Accumulate Restaurant Brands Asia; target of Rs 156: Prabhudas Lilladher

Prabhudas Lilladher's research report on Restaurant Brands Asia

Restaurant Brands Asia (RBA) reported in-line revenues/margins despite increase in operating expenses due to aggressive opening of Burger King stores and BK cafe. ADS has moved up from Rs 120k in 1Q23 to Rs 127k in 2Q23 enabled by marketing investments and success of innovations. BK is looking at graduating consumers from Stunner to Kings range over time which is sales and margin accretive. Indonesia operations continues to have lower ADS with 73% recovery vs pre-COVID & focus on menu architecture, new entry range ‘Gokil’ and enhanced marketing spends. Indonesia reported sales of Rs1.57bn and Pre IND AS EBIDTA loss of Rs272mn (Rs135mn in 1Q). Accelerated ramp up of BK Café in FY23 to 250 and increase in consumption occasions with breakfast in non-peak hours will boost ADS/store.

Outlook

We expect RBA to capitalize on growth opportunities on account of strong competitive advantages like 1) sharp focus on store opening with target of 390/475 stores by FY23/FY24 (334 in 2Q23), 2) consumer acceptance of Stunner Menu and new innovations in Whopper 3) fixed royalty at 5% 4) success of BK café with wide menu options. We believe Indonesia business will take time to turnaround given delay in post COVID recovery, business restructuring and likely initial losses in Popeyes (5 in FY23). We value the company at Rs 156 (unchanged) on SOTP basis. Maintain ACCUMULATE.

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