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Issue Details
Face Value ₹10
Public Issue ~13.5 Cr shares
Price Band ₹59-60
Issue Size# ₹810 Cr
Bid lot 250 Equity shares
Issue Type OFS & Fresh Issue Post Issue M. Cap: ~₹2,290cr; # - at upper band
% Shareholding Pre IPO Post IPO
Promoter group 94.3 60.1
Public 5.7 39.9
Post Issue percentage is at upper price band Share Reservation % of Net Issue
QIB 75
NII 15
Retail 10
Company Management M. Rajeev
Varman CEO & Whole Time Director Mr. Sumit
Zaveri CFO
Issue Managers BRLMs
Kotak Mahindra Capital, CLSA India, Edelweiss Financial Services & JM Financial
Registrar Link Intime India Pvt. Ltd. Source: RHP
IIFL Securities Research E-mail: research@iifl.com
December 01, 2020
KING® brand in India. It is a relatively newer entrant in the Chain QSR space and is one of the fastest growing international QSR chains in India during the first five years of operations based on number of restaurants.
Strong positioning and opportune times on the anvil: We believe that BKI is poised to capitalize on consolidation opportunities in post Covid era. QSR Chains have been gaining share in the food services space and the trend is likely to continue owing to preference for outlets that observe best hygiene practices. Being a late entrant to India has worked to its advantage in terms of more matured market, technology evolution, etc. vs. a developing market in 1996 during Dominos’ and McDonald’s entry. Going ahead, obligation to add at least ~440 more outlets by December 31, 2026 would drive growth which is plausible considering the favorable results seen form its existing cluster approach and penetration strategy.
Operating leverage play and competitiveness: BKI has an exhaustive menu across price points, especially the entry level segment, which along with its positioning (for millennials) should aid in scaling up of new stores in existing as well as new clusters. It is favorably placed vs. peers (exhibit 4) with regards to lower capex per store and similar productivity levels. BKI will have a net cash position post the IPO which should assist the company in achieving the above mentioned goal. Moreover, with increasing number of maturing outlets, we expect leverage to kick in.
Outlook & Valuation: BKI had shown good improvement in same-store-sales (SSS) growth over FY17-9MFY20 before the pandemic derailed the momentum. Although the new additions have paused and SSS growth has declined by ~57% in 1HFY21, we believe that BKI can rebound strongly going ahead. At ~4x TTM EV/Sales, the valuation appears fair in comparison to ~10x and ~6x TTM EV/Sales for Jubilant and Westlife respectively. We recommend SUBSCRIBE to this issue from a longer term perspective.
Financial Summary
Particulars FY18 FY19 FY20 1HFY21
Revenue (₹Cr) 378 633 841 135 Rev. YoY (%) -- 67.3 33.0 -68.0 EBITDA (%) 2.1 12.5 12.4 -21.2 PAT (₹Cr) -82 -38 -77 -119 EPS (₹) -- -- -- -- P/E (x) -- -- -- -- EV/Sales (x) 5.8 3.7 2.9 --
Offer Details
The total issue size is ₹810Cr consisting of Fresh Issue of ₹450Cr and Offer for sale of 6 Cr shares amounting to ₹360Cr at the upper end of the price band. The proceeds from the fresh issue are proposed to be utilized towards:
Repayment or prepayment of outstanding borrowings of the company obtained for setting up of new company owned Burger King Restaurants; and
Capital expenditure incurred for setting up of new Company owned Burger King Restaurants
Company Background
BKI is the national master franchisee of the BURGER KING® brand in India, with exclusive rights to develop, establish, operate and franchise Burger King branded restaurants in India. In comparison to other chains that have Indian partner as a Master Franchise, BKI is promoted by QSR Asia Pte Ltd (Singapore) which is a Joint Venture between BK Asiapac Pte Ltd, a subsidiary of Buger King Holdings and F&B Asia Ventures (Singapore) Pte Ltd. The Long term franchisee rights under the Master Franchise and Development Agreement are valid till December 31, 2039. The Company is obligated to develop and open at least 700 restaurants by December 31, 2026.
Since the opening of its first restaurant in November 2014, it has reached 200+ stores in less than five years. Its total restaurant count stands at 261 as on September 30, 2020 including eight Sub-Franchised Burger King Restaurants, across 17 states and union territories and 57 cities across India.
Exhibit 1: Total outlets have grown ~50% CAGR aided over FY15-H1FY21
Source: RHP, IIFL Research
12 49 88 129 187 260 261 0 50 100 150 200 250 300
FY15 FY16 FY17 FY18 FY19 FY20 1HFY21
BKI’s growth has been facilitated by a well-defined new-restaurant roll out process that enables it to identify locations and build out restaurants quickly, consistently and efficiently. BKI has built its restaurant network using a cluster approach and penetration strategy whereby it launches its restaurant in a high traffic and high visibility locations in key metropolitan areas and cities across India and then develops new restaurants within that cluster.
As per the management, the typical location of its stores is: ~55% stores in shopping malls and food courts ~25% in high street locations
~15% in drive thrus and
~5% in transit locations like metro stations Exhibit 2: Cluster Approach and Penetration Strategy
Source: Company
As against most chain QSR brands, North India accounts for half of BKI’s outlet presence. Exhibit 3: Geographical penetration of chain QSR brands as of September 30, 2020
Brands Total Outlet Count North (%) South (%) East (%) West (%)
Domino’s 1,354 33 28 12 27 Subway 541 38 27 7 28 McDonald’s* 481 32 28 2 38 KFC 454 29 40 17 14 Burger King 261 50 21 3 26 Domino’s 1,354 33 28 12 27
Source: RHP; * McDonald’s includes both operators of which Westlife Development has ~320 outlets (West & South India)
Exhibit 4: Operating model comparison of chain QSRs
Particulars Domino’s McDonald’s* KFC Subway Burger King
Business Model Master
Franchisee Master Franchisee Multiple Franchisee Micro Franchisee Joint Venture Outlet Count 1,354 311 454 541 261 APC*** (₹) 200-225 225-250 200-225 175-200 200-225
Average Ticket Value (₹) 500-550 550-600 500-550 250-300 500-550
COGS 22-23% 34-36% 34-36% 32-34% 35-36%
Gross Margins 77-78% 64-66% 64-66% 66-68% 64-65%
Advertisement 4-5% 5-6% 6-7% 4-5% ~5%
Royalty 3-4% 4-5%** 7-8% 7-8% 4-5%
Store EBITDA 21-23% 13-15% 14-16% 20-22% 12-14%
Capex for Initial Build
and Opening 150-200 L 350-400 L 300-350 L 40-50 L 200-250 L Avg. Store Size (in sq.ft.) 1,400-1,600 2,600-3,200 2,500-3,000 750-1,000 1,300-1,400 Average sales /Day*** 0.75-0.80 L 1.2-1.3 L 1.2-1.3 L 0.30-0.35 L 1.1-1.2 L Source: RHP; Store counts are for September 30, 2020.
* Outlets of McDonald’s operated by South & West Franchisee (Westlife Development)
** The royalty fee of Westlife Development is 4 to 5% presently, but can contractually increase to 8% from Fiscal 2025
*** Pre-COVID-19 estimates
Exhibit 5: SSS growth vs. listed peers
Source: RHP
Exhibit 6: Peer Comparison (TTM)
₹Cr M.Cap Sales EBITDA EBITDA (%) PAT EV/Sales Burger King India 2,290 554 18 3.3 -178 4.4
Jubilant Foodworks 32,464 3,143 662 21.1 161 10.1
Westlife Development 6,750 1,072 2 0.2 -59 6.3
Source: RHP, IIFL Research
-10.0 -5.0 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0
Domino’s Westlife Burger King
Same Store Sales Growth
Key Risk Factors:
Covid (second wave led lock down) or outbreak of any other severe communicable disease could have a potential impact on its business and results of operations.
The termination of the Master Franchise and Development Agreement would have a material adverse effect on its business, results of operations, financial condition and prospects.
The company is required to develop and open at least 700 restaurants by December 31, 2026 as per the above agreement. In case of shortfall for the development year target, the company is allowed additional time to make up for the shortfall. Failure to do so may result in BK AsiaPac terminating the said agreement. However, BKI would have the right to operate existing stores for their life and open 35 new stores per calendar year through December 31, 2039 with radius protection.
Recommendation Parameters for Fundamental/Technical Reports: Buy – Absolute return of over +10%
Accumulate – Absolute return between 0% to +10% Reduce – Absolute return between 0% to -10% Sell – Absolute return below -10%
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