Burger King IPO : Review by Brokerages

Burger King IPO : Review by Brokerages

Quick-service restaurant chain Burger King India is set to open its maiden public issue for subscription on December 2.

The issue will close on December 4 and the listing of equity shares is expected to be on December 14.

This would be the fourteenth IPO in the current year. Other public issues this year were SBI Card, Rossari Biotech, Mindspace Business Parks REIT, Route Mobile, Happiest Minds Technologies, Angel Broking, Chemcon Speciality Chemicals, Computer Age Management Services, Mazagon Dock Shipbuilders, UTI AMC, Likhitha Infrastructure, Equitas Small Finance Bank and Gland Pharma.

Kotak Mahindra Capital Company, CLSA India, Edelweiss Financial Services and JM Financial are book running lead managers to the Burger King issue.

Here's what brokerages said on the forthcoming IPO:

Geojit Financial Services: Subscribe with long-term perspective
At the upper price band of Rs 60, a share of Burger King India is available at 29 times FY20 EV/Ebitda and 3.6 times FY20 EV/sales, which Geojit said is attractive. This is considering the company's robust growth in store additions and expected rise in future revenues. The brokerage has recommended 'subscribe' rating on the issue with a long-term perspective.

Prabhudas Lilladher: Subscribe
The brokerage expects the near-term financials of Burger King India to remain under pressure with the company already suffering a loss of Rs 118 crore in the first half of FY21. The brokerage is expecting a turnaround by FY23/24, led by benefits from rising economies of scale and new store openings.

"Burger King is offered at 2.9 times FY20 EV/Sales in comparison to 8.4 times for Jubilant FoodWorks and 4.4 times for Westlife Development," the brokerage said while advising a 'Subscribe' on the issue.

Angel Broking: Subscribe, listing gains possible
Keshav Lahoti of Angel Broking noted that Burger King has opened 268 stores in the last six years of operations in India. Looking at the current run rate, he said, the company 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 profit. We believe there is ample scope available for the company to increase its business in India," Lahoti said.

At the upper end of the price band, the stock will trade at an EV/sales of 2.2 times on FY20 basis, which Lahoti said is quite reasonable.

"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 said.

Sharekhan: No recommendation
This brokerage said that the company's revenue compounded at 50 per cent over FY18-FY20 and since it is in the growth phase, it continued to make losses.

"However the highlighting factor for the company is sustained improvement in the gross margins which stood at 64 per cent in FY2020 and negative working capital, aiding operating cash flows. FY2021 will be the year of disruption for the QSR industry as June quarter performance was disrupted by shutdowns in India," it said.

The brokerage said that 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.