Burger King Shares Rise In Excess Of 100% On Day One

The shares of Burger King India (BKIL) made a handsome debut on the bourses in the morning when the overall market was trading in a listless mode.

Against the offer price of Rs 60 per share in its Initial Public Offering (IPO), the stock made its debut at 92 per cent to its offer price and listed at Rs 115.35 on BSE. It was listed at a premium of 87.5 per cent at Rs 112.50 on NSE. The weighted average price at NSE was Rs 123.37. The total traded quantity (trading volume) at NSE was 18.68 crore shares, with the first-day market capitalisation of Rs 5,152.34 crore. 

BKIL has a chain of quick service-service restaurants (QSRs) and its IPO of Rs 810 crore had received an overwhelming response from the investors. The public offer being subscribed 156.65 times. The issue generated bids for 11.7 billion shares, worth Rs 70,000 crore, as against only 75 million on offer—making it one of the most-subscribed IPOs ever.

The company intends to utilise the fresh proceeds to finance the roll-out of new company-owned Burger King Restaurants and to meet the general corporate purposes.

Commenting on the stellar performance of BKIL on the debut day, Henmang Jani, Head-Equity Strategy, Broking and distribution, Motilal Oswal said, “The company is one of the fastest-growing international QSR chains in India got a positive response on its IPO (oversubscribed 157 times)."

BKIL enjoys exclusive National Master Franchisee Rights in India till Dec 31, 2039, with an obligation to develop and open at least 700 restaurants by Dec 31, 2026. The royalty rate is favourable with capping at 5 per cent of sales. It is one of the fastest-growing QSR chains in India with 268 restaurants spread across 17 states/UTs and 57 cities. It has already garnered a 5 per cent market share in India’s Rs 34,800 crore QSR market.

Over FY18-20, BKIL’s Revenue/EBITDA grew at a CAGR of 49 per cent/258 per cent, led by 2x the store strength. However, it continues to make losses at the PAT level. The same store sales growth stood at 12.2 per cent/29.2 per cent in FY18/FY19 while it surprisingly became flat in FY20. In 1HFY21, revenue declined 68 per cent YoY, while it made losses at EBITDA and PAT levels due to the Covid-19 impact. 

At a CMP of Rs 125, BKIL is valued at 5.7x FY20 Price/sales and 17.3x FY20 P/BV which fully captures its strong brand positioning, robust store expansion plans, and the bright growth prospects of the QSR industry in India. 

However, given its weak financials, the valuation seems a little stretched compared to players like Jubiliant Food and Westlife Dev, Jani said.

“The company may incur losses in the future as well. However, BKIL’s target to open 700 restaurants by Dec’2026 is the key driver to the business. Also, the effective marketing strategy and the well-defined standard store opening process will be catalysts in increasing the number of footfalls in BKIL’s restaurants,” analysts at K R Choksey Shares and Securities said.

Anand Rathi Share and Stock Brokers in its research report on Burger King India note that the company’s valuation seems reasonable as compared to some of their peers. 

“We advise long term investors to stay invested in the company as there is ample scope available for the company to increase its business in India. Even after such a bumper listing, there is no issue with the valuation of the company. In the future, we expect the company to gain market share by opening more stores compared to the competitors,” adds  Keshav Lahoti, Associate Equity Analyst, Angel Broking. 

Although the COVID-19 crisis has adversely affected its ability to open new restaurants and expand its restaurant network temporarily, they continue to evaluate the pace and quantity of new restaurant openings and the expansion of its restaurant network. Moreover, the changing lifestyle and the eating habits of the youngest millennial population of India will further drive the revenue of BKIL. We believe that the operational efficiency and the standard operating procedure will achieve economies of scale resulting in better margins, the brokerage firm had said in an IPO note.