Eight things you need to know about Burger King India IPO

Kumar Shankar Roy   /   December 1, 2020
Burger King India IPO

Burger King India’s initial public offering (IPO) will open for bidding on December 2. The quick service restaurant chain’s IPO is reserved up to 10 per cent for retail investors, up to 15 per cent for non-institutional investors and up to 75 per cent for qualified institutional investors. Here are 8 commonly asked questions and answers about this lip-smacking IPO. Read on.

What is Burger King India 

Burger King India (BKI) is a fast growing international QSR chain in India. It started its operations in 2014 and within five years established 261 restaurants across major cities. The company has exclusive rights to develop, establish, operate and franchise Burger King branded restaurants in India as a master franchisee. The master franchisee arrangement has been entered till December 2039. BKI would be paying 5% fixed royalty for the use of the brands, technical, marketing & operational expertise. The average size of a Burger King Store is 1300-1400 sq ft that is almost half of an average McDonald’s store (2600-3200 sq ft).

How many shares are being sold in the IPO and what price

The IPO price band is Rs 59-60 per share. The face value of each share is Rs 10. The issue proceeds of the initial public offer of 7.5 crore equity shares aggregates up to Rs 450 crore and an offer for sale of up to Rs 360 crore for 6 crore shares by QSR Asia Pte. Ltd. In total, Rs 810 crore via 13.5 crore shares at upper price band of Rs 60. Minimum IPO application will be for 250 shares.

The IPO opens on 2nd Dec’ 20 and closes on 4th Dec’ 20. IPO share listing is expected on 14th Dec’ 20.

What growth has the company shown

When Burger King entered the Indian market, it observed that Indian consumers like their burgers crispy, crunchy and juicy (in case of non-vegetarian offerings).  Burger King started with a vegetarian product and priced it a little higher than the competitor.  As per the management, Burger King has built the most extensive vegetarian burger portfolio, where 8 out of 18 burgers are vegetarian. Whopper is Burger King’s flagship product. The company launched its gourmet collection during Diwali. It has also launched an all-day breakfast menu and rice bowls. Since beverages are a part of every combo, it forms a decent chunk of the portfolio. 

How has the company performed financially

Burger King India grew at a faster pace in the last five years by mainly leveraging the disruption at McDonalds franchise in North India. Financially, net sales of Burger King India have grown from Rs 230 crore in FY17 to Rs 841 crore in FY20. In 1st half of FY21, net sales was Rs 135 crore due to Covid, lockdown etc. At an adjusted profit after tax level, Burger King India has not delivered profit in any year. EBITDA margin in the last 2-3 years has been around 12-13%. 

Currently, Burger King India has Rs 200 crore as gross debt. After pre-IPO placement, net debt stood at Rs 60 crore. Post IPO, Burger King India will become a zero-debt company. QSR businesses generate high operating cash flows. Further, given the nature of the QSR industry, the company has a negative working capital level of 23-24 days and intends to maintain it at that level.

What is the future plan of the company

The company has a well defined restaurant rollout plan to open 700 restaurants across geographies by 2026. The proceeds from the IPO would be sufficient to open 190 new stores until 2023. Typically, Burger King India launches the brand from flagship locations in high traffic and high visibility locations in key metropolitan areas and cities across India and then develops new restaurants within that cluster.

For any QSR business, value offerings have the largest contribution. The management believes that BKI has not come close to penetrating even its existing markets and thus there is scope to grow further in existing markets.  The industry has seen a massive ramp-up of delivery since 2018. Burger King India believes that companies that have invested in technology are the ones that have realised the benefits in markets like India.

Who are Burger King’s rivals in India

Domino’s Pizza has achieved the largest market share of the chain QSR sub-segment by number of outlets, followed by Subway, McDonald’s, KFC and then comes Burger King. In terms of sales, Domino’s Pizza has the largest market share, followed by McDonald’s, KFC, Subway and then comes Burger King. Do remember companies with the higher proportion of deliveries and takeaways would take advantage of expansion of food delivery companies Apps like Zomato, Swiggy. 

Other international QSR chains have been introducing food products that cater to India specific palates while maintaining their core offerings. Though Burger King India is directly competing with McDonalds considering similar food offerings, competition in burgers can come from other established QSRs as well in future.

How has the company responded to Covid challenge

As a response to the Covid-related lockdown, the management made sure that the company had sufficient liquidity besides also undertaking some cost-saving initiatives (re-negotiating rentals and reducing rental costs, reduction in staff salary wherein the CEO has taken the highest cut, re-negotiating with supply chain vendors). 

Burger King India has also made additions to its menu, relaunched its app, worked on its value proposition and packaging. The company has seen footfalls gradually increase month-on-month (even week-on-week improvement witnessed in the recent months). Delivery has significantly recovered to pre-Covid levels.

What does the IPO price indicate about valuation

Burger King India shares are priced at EV/S (Enterprise Value by Sales) of 2.9 times FY20 (post issue) at the IPO upper price of Rs 60. 

This is in comparison to 8.4 times for Jubilant Foodworks (master franchise for Domino’s Pizza in India, Nepal, Sri Lanka and Bangladesh, and also for Dunkin’ Donuts in India), and 4.4 times for Westlife Development (master franchise for McDonald’s in western India and South India).

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