Burger King India Limited (BKIL) is one of the fastest growing International Quick Service Restaurants (QSR) chain in India. As the national master franchisee of the Burger King brand in India, it has an exclusive right to develop, establish, operate, and franchise Burger King Brand restaurants in India. The master franchise arrangement provides the company with the ability to use Burger King’s globally recognized brand name to grow its business in India, while leveraging the technical, marketing and operational expertise associated with the global Burger King brand. The Burger King brand is the second largest fast food burger brand with a global network of +18,600 restaurants in +100 countries and the USA as of Sep 2020. Burger King India Ltd (BKIL) was incorporated on Nov 11, 2013, QSR Asia is their holding company. As on date, the company has 259 company-owned restaurants, including 9 sub-franchised Burger King Restaurants, across 17 states/UT and 57 cities across India.

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Zee Business Managing Editor Anil Singhvi highlights positive and negative pointers for this issue. Strong brand, parentage growth and revenue visibility are the positives while it is a Loss making company and the valuations are expensive. He recommends that risk taking investors can apply for listing gains.

Issue Details, Summary and Highlights:

BKIL is a fresh Issue of Equity shares aggregating upto Rs 450 cr and Offer for sale of upto 6 cr Equity Shares. Issue size is around Rs 804 cr – Rs 810 cr and Face value of the share is Rs 10. Price band of the issue is Rs 59 – 60 and Bid Lot is 250 Shares and in multiple thereof. Post Issue the Implied Market Cap of the company would be Rs 2259 cr - Rs 2290 cr. BRLMs (Book Running Lead Managers) of the issue are Kotak Mahindra Capital, CLSA India, Edelweiss Financial, JM Financial and the Registrar is Link Intime India Pvt. Ltd. The Issue opens today and closes on: Friday, 4 th Dec’2020.

Objects of the issue:

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:
(a) Repayment or prepayment of outstanding borrowings of the company obtained for setting up of new company-owned Burger King Restaurants.
(b) Capital expenditure incurred for setting up of new Company-owned Burger King Restaurants.

2. General corporate purposes. In addition to the aforementioned objects, the Company intends to strengthen its capital base and expects to receive the benefits of listing of the Equity Shares on the Stock Exchanges, including among other things, enhancing the visibility of the brand and the Company and creation of a public market for our Equity Shares in India

Valuation and Outlook:

Burger King India Limited (BKIL) is one of the fastest-growing international Quick Service Restaurants (QSR) chains in India with 261 stores as of Sept 20 (the first store was opened in Nov 2014). On the operational front, the company’s revenue grew by 2.2x over FY18-FY20 to Rs 8412 mn in FY2020. Moreover, the company aims to have 370 stores by the end of Dec 2022 (700 stores by Dec 2026).On the valuation front, At the upper price band, the company is valued at 23.7x EV/ EBITDA considering the diluted equity shares which looks attractive compared to its listed peers (i.e Westlife development - 37x and Jubilant Foodworks - 38.5x) based on FY20 numbers. Considering its robust franchisee model, increasing market and strong store expansion plans would enable the company to improve its growth prospects in the upcoming years. Hence, many broking houses have given a “SUBSCRIBE” rating on this issue for the medium to long-term.

Expansion of restaurant networks:

As the national master franchise of the Burger King, the arrangement provides exclusive rights to BKIL to open 700 restaurants by Dec 2026, with favourable royalty fees capped at 5% of total sales in India. Although the COVID-19 crisis has adversely affected its ability to open new restaurants and expand its restaurants network temporarily. However, BKIL aims to expand its restaurant network in a disciplined manner by continuing to identify new locations across India. Prior to the COVID-19 crisis, BKIL has expanded its number of restaurants from 12 in 2015 to 260 by March 2020. BKIL also aims to increase the pace of expansion of its restaurants network by using its well-defined new restaurant roll-out process, the cluster approach and penetration strategy with respect to restaurant location, while it also aims to achieve an optimal mix of different types of restaurant formats in order to drive footfalls and compete effectively with other QSR brands in India.
Their restaurants operate primarily in 4 different formats, which include high street locations, which typically have high impact and high visibility locations for brand awareness; shopping malls and food courts, which are both ready catchments to drive footfalls and transit locations, which present a significant opportunity given India’s current promotion of infrastructure projects across the country.

Key Risk Factors:

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The outbreak of the 2019 novel coronavirus (“COVID-19”) pandemic, as well as GoI measures to reduce the spread of COVID-19. Real and perceived health concerns arising from food-borne illnesses, health epidemics, food quality, allergic reactions or other negative food related incidents could have a material adverse effect on the business. Exclusive right to develop, operate and franchise Burger King Restaurants in India depends on the Master Franchise and Development Agreement, which imposes certain restrictions and other obligations on the operations that could adversely affect the business. The termination of Master Franchise and Development Agreement would have a material adverse effect.

Demand for the products may decrease due to changes in consumer preferences and food habits. Any negative impact on the Burger King brand may adversely affect the business. Deliveries of ingredients and packaging materials from third-party distributors to certain of the restaurants may be disrupted or delayed. Not be able to identify suitable locations and successfully develop and roll out new restaurants and the expansion into new regions and markets. Change in the government regulation or public perception with respect to healthy eating habits of people.