Khambatta Securities' research report on Burger King India
Burger King India Limited (BKIL) has exclusive pan-India master franchisee rights to open and operate BURGER KING restaurants in the country. It is one of the fastest-growing QSR chains in India, reaching 200 outlets in its first 5 years of operations. An increase in the number of dual-earner families, changing lifestyle, rising consumerism and higher internet penetration will drive eating out habits of people going forward with QSRs and fast-food restaurants expected to benefit the most. BKIL looks to grow its business through a combination of expansion in existing markets, entering new markets, and increasing per store revenue with the chain at an early stage of its life cycle. BKIL’s cluster approach to penetrate and expand in geographical markets generates operating leverage by ramping up the number of restaurants in a cluster, thereby enabling per store cost reduction through expansion of operations. Its partnership with the supply chain and distribution company ColdEX enables better working capital management. BKIL’s small-sized stores with a focus on deliveries bode well for future growth with an increasing number of customers expected to order in food not only in the near term (due to Covid-19) but also in the mediumto-longer term due to changes in lifestyle and consumer preference. After a weak FY21 owing to the Covid-19 outbreak, we anticipate a sharp recovery in demand in FY22 coupled with expansion of operations and a return to operating profitability. Although we have not modelled breakeven at the PAT level over our forecast period, aggressive expansion of operations is expected to enable BKIL generate net profits by FY24.
Assigning a target Price-to-Sales (P/S) multiple of 4.0x FY23E operating revenue, we value BKIL at Rs 227, informing a BUY rating with an upside of 26%.
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