Burger King India Ltd IPO - Should You Subscribe?

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Incorporated in November 2013, Mumbai based Burger King India Ltd is going to debut in the equity market in December 2020. The issue is going to open on December 02, 2020 and closing on December 4, 2020. The tentative dates of allotment and listing are December 09,2020 and December 14, 2020 respectively. The company has set the price range between INR 59 - INR 60 per share. The minimum lot is for 250 shares

The issue is a mix of Fresh issue and Offer for sale. Fresh issue is for INR 450 Crore, and shares under Offer For Sale arrangement are 6,00,00,000 shares worth INR 360 Crore at its upper band. It's promoter shareholder QSR Asia Pte Ltd is offloading 6,00,00,000 shares under this arrangement.

The company will not receive any proceeds from the offer for sale. The promoter selling shareholder will be entitled to the proceeds of the offer for sale. 

The net proceeds from the fresh issue are proposed to be utilized in the following manner.:

1) Funding roll out of new company-owned Burger King Restaurants by way of:

    (i) Repayment or prepayment of outstanding borrowing of the company obtained for            setting up of new company-owned Burger King Restaurants (INR 165 Crore Approx.); and
   
    (ii) Capital expenditure incurred for setting up of new company owned Burger King              Restaurants (INR 177 Crore Approx.)

2) General corporate purpose. 

One of the key indicators to know whether the price set by the company is reasonable or not is its PE Ratio. The PE Ratio can be arrived at only if it has positive EPS. And the positive EPS is possible if the company makes profit. In this case, Burger King India Ltd is a loss making company. It has negative EPS of INR -2.87 as on March 2020 and INR -4.14 as on September 30, 2020. We can not ignore the facts that the company has been growing. Since it's opening first restaurant in November 2014, it has reached to 264 company-owned restaurants & 8 sub-franchise as on September 30, 2020. The growth is evident and it will continue in future. However, we can not expect an immediate profit figures, but in long run, this share can be a wealth creator. I believe that the company has fairly priced the share. 

Jubiliant Foodworks Ltd (Domino's Pizza,Dunkin Donuts) & Westlife Development Limited (McDonalds) are its listed competitors. Jubiliant Food which is 5 times bigger than Burger King has been trading at or around 119.84 PE while Westlife Development Ltd which is 2 times bigger than Burger King has negative PE. RONW of Burger King & Westlife was in negatives i.e. -27.80 & -1.27 respectively while Jubiliant has 24.85%. 

The NAV of Burger King as on September 30, 2020 was INR 7.62. At upper and lower price band, PB ranges between 7.74 - 7.87. From this angle as well, the share seems to be fairly priced.

The company's revenue from sale of food and beverages grew from INR 375.20 Crore in Fiscal 2018 to INR 835.32 Crore in Fiscal 2020. However, the COVID-19 crisis has had a significant impact on its results of operations at the end of Fiscal 2020 and in the six months ended September 30, 2020, resulting in a decrease of its revenue from sale of food and beverages to INR 134.69 Crore in the six months ended September 30, 2020, compared to INR 419.37 Crore in the six months ended September 30, 2019. In addition, although its same-store sales grew at 29.21% in Fiscal 2019 and 6.11% in the nine months ended December 31, 2019, its same-store sales decreased by 0.30% in Fiscal 2020 and by 56.9% in the six months ended September 30, 2020 primarily due to the impact of the COVID-19 crisis. Its gross margin grew from INR 232.21 Crore in Fiscal 2018 to INR 536.80 Crore in Fiscal 2020 and decreased to INR 85.95 Crore in the six months ended September 30, 2020 compared to INR 269.94 Crore in the six months ended September 30, 2019.

As at September 30, 2020, it had 261 restaurants, including eight Sub-Franchised Burger King Restaurants, across 17 states and union territories and 57 cities across India. Of its 261 restaurants as of September 30, 2020, 226 were operational. As of this date, the company had 259 Company-owned Burger King Restaurants and nine Sub-Franchised Burger King Restaurants, of which 249 were operational, including two Sub-Franchised Burger 

After the tepid response in Gland Pharma Ltd , it surprised many with its blockbuster listing on bourses. It listed with INR 300 premium per share. Presently, the share is trading at INR 2114, 41.5% above its issue price. People misjudged to estimate its potential. I reviewed that the share was a gem, and worth keeping in the portfolio for the long term for wealth creation. In the long-run, this share is going to become another Avenue Supermart or HDFC AMC.

The company's debt/equity ratio is 0.91. The company is highly dependent on debt. However, it is planning to reduce its debt through fresh issue proceedings which can ultimately reduce the debt/equity ratio. Also, once interest cost reduces, profit increases. 

As there is no profit, there is no dividend. The company has not paid any dividend in the past.

Conclusion:

APPLY.  Here, I am ignoring the past figures. I am just focusing on its growth figures, its potential to grow further. Now a days, the lifestyle of people is changing, so their food habits. The company will continue to grow and will take time to turn profitable, yet worth giving a shot. Also, once pandemic is gone and things normalize, it will gain its momentum in terms of revenue

Thank you for reading...Jai Hind

(Note : I write reviews based on my knowledge and understanding. The reader of this article should do his/her own research before applying)

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