Here Is Why Motilal Oswal Sees 55% Upside In Burger King Operator

Restaurant Brands Asia, formerly known as Burger King, operates and manages quick services restaurant (QSR) chain Burger King in India. The stock has seen a massive correction from its all time high of Rs 219 to hit an all-time low of Rs 98.25 as the contact-sensitive sector like hospitality underwent disruptions owing to the lockdowns which were in place to restrict the spread of Covid-19.

After such a down move brokerage firm Motilal Oswal expects the company to bounce back from the lows and expects the stock to surge up to 55 per cent. Motilal Oswal has a buy rating on the stock for target price of Rs 150. 

"COVID-19 has augmented the business opportunities for QSRs resulting in an optimistic outlook for all branded QSR players. Both delivery and takeaway channels were in focus over the last two years as the consumers developed new habits of food consumption. Even as dine-in revives, the contribution of delivery would be elevated than pre-COVID levels. COVID has, therefore, permanently shifted the QSR business model towards an omni-channel play," Motilal Oswal said in a report.

The Mumbai-based brokerage says that Restaurant Brands Asia is tracking well on post-COVID recovery with its Average Daily Sales per store (ADS) in third quarter of current fiscal driven by the upbeat festive season and elevated delivery channel sales.

“50-55 per cent of its stores being within malls and metros, the dine-in business is currently lagging in recovery but can rebound sharply as and when full mobility returns. The revival in dine-in business should also support its margins,” Motilal Oswal said.

During the December quarter the company launched cafe chain BK Cafe and has guided to open 75 more BK Cafes by March 2023 which augurs well for the company going ahead, Motilal Oswal added. “Coffee is a strategic offering that will help drive volumes/realizations/same store sales growth (SSSG)/gross margin/EBITDA margin,” Motilal Oswal said.

“Both India and Indonesia businesses are well placed to deliver a strong double-digit sales growth along with marked margin expansion. With RBA’s current multiples being cheaper than peers, we reiterate our Buy rating with a target price of Rs 150,” said Motilal Oswal.