Buy Restaurant Brands Asia; target of Rs 140: Motilal Oswal

Motilal Oswal's research report on Restaurant Brands Asia

RBA’s India business posted 20%/48% YoY growth in revenue/EBITDA (in line) in 3QFY24. Store addition was healthy (added 38 stores), with SSSG at 2.6% (est. 3.5%). Amid a tough demand environment, most QSR brands are expected to post muted growth metrics (SSSG, ADS). We believe RBA’s performance is better than its peers’. As the near-term industry demand outlook remains weak, RBA has lowered its SSSG guidance for FY24 to 3% from 6%; however, it has retained 8% SSSG guidance for the medium term. Despite a deceleration in growth metrics, RBA could improve Restaurant EBITDA margin (pre IND AS) to 12%, up 180bp on YoY and 150bp on QoQ. We do not expect such margin improvements for peers in 3Q. Indonesia business revenue rose 1% YoY (miss) to INR1.6b, largely due to store adds. Indonesia EBITDA loss narrowed to INR24m (est. loss INR76m and INR181m/INR72m in 3QFY23/2QFY24). We maintain our BUY rating on the stock.

Outlook

We retain our BUY rating on RBA with our SoTP-based TP of INR140, premised on a Mar’26E EV/EBITDA (pre-Ind AS 116) of 35x/10x for its India/Indonesia business.

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