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Burger King India IPO opens on December 2: Should you subscribe to the issue?

Rs 810-crore initial public offering (IPO) of Burger King India opens for subscription tomorrow on Wednesday, December 2, 2020, and the share sale will end on Friday, December 4, 2020

Rupa Burman Roy | December 1, 2020 | Updated 16:15 IST
Burger King India IPO opens on December 2: Should you subscribe to the issue?
Shares of BKIL will be listed on BSE and NSE, likely by December 14. The grey market premium (GMP) for the stock has shot up to 40% of the IPO price

IPO market has picked up pace again this year. With broader equity market indices Sensex and Nifty hitting fresh highs every day, analysts have suggested a similar recovery in the IPO market. The year 2020 is likely to see a huge number of companies making debut in equity markets such as LIC, NSE, Kalyan Jewellers, Zomato, and RailTel Corp.

Expressing views on the upcoming IPOs, Keshav Lahoti- Associate Equity Analyst, Angel Broking had said, "Companies prefer to launch an IPO when there is liquidity and positivity in the stock market. When peers companies are trading at a premium valuation, companies get the advantage of announcing the IPO at a high price. Many IPO launched over the last few months such as Route Mobile, Happiest Minds made investors double on the day of listing. Many companies delayed the IPOs due to the correction in the market due to the pandemic. Hence, the pipeline of the IPO is quite strong and market conditions are also favourable."

Jimeet Modi, Founder & CEO, SAMCO Securities & StockNote had said," Given the current uptrend of markets, it would be no surprise to see a slew of IPOs such as IRFC, SBI Cards etc. in the coming weeks. This would entail a rush of inflows in the primary market which would be positive for retail investors as they get an opportunity to invest in good companies. Broadly markets could be dilly-dallying as it soaks in the developments from the last couple of weeks."

Among the few, the Rs 810-crore initial public offering (IPO) of Burger King India opens for subscription tomorrow on Wednesday, December 2, 2020, and the share sale will end on Friday, December 4, 2020. The company raised ~92Cr as pre-IPO placement from Amansa Investments Limited, a reputed institutional investor, in November 2020.

The IPO of the private equity firm Everstone Group-promoted company will comprise a secondary share sale worth Rs 600 crore by the promoter and a fresh fundraising worth Rs 400 crore. As per the company's RHP, net proceeds from the public issue will be used to fuel funding roll-out of new company-owned Burger King Restaurants and general corporate purposes.

The price band of IPO has been fixed at Rs 59 to Rs 60 per equity share. Burger King India submitted its draft papers for IPO with SEBI in November and received approval from the market watchdog in January this year. Burger King's offer comprises a fresh issue of equity shares aggregating up to Rs 400 crore and an offer for sale of up to 6 crore equity shares by QSR Asia, the promoter.

The company has reserved 75% of the issue for QIBs, 15% for HNIs, and 10% for retail investors. BKIL is looking for a market cap of approximately Rs 2,290 crore post this issue. The bid lot size is 250 shares and in multiples of 250 shares thereafter. Burger King plans to raise Rs 804 crore at the lower end of the price band and Rs 810 crore at the higher end of the price band. The issue constitutes 35.37% of the post issue paid-up capital of the company.

Shares of BKIL will be listed on BSE and NSE, likely by December 14. The grey market premium (GMP) for the stock has shot up to 40% of the IPO price.

Here's a look at what top Indian brokerage houses have said about the BKIL IPO, scheduled to hit the primary market tomorrow:

Kotak Securities gave 'Nor rated' outlook to the IPO, although said," The master franchisee arrangement, which expires on December 31, 2039, provides the company with the ability to use Burger King's globally recognized brand name to grow its business in India while leveraging the technical, marketing and operational expertise associated with the global Burger King. Approximately 60% of Indians eating out are millennials, which represent the age group from 15 to 34 years old. They also benefit from certain of its suppliers being global suppliers that source large volumes of ingredients and packaging materials, which helps them obtain more competitive pricing. Burger King has a well-defined new-restaurant roll out process that enables them to identify locations and build out restaurants quickly, consistently, and efficiently."

Prabhudas Lilladher has given a 'Subscribe' outlook in its report on Burger King India and said, " Despite being impacted by COVID-19, 249 out of 268 restaurants are operational with high standards of safety and hygiene protocols across its restaurants and has intensified focus on delivery, takeaways and drive-thru. We expect Burger King to turnaround by FY23/24 led by post Covid recovery and benefits from rising economies of scale and new store openings. Burger King is offered at 2.9x FY20 EV/Sales in comparison to 8.4x for JUBI and 4.4x for WDL. We expect near term financials to remain under pressure as BKIL has suffered a loss of Rs1.18bn in 1H21."

Keshav Lahoti-Associate Equity Analyst, Angel Broking said in its IPO note," Looking at the current run rate, we believe management will be able to achieve the target of 700 stores by Dec'26. As the store count will increase, operating leverage will kick in and the company will be able to report a profit. We believe there is ample scope available for the company to increase its business in India. At the upper end of the price band, the company will trade at an EV/sales multiple of 2.2x on an FY20 basis, which we believe is quite reasonable. Burger King is growing rapidly in India, revenue of the company increased from Rs. 230 cr in FY17 to Rs. 633 cr in FY19. On the other hand, the company has reduced its losses from Rs. 72 cr to Rs. 38 cr from FY17 to FY19. We believe that there is a good possibility of listing gains given lower valuations as compared to other listed peers. We are also positive on the long-term growth prospects of the Industry and the company, and hence recommend to "Subscribe" to the issue for long term as well as for listing gains."

He further added," Burger King peer Jubilant Foodworks is currently trading at 8.7 EV/sales on FY20 basis. Burger King won't get such a premium valuation as Jubilant Foodworks as it does not have a profitability track record like Jubilant, its outlets are young and we believe the majority of the Indian people prefer Jubilant - Pizza over burger sold by Burger King. So Burger King has priced its issue at a significant discount compared to Jubilant Foodworks, so looking at the valuation and the growth the company is expected to do in the future, the issue is looking attractive to us at the first look."

Geojit said in its note," The company's revenue grew around 49 percent CAGR over FY18-FY20 led by significant store additions. Gross margin has improved consistently from 62 percent in FY18 to 64 percent in FY20 and earnings before interest, tax, depreciation, and amortization (Ebitda) grew from Rs 8 crore to Rs.104 crore, during the same period.  At the upper price band of Rs 60, BKIL is available at 29x FY20 EV/EBITDA and 3.6x FY20 EV/Sales which seems attractive considering its robust growth in-store additions and future revenue, recommend "Subscribe" with a long-term perspective."

Choice Broking gave Subscribe rating to the IPO and said," Among its key competitive strength are exclusive national master franchise rights in India, strong customer proposition, the brand positioned for millennials, vertically managed and scalable supply chain model, operational quality, well-defined restaurant development process, and experienced, passionate and professional management team."

ShareKhan in its report said, "BKIL's revenue registered a CAGR of 50% over FY2018-FY2020. Since the company is in a growth phase it continued to make losses at the PAT level. However, the highlighting factor is sustained improvement in the gross margins which stood at 64% in FY2020 and negative working capital aiding operating cash flows to improve over FY2018-20. FY2021 will be the year of disruption for the QSR industry as Q1FY2021 performance was disrupted by shut down of stores during the lockdown period in India. Strong franchisee model, negative working capital, market share gains from standalone players, and strong store expansion plans would help in improving growth prospects in the coming years."

"Although the COVID-19 crisis has adversely affected its ability to open new restaurants and expand its restaurant network temporarily, they continue to evaluate the pace and quantity of new restaurant openings and the expansion of its restaurant network, said Axis Capital. The brokerage added, "They have delayed some new restaurant openings and will continue to evaluate the pace and quantity of new restaurant openings and the expansion of its restaurant network until more clarity on the restaurant industry operating environment in India emerge."

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Burger King IPO: Check launch date, issue price, risk factors; other details

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