Barbeque Nation IPO review (May apply)

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Review By Dilip Davda on March 22, 2021

• The company operates 153+ Barbeque Nation restaurants in India and Gulf countries.
• The company has been posting negative earnings since FY19.
• For the first eight months of FY21, it has posted a whopping loss of Rs. 100 cr.
• The IPO is priced at nearly double-level against pre-IPO placement just two months before.
• Resurgence of Pandemic scare looms large on the near term prospects of this company.
  
  

PREFACE

Barbeque Nation Hospitality Ltd. (BNHL) filed its maiden IPO documents in August 2017 and though it got SEBI node, it preferred to skip the IPO in 2018 under the pretext of dull market conditions. It refiled IPO documents in February 2020 and got SEBI approval and the IPO was scheduled for July 2020. But due to pandemic, it could not do so and now in a much-hurried way it has decided to go for a maiden IPO launch despite heavy losses posted for the past 32 month's workings. It did a pre-IPO placement in December 2020/January 2021 at Rs. 252 per share of Rs. 5 face value and now for IPO it is asking for a price of Rs. 498 - Rs. 500 that has raised eyebrows. Some hype is created by this IPO only due to some minor stake by veteran bull R K Jhunjhunwala. This is the second IPO in a row with such hype and hence may get a response. But considering sluggish performance, it would be of interest for one and all to see the final response.

ABOUT COMPANY

Barbeque-Nation Hospitality Ltd. (BNHL) is owning and operating Barbeque Nation Restaurants, one of India's leading casual dining restaurant chains (in terms of outlet count as of September 30, 2020) according to the Technopak Report, and International Barbeque Nation Restaurants. It also owns and operates Toscano Restaurants and UBQ by Barbeque Nation Restaurant.

The first Barbeque Nation Restaurant was launched in 2006 by SHL, one of our Promoters. BNHL launched its first Barbeque Nation Restaurant in 2008, and subsequently acquired five Barbeque Nation Restaurants owned by SHL in 2012. The company has steadily grown its owned and operated Barbeque Nation Restaurant network from a single restaurant in 2008 to 147 Barbeque Nation Restaurants (including opened, temporarily closed and under construction outlets) across 77 cities in India and six International Barbeque Nation Restaurants in three countries outside India as of December 31, 2020. BNHL owns 61.35% of the equity share capital on a fully diluted basis of one of its Subsidiaries, Red Apple, which owns and operates nine restaurants under the brand name, 'Toscano', a casual dining Italian restaurant chain and operates one restaurant each under the brand names 'La Terrace' and 'Collage' respectively.

The first Toscano Restaurant commenced operations in June 2008 and, as of December 31, 2020, it operated eleven Italian Restaurants, nine of which are under the brand name 'Toscano', in three cities in India. In November 2018, it launched UBQ by Barbeque Nation Restaurant to provide a la carte Indian cuisine in the value segment. At present, UBQ by Barbeque Nation Restaurant predominantly caters to the delivery segment.

Through its Barbeque Nation Restaurants, the company pioneered the format of the 'over the table barbeque' concept in Indian restaurants according to the Technopak Report. Live grills embedded in dining tables allow guests to grill their own barbeques. According to management, Barbeque Nation Restaurants, compared to other fixed-price dining options, offer competitive attractions such as a wide range of vegetarian and non-vegetarian appetisers and main courses, a popular dessert menu, a pleasant and casual dining environment and prompt service thereby making it a popular destination for celebrations.

It also periodically runs popular food festivals at Barbeque Nation Restaurants offering guests a range of Indian, international and fusion cuisines. BNHL diversified into another brand pursuant to its acquisition of 61.35% of the equity share capital on a fully diluted basis of Red Apple, which operates 11 Italian Restaurants in three cities in India, namely Bengaluru, Chennai and Pune. Of the Italian Restaurants operated by it as of December 31, 2020, three Toscano Restaurants were opened since March 31, 2019, and four Toscano Restaurants were opened in the three Fiscals immediately preceding Fiscal 2019.

UBQ by Barbeque Nation provides a la carte Indian cuisine in the value segment, initially through leading food delivery service providers for the delivery of food. As of December 31, 2020, it has been providing delivery in 77 cities in India of a la carte Indian cuisine under UBQ by Barbeque Nation from existing kitchen infrastructure.

BNHL has planned the opening of 22 new restaurants in FY22 and 6 in FY23.

ISSUE DETAILS/CAPITAL HISTORY

To part finance its plans for capital expenditure for expansion and opening of new restaurants (Rs. 54.62 cr.), prepayment/repayment of all or a portion of certain outstanding borrowings availed by the company (Rs. 75.00 cr.) and general corpus fund needs, BNHL is coming out with a maiden IPO for a combo book built issue comprising fresh equity issue worth Rs. 180 cr. (for approx. 3600000 shares) and an offer for sell of 5457470 shares. The company mulls raising Rs. 452.87 cr., at the upper price band of the issue. It has fixed a price band of Rs. 498 - Rs. 500 per equity share having a face value of Rs. 5 per share. The issue opens for subscription on March 24, 2021, and will close on March 26, 2021. Minimum application is to be made for 30 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 24.13 % of the post issue paid-up capital of the company.

The company has reserved shares worth Rs. 2 cr., for its eligible employees. From the residual portion, it has reserved 75% for QIBs, 15% for HNIs and 10% for Retail investors. Joint Book Running Lead Managers (BRLMs) to this offer are IIFL Securities Ltd., Axis Capital Ltd., Ambit Capital Pvt. Ltd. And SBI Capital Markets Ltd., and Link Intime India Pvt. Ltd. Is the registrar to the issue.

Having issued initial equity at par, the company raised further equity in the price range of Rs. 30 to Rs. 832 (based on Face Value of Rs. 5 per share) between March 2009 and January 2021.

The company has completed the pre-IPO placement of Rs. 149.97 cr., in the month of December 2020/January 2021 at a price of Rs. 252 per share. And now it is asking nearly double the price with a gap of just two months. No extraordinary things have taken place during these shorter periods and thus IPO pricing raises eyebrows.

The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 0.00, Rs. 1.67, Rs. 5.00, Rs. 167.27, Rs. 216.32 and Rs. 592.00 per share.

Post issue, BNHL's current paid-up equity capital of Rs. 16.97 cr., will stand enhanced to Rs. 18.77 cr. Based on the upper price band, BNHL is looking for a market cap of Rs. 1877.15 cr.

FINANCIAL PERFORMANCE

On the financial performance front, on a consolidated basis, BNHL has reported turnover/net profit (loss) of Rs. 590.45 cr. / Rs. 6.78 cr. (FY18), Rs. 742.54 cr. / Rs. - (21.20) cr. (FY19) and Rs. 850.79 cr. / Rs. - (32.93) cr. (FY20). For the eight months period ended on November 30, 2020, it has reported a net loss of Rs. - (100.65) cr., on a turnover of Rs. 236.61 cr. Thus for all these periods, it has shown the red bottom line. Looking at the whopping loss for the first eight months, this company will have longer gestation periods.

For the last three fiscals, the company has (on a consolidated basis) posted an average negative EPS of Rs. - (11.12) per share and an average RoNW of - (288.68) %.

The issue is priced at a negative P/BV based on its NAV of Rs. - (5.33) per share as of November 30, 2020 (on a consolidated basis) and at a P/BV of 5.96 based on its post-IPO NAV of Rs. 83.92 per share (at the upper price band).

DIVIDEND POLICY

BNHL paid a dividend of 20% per year for FY18 and FY19. It skipped the dividend for FY20. Going forward, it will follow a prudent dividend policy based on its performance and future prospects.

COMPARISION WITH LISTED PEERS

As per offer documents, BNHL has shown Jubilant Foodworks, Westlife Development, Speciality Restaurants and Burger King as its listed peers. They are currently trading at a P/E of around 229.62, 00, 00 and 00 (as of March 22, 2021). However, they are not truly comparable on an apple-to-apple basis. (Note - Westlife, Speciality and Burger have posted negative earnings and hence are trading at 00 P/E).

MERCHANT BANKER'S PERFORMANCE

The four BRLMs associated with the offer have handled 30 public offers in the past three years, out of which 10 issues closed below the offer price on the listing date.

Conclusion

As per financial data the company has posted a cumulated loss of Rs. 154.78 cr. For the last 32 months working which is alarming. Management has clarified that due to its ongoing expansion plans and higher provisions for depreciation etc., it has posted losses. But looking at the losses made in the first eight months of the current fiscal on account of pandemic scare and resurgence of the same since past one week or so, immediate future appears gloomy. There is no certainty of restoration of normalcy in the near term and thus, it may continue to face the music. It made pre-IPO placement at Rs. 252 per share just two months before and now asking nearly double the price. Considering all these and the negative P/E, cash surplus, risk savvy investors may consider parking their hard-earned money at their own risks.

Additional Insights

• Improvement in Pat margins The Company is in a growth phase with 50% of outlets less than 3 years old. Due to this, the depreciation is high. The company will be debt-free and hence interest charges will not be there.
• Loss of 100 crs is due to depreciation and interest during the COVID period
• Post-Covid the business has reached 84% of the pre-COVID business in November 2020.
• Marquee investors on the cap table- Jubilant Foodworks, Xponentia, CX partners, and Alchemy
• The NAV will be positive after the pre-IPO round of 150 crs
• Operating margins of the company are at a healthy 20%. The revenue has grown at CAGR 20% in the last 3 years and the store network has grown at CAGR 26% in the last 3 years
• Total restaurants operated 164 outlets- The company operates 153+ Barbeque Nation restaurants in India and Gulf countries. It also operates 11 Italian restaurants.
• The new delivery product 'Barbeque in a Box' has added significantly to the delivery offering and revenue. Its Delivery business has seen a 53% MoM Growth (Nov 20 vs April 20)
• Rs 54.6 cr allocated for capital expenditure for expansion and opening of new restaurants - FY22 - 20 outlets, FY23- 6 Outlets is purely an allocation out of the proceeds. Historically it has grown at 25 outlets per month. FY17 they had 80 restaurants and as of December 2020, they have 164. Hence one can expect the same trajectory. 
• In dining covers have seen a YOY growth - FY20 it stood at 11%, Weekday & Weekend sales have a balanced proportion
• Total Operating Revenue has had a CAGR growth of 19.5% since FY17
• 97% of Outlets Operational. Only 3 Outlets were shut due to rent ask by the landlord not being conducive (Less than 2%)
• Delivery business and increasing SSSG/revenue will find an increased focus 

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