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Detailed Review of Burger King IPO

Introduction

Burger King India is one of the fastest-growing international Quick Service Restaurant (QSR) chain in India and their Initial Public Offering (IPO) is set to open on December 2, for three days.

Burger King IPO Review

IPO Details

• Company will raise Rs. 810 Crore through the issue. It comprises of fresh issue of shares worth Rs.450 Crore and an Offer For Sale (OFS) worth Rs.360 Crore i.e. 6 Crore equity shares by the promoter entity QSR Asia Pte Ltd, owned by Everstone Group. Post IPO they will hold a 52.9% stake in the company.

• In November 2020, company raised Rs.92 Cr as pre-IPO placement from Amansa Investments Limited, a reputed institutional investor.

• The company intends to utilize the fresh proceeds to repay existing debt, finance the roll-out of new restaurants. They aim to open 700 restaurants by December 2026.

Company Overview

• One of the fastest-growing international Quick Service Restaurant (QSR) chains in India.

• An Indian subsidiary of US-based hamburger fast food restaurants chain.

• Second largest fast food burger brand and has an exclusive right to establish, develop and operate Burger King branded restaurants in India.

• PAN-India Presence with 261 Restaurants, including 8 sub-franchised restaurants, across 57 cities.

• Plans to open 700 restaurants by 2026. These would include company outlets and sub-franchised entities.

Comparison of Burger King with its peers

Market Share

• Company entered the Indian Market in 2015 which relatively late as compared to its peers.As a result Burger King’s market share also lags its peers.

Revenue Growth

• There are mainly 2 key drivers of growth in a Retail/Restaurants Industry :

1. How fast you can grow stores

2. How much money you can make in each store

• Burger King India has been on a high speed and robust trajectory in terms of store growth. They started with 12 stores in 2015 and as on September 2020 they have operate 261 stores spread across various geographies in India. This implies a 85% CAGR.

• However, the 85% CAGR is relatively meaningless with the lower base of company vs peers.

• What is more important is the 18% CAGR (FY20-FY26) in store growth the firm will need to reach the 700 store limit that it has committed to the parent company by 2026.

Same Stores Sales Growth (SSSG) of QSRs in India

The top QSR chains in India have same stores sales growths of anywhere between 12% to 20%. When things go back to normal post COVID, it would be fair to assume similar growth rates to persist, at least for the next 5-10 years

Operating Expenses Mix (%)

Financials

• The company has witnessed a phenomenal 54.2% CAGR growth from 2017-2019 in Revenue from Operations. Their EBITDA Margins have jumped from 2.2% in FY18 to ~12% in FY19 & FY20.
• Burger King’s operating cash flows have grown by leaps and bounds since FY18 TO FY20, while they haven’t been able to replicate the same in Profits After Tax (PAT). They have reported losses over the last 5 years and are yet to record a profitable year.

Valuation

• Sales valuation of Burger King may look high when looked individually. But, when compared to peers like Jubilant Foodworks (Dominos) and Westlife Development (McDonalds) who trade at 8.5x and 4.5x sales, the valuation of company looks a lot more reasonable.
• •The current market covets growth, and when it is available at a reasonable valuation, it is highly likely to be good demand for it.

Key Strengths

Key Risks