IPO to fund growth and repay some debt: Burger King

By Urvashi Valecha

Even as the current fiscal has been challenging for consumer companies, quick service chain Burger King India is raising capital via its initial public offer on Wednesday to fund growth and repay some of its debt.

While the pandemic hit its revenues hard during the lockdown, according to the chain’s red herring prospectus, it is expecting the second half of the fiscal to be better as most cities have removed restrictions.

There’s reason for its optimism as Burger King’s revenues grew by 2.2x over FY2018-FY2020 to Rs 8,41.2 crore. New store additions grew by 2.95x to 260 stores in FY2020. Its same-store-sales growth stood at 12.2% and 29.2% in FY20218 and FY2019, respectively. In the first half of the fiscal, its same store sales growth was down 59% while revenues were down by 68% resulting in an operating loss of Rs 3.9 crore.

Given that FY21 is a year of disruption for the quick service industry thanks to the pandemic, the recovery to pre-Covid levels would be slow. According to Sharekhan by BNP Paribas, at an IPO price band of Rs 59-60, the IPO is valued at 29.5 times to 29.3 times its FY20 Enterprise Value (EV) to Ebitda multiple, considering the diluted equity at upper and lower price band. Burger King India’s revenues registered a compounded annual growth rate (CAGR) of close to 50% over FY18 and FY20. Since the company is in a growth phase it continued to make losses at the post tax level. The improvement in the gross margins was at close to 64% in FY 2020 and negative working capital aided operating cash flows to improve in the period between FY 18 to FY 20. “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,” said Sharekhan by BNP Paribas.

At an EV to Ebitda level, Burger King’s valuation is lower than other listed quick service peers Jubilant Foodworks and Westlife. Jubilant has the master franchsise for Domino’s Pizza and Dunkin Donuts, among others, in India, and has a revenue of Rs 3,530.7 crore in FY19 and Rs 3,885.8 crore in FY20, respectively. Westlife Development, which is the master franchise holder of McDonald’s in the west and southern parts of India, had a revenue of Rs 1,402.2 crore in FY 19 and Rs 1,547.8 crore for FY20. The operating profit margin (OPM) of Burger King India was at 12.5% in FY19 and 12.4% for FY20. The OPM for Jubilant Foodworks stood at 17.2% in FY 19 and 22.6% in FY 20. Additionally, OPM for Westlife Development was at 8.9% in FY 19 and 14.1% in FY20.

Burger King India has the national master franchise of Burger King which is a global quick service brand. With this they have exclusive rights to develop, establish, operate and franchise Burger King branded restaurants in India. According to a report by Axis Capital, BKI at present has 261 outlets in India.

Domino’s Pizza has the highest outlet count at 1,354. Followed by Subway at 541, McDonald’s at 481, KFC at 454 and Wow! Momo at 317, the report from Axis Capital shows. The company stated that it intends to utilise its fresh proceeds by rolling out new company-owned Burger King restaurants by way of repayment or pre-payment of outstanding borrowings of the company, for capital expenditure and general corporate purposes.