Burger King’s double decker IPO: A bet on rich market liquidity? Public issue could open soon

Popular fast-food restaurant chain Burger King could be lining up with its initial public offering (IPO) soon, hoping to capitalise on the current run in the stock markets. The Indian unit of the US-based fast food major has already increased the size of its planned public issue by half, which could be a sign of the company looking to bank on the liquidity that primary markets have at this juncture, analysts say. With the IPO planned to be brought out now, Burger King could be expecting better valuation too than early this year, considering the strong momentum that stock markets have seen in recent months.

Increase in issue size 

Earlier, January this year, Burger King received a nod from SEBI to raise Rs 400 crore through a fresh issue, and an offer for sale (OFS) from the promoter of 6 crore equity shares. However, now Burger King has raised the fresh issue size to Rs 600 crore, it informed SEBI in an addendum to its DRHP. “The change in issue size could be a combination of both, increase in price and more dilution from existing shareholders,” Amarjeet Maurya – AVP – Mid Caps, Angel Broking, told Financial Express Online.

Of the Rs 600 crore, Burger King has already undertaken a pre-IPO placement of Rs 58 crore, where promoters bought 1.32 crore equity shares at Rs 44 apiece. Further the fresh issue could be trimmed by another Rs 92 crore if the company undertakes another pre-IPO allotment.

Still a loss making entity

Burger King’s financials, reported in the DRHP, show that the company’s total income in the first quarter of financial year 2020 was Rs 214 crore. In the entire fiscal year 2019, the restaurant chain had managed to generate Rs 644 crore, signalling better numbers just before the pandemic struck. However, it has been reporting net losses. In financial year 2019 Burger King’s loss was at Rs 38 crore, which had narrowed from Rs 82 crore in the year prior to that. In the first quarter of financial year 2020, Burger King reported a loss of Rs 1.77 crore. Although losses are being trimmed prior to the coronavirus pandemic, the numbers could have an impact on the firm’s valuations.

Valuations could take a hit

For comparison, Burger King’s peer Jubilant Foodworks, the company that runs pizza chain Dominos, is a profit making business with mature stores; has been generating profits for the last 10 years; and operates in the same industry. With a market capitalization of around Rs 29,000 crore and sales in the previous year of Rs 3,563 crore, Jubilant has a market-cap-to-sales ratio of 8x. “Jubilant’s net profit was Rs 320 crore in financial year 2019, meanwhile Burger King’s total revenue was Rs 644 crore in the same period with a net loss of Rs 38 crore. Burger King is growing fast but I would give it a valuation of 6x as it’s making losses; although revenue has grown, the company is young with fewer stores,” Amarjeet Maurya added.

Burger King plans to use the money raised through the issue to add more company-owned stores to its portfolio. According to the addendum filed by Burger King, the company had 261 stores at the end of the second quarter of this fiscal. By 2026, Burger King plans to open at least 700 restaurants. “We believe that the additional capital raised through an increase in offer size will be used to counter the negative impact of Covid 19 which the company believes will continue till the third quarter of Fiscal 2021,” said Divam Sharma, Co-founder of Green Portfolio, a SEBI registered PMS.

IPO to come soon

Burger King could launch its IPO in the coming months. “This is a good period and the market is going strong, so in a month or two the IPO should open for subscription if Burger King is looking to capture the current sentiment that has helped other recent IPOs,” Maurya added.