Prabhudas Lilladher IPO report on Burger King India
We recommend subscribe to Burger King India Ltd (BKIL) IPO given the brand success with 260 stores in just 5 years and huge runaway for growth with a target of 700 stores by 2026. We believe Burger king has competitive advantages which make it well placed to capitalize on emerging opportunity with 1) exclusive pan India master franchise of Burger King, second largest Burger brand globally 2) flexibility in tailoring menu to Indian tastes and preferences as well as promotions and pricing offers 3) fixed royalty at 5% 4) cluster based approach with faster scalability and operating leverage 5) high sales/sq ft at Rs 31,093 and higher Average sales/capex at 1.87x 6) strong consumer proposition as a value brand with premium imagery globally and 7) targeting growing section of millennials given young population of India. Despite Being Impacted by COVID-19, 249 out of 268 restaurants are operational with high standards of safety and hygiene protocols across its restaurants and has intensified focus on delivery, takeaways and drive thru. BKIL plans to utilize proceeds of IPO for store expansion and has plans to add 50/70/80 stores in coming three years which will give a huge head start with better/cheaper availability of retail space, and weaker competition in North and east markets of India (little investment by McDonald’s in past few years) and rising scale in existing clusters. We expect near term financials to remain under pressure as BKIL has suffered a loss of Rs1.18bn in 1H21.
Valuation and Outlook
We expect Burger King to turnaround by FY23/24 led by post Covid recovery and benefits from rising economies of scale and new store openings. Burger King is offered at 2.9x FY20 EV/Sales in comparison to 8.4x for JUBI and 4.4x for WDL. Subscribe.
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