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All About the Burger King IPO

Editor, TRANSFIN
Dec 4, 2020 8:49 AM 4 min read
Editorial

Burger King India issued its Initial Public Offer (IPO) this week in the amount of ₹810cr ($110m). It was the sixth Indian IPO in 2020 to obtain full subscription on the first day of issue (literally within the first two hours!). 

As the fastest-growing international Quick Service Restaurant (QSR) Chain in the country, the public offer comes at an interesting time for investors and markets alike. 

Let's break down the particulars of this latest offering.

 

Burger King India Particulars

The US-based Burger King brand opened its first store in India in 2014 through franchisee partner Everstone Capital. 

Everstone is a leading private equity firm which owns a 99.39% stake in Burger King India via its investment vehicle QSR Asia. Through this IPO, the firm is planning to offload upto a fourth of its stake.

Burger King is the second-largest burger brand globally with 268 restaurants operating in India currently (as of November 25th 2020).

 

 

Key IPO Facts

  • Fresh issue of ₹450cr ($61m) plus promoter entity QSR Asia to unwind 6 crore shares worth ₹360cr ($48.9m) for a total of ₹810cr. Use of funds is to drive overall growth via store expansion along with modest deleveraging.
  • Total bids received is for 69.86 crore equity shares (as of today's closing). This suggests that the offering has been oversubscribed 9.4 times already.
  • The issue break-up: Retail investors (10%), Non-Institutional Investors (15%), Qualified Institutional Investors (75%). The portion earmarked for Retail investors has been oversubscribed 37.8 times.  
  • Anchor investment (by first investors or QIBs) of ₹364.5cr ($49.4m) has been raised.
  • Price band fixed in the range of ₹59-60 ($0.8) per share.

 

A Look At the Numbers

Burger King India’s revenue and EBITDA growth over the 2018-2020 period has been a staggering 49% and 258% CAGR respectively. However, fully endorsing a heightened cost and overhead profile in the sector, the company has been making losses. Profit After Taxes (PAT) stood at -₹766m ($10.3m)for the year ending in March 2020. 

With increasing customer bases in urban centres, a steady optional menu and rising preference for fast-food among millennials, the growth machines of the company are pedalling high.

 

 

Admittedly, the company's market share by revenue and outlet count lag behind traditional rivals. But with ambitious expansion plans in the offing (to open 700 new stores by the end of 2026) and market expectations for the QSR segment looking promising (estimated to grow at 19% CAGR for the next five years to ₹965bn ($13.09bn)), things look upbeat from a growth standpoint. Furthermore, the fact that QSRs were the first to demonstrate recovery from the impact of COVID-19 is a testament to the sector’s preparedness when it comes to infrastructure and delivery services.

 

Investor Diligence

Burger King became quite the rage in continental USA during the 1970s and ‘80s, catering to the food habits of the population through tailored menus and palatable choices. 

Through the introduction of signature products like the "Whopper", the company managed to earn customer points in spite of rising dietary concerns about trans-fats in its products. The Indian menu of the brand has been accordingly designed with spice-inclusive options like Boss Whopper, Masala Whopper etc.

However, a striking point of departure in the company's disposition was noticeable through a revelation in the Red-Herring Documents filed with the ROC, which says: "Our existing or future competitors may offer products that are better priced or more appealing to consumer tastes or have more effective marketing and advertising programs than we do."

Consequently, owing to the competition in the QSR industry and the "pressures of competition", so to speak, the company seems to disavow itself of shareholder-accountability in the future on financial performance. 

 

 

(FYI: This is a company that hasn't shied away from battles (legal or otherwise) with its franchises and licensees on a host of issues.)

And thus, citing downward pressure on prices, reduced demand for products, reduced margins, loss of market share etc. In the draft prospectus could be a tad bit concerning from a corporate morale and investor sentiment perspective. 

 

Silver Lining

Total debt of the company stands at ₹198cr ($26.8m) implying a total debt to equity ratio of fairly modest 0.91x excluding leases. Double digit Revenue and EBITDA growth coupled with a somewhat clean balance sheet for a company operating in a sector set for an upswing in earnings should generally bode well despite high competition. 

In addition, positive operating cash flow and earnest plans for business expansion indicates credible makings to survive and thrive in a highly competitive market.

FIN.

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