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Burger King India IPO opens for subscription today. Should you invest?

Quick service restaurant (QSR) Burger King India will open its three-day initial public offering (IPO) on December 2. The company aims to raise Rs 810 crore via the IPO. The issue comprises a fresh issue of shares worth Rs 450 crore, and an offer for sale (OFS) of up to 60 million shares by promoter entity QSR Asia Pte Ltd worth Rs 360 crore, at the upper end of the price band.

The company intends to utilise the fresh proceeds to finance the roll-out of new company-owned Burger King Restaurants and to meet the general corporate purposes.

The price band for the IPO has been set at Rs 59-60 per share. Bids can be made for a minimum of 250 equity shares and in multiples of 250 equity shares thereafter.

Burger King was the fastest-growing international QSR chain in India during the first five years of their operations, based on the number of restaurants. The Burger King brand is the second largest fast food burger brand globally as measured by the total number of restaurants, with a global network of over 18,000 restaurants in more than 100 countries and US territories, as of June 30, 2019.

Prabhudas Lilladher -- Subscribe

We recommend subscribing to Burger King India Ltd (BKIL) IPO given the brand's success with 260 stores in just five years and huge runway for growth with a target of 700 stores by 2026. We believe Burger King has competitive advantages which make it well placed to capitalise on emerging opportunities.

BKIL plans to utilize proceeds of IPO for store expansion and has plans to add 50/70/80 stores in coming three years which will give a huge head start with better/cheaper availability of retail space, and weaker competition in North and east markets of India and rising scale in existing clusters.

We expect near-term financials to remain under pressure as BKIL has suffered a loss of Rs 118 crore in the first half of 2021 (H121). We expect Burger King to turnaround by FY23/24, led by post Covid-19 recovery and benefits from rising economies of scale and new store openings. The shares are being offered at 2.9x FY20 enterprise value (EV)/Sales, compared to 8.4x for Jubilant FoodWorks and 4.4x for Westlife Development.

Geojit -- Subscribe

Burger King enjoys exclusive rights to develop, establish, operate and franchise Burger King branded restaurants as the national master franchisee. The company's revenue grew around 49 per cent CAGR over FY18-FY20 led by significant store additions. Gross margin has improved consistently from 62 per cent in FY18 to 64 per cent in FY20 and earnings before interest, tax, depreciation, and ammortisation (Ebitda) grew from Rs 8 crore to Rs.104 crore, during the same period.

The company is repaying around Rs 165 crore debt out of IPO proceeds which will support future profitability. Burger King plans to continue to build its restaurant network using cluster and penetration strategy. 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 -- Subscribe

At the higher price band of Rs 60 per share, Burger King's share is valued at an EV/sales multiple of 5.2x, which is at a discount to the peer average of 8.9x Among its key competitive strength are exclusive national master franchise rights in India, strong customer proposition, 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

At the same time, unfavourable macroeconomic conditions, continuation or worsening of the Covid-19 crisis and an adverse effect on liquidity, unfavourable change in the consumer taste and preferences, slower expansion in the restaurant network, competition from other QSR entities and delivery aggregators, are some risks and concerns for the company.

Angel Broking -- Subscribe

Burger King peer Jubilant Foodworks is currently trading at 8.7 EV/sales on FY20 basis. Burger King won't get such a premium valuation as Jubilant Foodworks as it does not have a profitability track record like Jubilant, its outlets are young and we believe majority of the Indian people prefers Jubilant - Pizza over burger sold by Burger King. So Burger King has priced its issue at a significant discount compared to Jubilant Foodworks, so looking at the valuation and the growth the company is expected to do in the future, the issue is looking attractive to us at the first loo


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