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Burger King IPO review (May apply)

Review By Dilip Davda on November 28, 2020

•    BKIL is growing international QSR Chains in India.
•    'BURGER KING', 'POPEYES', 'TIM HORTONS' are the world brands.
•    The company has suffered losses for reported financial periods.
•    On PE and P/BV parameters, the issue is priced aggressively.
•    97% of owned outlets is the prime positive factor at present.
•    Changing lifestyle, shifting preference of habits posse's big concerns.

Burger King India Ltd. (BKIL) is one of the fastest-growing international QSR chains in India during the first five years of operations based on the number of restaurants. (Source: Technopak) As the national master franchisee of the BURGER KING® brand in India, it has exclusive rights to develop, establish, operate and franchise Burger King branded restaurants in India. Company's master franchisee arrangement provides with the ability to use Burger King's globally recognised brand name to grow its business in India while leveraging the technical, marketing and operational expertise associated with the global Burger King brand.

The globally recognised Burger King brand, also known as the 'HOME OF THE WHOPPER®', was founded in 1954 in the United States and is owned by Burger King Corporation, a subsidiary of Restaurant Brands International Inc., which holds a portfolio of fast-food brands that are recognized around the world that include the BURGER KING®, POPEYES® and TIM HORTONS® brands. The Burger King brand is the second-largest fast-food burger brand globally as measured by the total number of restaurants, with a global network of 18,675 restaurants in more than 100 countries and U.S. territories as at September 30, 2020.

BKIL's customer proposition focuses on value leadership, offering customers variety through innovative new food offerings at different dayparts, catering to the local Indian palate, offering a wide range of vegetarian meal options, and its taste advantage and flame grilling expertise.

Following fancy for ready to eat and lavish lifestyle, BKIL was able to reach a milestone of 200 outlets in India in the first five years of operations. All was going well till FY20, but then COVID-19 pandemic played a spoil sport and the company faced the music with a severe setback in the first half of the current fiscal. With the sudden change in lifestyle and awareness of healthy food habits to survive in the pandemic is a big concern for this chain of stores.

As of September 30, 2020, BKIL had 261 restaurants, including eight Sub-Franchised Burger King Restaurants, across 17 states and union territories and 57 cities across India. Of our 261 restaurants as of September 30, 2020, 226 were operational. As at the date of this Red Herring Prospectus, it had 259 Company-owned Burger King Restaurants and nine Sub-Franchised Burger King Restaurants, of which 249 were operational; including two sub-franchised Burger King Restaurant.

BKIL plans to continue to build its restaurant network using a cluster approach and penetration strategy with the objective to provide greater convenience and accessibility for customers across relevant geographies. BKIL owns around 97% of the total outlets in India. Management is confident of achieving the target of opening 700 outlets PAN India by extended timeframe up to December 2026 despite current slowdown witnessed following a pandemic.

To part finance its plans for repayment/prepayment of outstanding borrowings (Rs.164.98 cr.), capital expenditure for own outlets (Rs. 177.00 cr.) and general corpus fund needs, BKIL is coming out with a maiden combo offer of fresh equity issue worth Rs. 450 cr. and offer for sale of 60000000 equity shares of Rs. 10 each to mobilize Rs. 810.00 cr. (at the upper price band). BKIL has fixed a price band of Rs. 59 - Rs. 60 for this book built IPO. The company will issue approx. 75000000 fresh equity shares at the upper price band of the issue. Minimum application is to be made for 250 shares and in multiples thereon, thereafter. The issue opens for subscription on December 02, 2020, and will close on December 04, 2020. Post allotment shares will be listed on BSE and NSE. The issue constitutes 35.37% of the post issue paid-up capital of the company.

The company has reserved 75% of the issue for QIBs, 15% for HNIs and 10% for Retail investors.

Having raised initial equity at par, BKIL issued further equity in the price range of Rs. 20 to Rs. 90 per share from November 2014 to November 2020 including pre-IPO placement of 13200000 shares at Rs. 44 per share by way of a rights issue to promoters in May 2020 and 15712820 shares at Rs. 58.50 each to Amansa Investment on November 18, 2020. With this issue, BKIL is looking for a market cap of approx. Rs. 2290 cr. post this issue.

The average cost of acquisition of shares by the promoters is Rs. 23.11 per share.  Post issue, BKIL's current paid-up equity capital of Rs. 306.65 cr. will stand enhanced to Rs. 381.65 cr.

The issue is jointly lead managed by Kotak Mahindra Capital Co. Ltd., CLSA India Pvt. Ltd., Edelweiss Financial Services Ltd. and J M Financial Ltd. While Link Intime India Pvt. Ltd. is the registrar to the issue.

On the financial performance front, for the last three fiscals, BKIL has posted turnover/net profit (loss) of Rs. 388.74 cr. / Rs. - (82.23) cr. (FY18), Rs. 644.13 cr. / Rs. - (38.28) cr. (FY19) and Rs. 846.83 cr. / Rs. - (76.57) cr. (FY20). Thus while the top line has shown rising trends, bottom line expressed negative earnings with inconsistency.

For the first half of the current FY21, it has posted a loss of Rs. - (118.95) cr. on a turnover of Rs. 151.65 cr. verses loss of Rs. - (17.43) cr. on a turnover of Rs. 425.37 cr. for the corresponding previous period. The company suffered a severe setback for the first half of the current fiscal on account of COVID-19 pandemic. Management clarified that the company is generating cash surplus, but due to accounting provisioning, it posted losses for all these years.

For the last three fiscals, BKIL has posted an average EPS of Rs. - (2.43) and an average RoNW of - (23.78%). Thus the issue is expressing negative P/E. The issue is priced at a P/BV of 7.87 based on its NAV of Rs. 7.62 (against FV of Rs. 10) as on September 30, 2020. The issue is priced at a P/BV of 3.01 on the basis of post-issue NAV of Rs. 19.93 (at the upper cap)

As per offer documents, BKIL has shown Jubilant Foodworks and Westlife Developments as its listed peers. They are currently trading at a P/Es of around 229.66 and 00 (at the close of November 27, 2020, at BSE). However, they are not strictly comparable on an apple to apple basis.

On BRML's front, four lead managers associated with this issue have handled 22 public issues in the past three years out of which 9 issues closed below the issue price on listing date.

Conclusion / Investment Strategy

Burger King met with fancy among younger generation that helped the company for speedy expansion of its footprint. But in the current situation of COVID-19 pandemic and changing lifestyle habits and shifting preference with rising awareness of immunity diet, Burger King will find it difficult to maintain the progress made in the last five fiscals. Company has huge carried forward losses that are represented in its NAV of Rs. 7.62 (against face value of Rs. 10) as on September 30, 2020. Thus issue appears aggressively priced. Due to its carried forward losses, BKIL has reserved 75% quota for QIBs and they may support the issue for smooth sailing. Extended gestation period may take long to wipe out accumulated losses. The segment is crowded with many organized/unorganized players and posing tough competition. Once normalcy restores, BKIL may achieve the targeted plans. Considering all these, cash surplus, risk savvy investors may consider investing in this issue with a long term perspective.

Review By Dilip Davda on November 28, 2020

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on the information published here. My reviews do not cover GMP market and operators game plans. Any reader taking decisions based on any information published here does so entirely at their own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

(Dilip Davda -SEBI registered Research Analyst-Mumbai,

Registration no. INH000003127 (Perpetual)

Email id: ).

Burger King IPO FAQs

  1. 1. Why Burger King IPO?

    The initial public offer (IPO) of Burger King India Limited offers an early investment opportunity in Burger King India Limited. A stock market investor can buy Burger King IPO shares by applying in IPO before Burger King India Limited shares get listed at the stock exchanges. An investor could invest in Burger King IPO for short term listing gain or a long term.

  2. 3. Burger King IPO what should investors do?

    Burger King IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the Burger King IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.

  3. 4. Is Burger King IPO good?

    Our recommendation for Burger King IPO is to subscribe for long term.

  4. 5. Is Burger King IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe for long term to the Burger King IPO.

  5. 6. When will Burger King IPO allotment status?

    The Burger King IPO allotment status will be available on or around December 9, 2020. The allotted shares will be credited in demat account by December 11, 2020. Visit Burger King IPO allotment status to check.

  6. 7. When will Burger King IPO list?

    The Burger King IPO will list on Monday, December 14, 2020, at BSE, NSE.