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    Barbeque Nation IPO - All You Need To Know

    Editor, TRANSFIN
    Mar 25, 2021 9:54 AM 5 min read

    Barbeque Nation Hospitality Ltd launched its  initial public offer (IPO) yesterday. The IPO, sized at ₹452.87cr ($62.4m) will close for subscription by March 26th. As of this piece's publication, the public offer has been subscribed 1.82 times. 

    Let us take a tour of the company's profile and its overall play within India’s exciting food and hospitality sector. 

    All About Barbeque Nation 

    It is one of the country’s leading casual dining restaurant (CDR) chains. Launched in the year 2006, the company operates 147 restaurants across 77 cities domestically and six outlets overseas - UAE, Oman and Malaysia. It also owns restaurant brands like "Toscano", "La Terrace" and food delivery brands like "UBQ". 

    The company is promoted by the Sayaji Hotel Group, owned and managed by the Dhanani family, which owns 60% of its pre-offer capital. Other major shareholders include private-equity firm CX Partners (33.79%) and, interestingly, Rakesh Jhunjhunwala (originally 2.05%, now reportedly 1.69%). 

    Between 2006 and 2013, the Barbeque Nation restaurant business was booming. With 35 operational outlets at the time, the chain was registering ₹9cr ($1.2m) per outlet in profits, one of the highest in the segment. The chain was particularly credited for the introduction of its novel "over the table barbeque" offering, which was welcomed by Indian customers due to its do-it-yourself element of mixing and matching ingredients. 

    Barbeque Nation has had a volatile IPO journey. The company held its first pre-IPO round as far back as in January 2018, shortly after SEBI approved the public offer. It raised close to ₹80cr ($11m) in that round, with the upper band of shares touching as high as ₹832 ($11.4) per share, valuing the company at ₹2,250cr ($310m) pre-money. 

    However, the IPO launch was later postponed due to operational uncertainties and eventually the pandemic's ravaging impact on restaurant businesses. Until now. 

     

    Some Fast Facts

    • Issue size: ₹452.87cr (Fresh issue: ₹180cr ($24.8m) and Offer-For-Sale: ₹272.87cr ($37.6m)).
    • Face Value: ₹5 ($0.06) per share.
    • Market Lot: 30 shares.
    • Price Band: ₹498-500 ($6.8) per equity share.

    The offer-for-sale from existing shareholders will result in a reduced promoter's share in the company from 47.8% pre-issue to 38.1% post-issue. Another key point to notice is the IPO price band of ₹498-500 per share, which is almost twice the price of ₹252 ($3.4) at which the company allotted shares as part of pre-IPO placements in December 2020 and January 2021. A few market analysts have explained this reduced valuation in the pre-IPO round blaming it on the company's lack of survival capital. 

    FYI: Jubilant FoodWorks, the parent company of Domino's in India, which is a market rival of Barbeque Nation, had pocketed 36.5 lakh of the latter’s shares for ₹92cr ($12.6m) in January this year. So, Jubilant has effectively doubled its investment in under two months, by investing in an industry peer. 

    The company raised early ₹203cr ($28m) ahead of the IPO from 21 anchor investors which includes the likes of Goldman Sachs India, Fidelity Investment Trust, ICICI Prudential Mutual Fund, HDFC Life Insurance Company and others. 

     

    Company Financials

    Total consolidated revenue from the company's continuing operations has grown from ₹499cr in FY17 to ₹742cr ($102.2m) in FY19 at CAGR of 22.04%. However, it is not commensurate with the PAT (Profit After Tax) losses. Losses emanating from acute downturn in sales during the lockdown period have also reflected in the company's balance sheet via negative bottom line and book value.

    Net Asset Value per equity share as of September 30th 2019 stands at 41.86 on a consolidated basis, which is lower than the other industry peers like Jubilant Foodworks and Westlife Development.

    As reported by Livemint, there has been a noticeable improvement in sales for Barbeque Nation in FY21. Monthly sales have steadily improved with a 84%YoY revenue growth in November 2020. Contrary to the other listed food businesses who had adapted into the business of food delivery, Barbeque Nation was still largely banking on its dine-in business which predictably threw its revenue into a tailspin during the lockdown. However, it seems that necessary corrections have been enforced by the company with the share of ordered food rising to 15% of total revenues in FY21. 

    Risks

    • Unlike the market frenzy witnessed over Nazara IPO, another Jhunjhunwala-backed company, the grey market enthusiasm for Barbeque Nation has been lukewarm. There has been an ongoing problem of scalability of operations for the business, especially in the international market. There is also a lack of impressive track order when it comes to fixing consistent losses over the last few years. 
    • In light of the pre-IPO placement in December and January that was done at half the current price, investor-concern over the increased price band and its potential connection to resurfacing COVID-exigencies are mounting high. 
    • The costs associated with the capital-intensive nature of the restaurant businesses diminishes the poor pandemic-induced outlook already. It takes years for these businesses to break even. In FY20, total expenses accounted for over four-fifths of the revenue for Barbeque Nation, which can be well expected to aggravate going into a post-COVID limiting growth scenario. 
    • The CDR segment has a larger average bill size than the QSR (Quick Service Restaurant) segment such as Domino's, McDonald's and Burger King, the last among which launched its own IPO last year to a promising market response. Ergo, demand for CDRs like Barbeque Nation could take a huge hit in the pandemic climate. 
    • The company is entwined in multiple ligation proceedings. One of the promoters Raoof Dhanani is facing criminal and insolvency trials. Abhay Chaudhari, an independent director, has been named as a wilful defaulter in a CIBIL suit. In fact, the company itself is facing exposure up to ₹33cr ($4.5m) from the National Anti-Profiteering Agency. This doesn't bode well from a reputation standpoint. 

     

    What to Look Out For?

    The CDR market in India is heavily fragmented and competitive. It is also most receptive to changes in near or long-term economic trends, social patterns and demographics. Having said that, the food services market in the country is expected to balloon at a CAGR of 10.5% to reach ₹67,530cr ($9.3bn) by FY24 (Casual dining market alone is estimated to reach ₹29,400cr ($4bn) by FY24). 

    A restaurant chain already under operation like that of Barbeque Nation might lack in scalability, but it still has roots deep in the business to stay commercially viable. With a total fundraising bag size of ₹330cr ($45.4m) estimated from pre- and post-IPO funding, liquidity for the company shouldn't be a problem for some time. 

    However, it needs to build on its existing brand and operational appeal. It can be expected to count on its presence and dominance in the cuisine and hospitality market to generate scale and expansion in the future. 

    PS: Read up on some other notable IPOs - NazaraKalyan JewellersEasy TripMTARRailTelIRFCBurger King IndiaBrookfield REITGland PharmaAnt FinancialCAMSUTI AMC.

    FIN.
     

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