Burger King India IPO opens for subscription; check grey market premium, valuation, other details

Quick service chain Burger King India’s IPO opened for subscription today with keen investor interest seen in healthy grey market premiums, and an expectation of listing gains from attractive valuation on offer. Burger King India IPO has a price band of Rs 59-60 apiece. The three-day initial public offer, which will close on Friday, December 2, 2020, consists of a fresh issue of Rs 450 crore and an Offer for Sale (OFS) of 6 crore equity shares by existing shareholders.

Not less than 75 per cent of the issue will be reserved for Qualified Institutional Buyers (QIB) while only 15 per cent will be reserved for Non-Institutional Investors (NIIs). However, just 10 per cent of the issue will be reserved for retail investors. Today, Burger King India shares were seen trading with a Rs 28 premium in the grey market over the issue price of Rs 60 apiece, implying a 46.6 per cent premium.

Peer comparison

Given the lower valuations, as compared to other listed peers, analysts expect listing gains from Burger King India. On FY20 basis, company peers such as Jubilant FoodWorks (Domino’s Pizza) and Westlife Development (McDonald) were seen trading at 8.6x and 5.0x respectively on EV/sales multiple. At the upper end of the price band, Burger King India will trade at an EV/sales multiple of 2.2x on FY20 basis, which Keshav Lahoti, Associate Equity Analyst at Angel Broking, believes to be quite reasonable. Lahoti is positive on the long term growth prospects of the industry and the company, and has recommended to ‘subscribe’ for long-term as well as for listing gains.

Delivering profits

Sanjay Manyal, research analyst at ICICIdirect Research, said that Burger King India is well-positioned to benefit from the expansion of food delivery apps in smaller cities and towns, and has recommended to ‘subscribe’ to the issue. The company would be able to open smaller stores that would be largely deliveries and takeaways stores. This would reduce the operational, lease and other related cost attached to larger stores. “We believe Burger King India would be able to capture the growth largely aided by changing habits of eating out/ordering outside food,” Manyal said. Even as the company was quick to scale up its operating margins to double-digit in the last two years, it is still making a loss at the bottom line level due to high depreciation provision.

Nirvi Ashar, analyst at Religare Broking said that Burger King is at a nascent stage in India and it would pick up pace in the long-term. “Investors having long-term investment plans can subscribe to Burger King IPO,” Ashar said.