will increase, operating leverage will kick in and the company will be able to report profit. We believe there is ample scope available for the company to increase its business in India.

On FY20 basis, company peers such as Jubilant FoodWorks (Domino's Pizza) and Westlife Development (McDonald) are trading at 8.6x and 5.0x respectively on EV/sales multiple. At the upper end of the price band, the company will trade at an EV/sales multiple of 2.2x on FY20 basis, which we believe is quite reasonable. We believe that there is a good possibility of listing gains given lower valuations as compared to other listed peers. We are also positive on the long term growth prospects of the industry and the company, and hence recommend to "Subscribe" to the issue for long term as well as for listing gains."    

Prabhudas Lilladher has given a 'Subscribe' outlook in its report on Burger King India and said, " Despite being impacted by COVID-19, 249 out of 268 restaurants are operational with high standards of safety and hygiene protocols across its restaurants and has intensified focus on delivery, takeaways and drive-thru.

We expect Burger King to turnaround by FY23/24 led by post Covid recovery and benefits from rising economies of scale and new store openings. Burger King is offered at 2.9x FY20 EV/Sales in comparison to 8.4x for JUBI and 4.4x for WDL. We expect near term financials to remain under pressure as BKIL has suffered a loss of Rs 118 crore in 1H21."

Geojit said in its note," The company's revenue grew around 49 percent CAGR over FY18-FY20 led by significant store additions. Gross margin has improved consistently from 62 percent in FY18 to 64 percent in FY20 and earnings before interest, tax, depreciation, and amortization (Ebitda) grew from Rs 8 crore to Rs.104 crore, during the same period.  At the upper price band of Rs 60, BKIL is available at 29x FY20 EV/EBITDA and 3.6x FY20 EV/Sales which seems attractive considering its robust growth in-store additions and future revenue, recommend "Subscribe" with a long-term perspective."

Choice Broking gave Subscribe rating to the IPO and said," Among its key competitive strength are exclusive national master franchise rights in India, strong customer proposition, the brand positioned for millennials, vertically managed and scalable supply chain model, operational quality, well-defined restaurant development process, and experienced, passionate and professional management team."

ShareKhan said, "BKIL's revenue registered a CAGR of 50% over FY2018-FY2020. Since the company 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 FY2018-20. 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."