Neutral Barbeque Nation Hospitality; target of Rs 1600: Motilal Oswal

BARBEQUE delivered a strong all-round performance in 3QFY22as the increase in mobility and upbeat festive sentiment drove a strong recovery in its dine-in business to 108% of pre-COVIDlevels. While the recovery is flat on a per store basis, it is still commendable considering QSR players are considerably lagging in terms of a recovery in the dine-in channel. At the same time, the delivery channel continues to hold up well, meeting the management’s FY22 sales guidance of INR 1.5b sales in 9M itself.

Outlook

Although the company raised prices by 5-6% to beat commodity inflation, gross margin expanded by 20bp YoY. The gain of 180bp YoY in operating margin was largely led by operating leverage. While the near term headwinds on account of the Omicron COVID wave will impact its 4QFY22 performance, its medium term prospects remain intact. With its unique offerings and value proposition, BARBEQUE is well placed to deliver sustainable growth in both dine-in and delivery, as highlighted in our recent initiating coverage note on the company. Considering the CDR format of the business, we do not expect it to trade at a premium to QSRs. Current valuations at 18.2x FY24E EV/EBITDA limit any upside, hence we maintain our Neutral rating.

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