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Barbeque Nation IPO Review and Analysis in Detail

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Basis Structure of the Barbeque Nation IPO

Founded in 2006, Barbeque Nation currently owns and operates 138 outlets in India. It also has its presence in UAE, Malaysia, and Oman.

Barbeque Nation IPO will be open for subscription from Mar24 – Mar 26, 2021.

The Barbeque Nation IPO is sized at Rs. 452.87 crores. It is going public through the book-building process i.e., there will be a price band (Rs. 498 to Rs. 500 per equity share) and not a specific price.

It is going public through a fresh issue and an offer for sale.

The fresh issue segment comprises those shares which are being freshly issued by the company. The proceeds from the fresh issue will be utilised by the company to repay some of the existing debt burden. 

The funds raised from an offer for sale will be credited directly to the promoters and not to the company. These shares are not being freshly issued by the company. The transaction is directly between the original shareholder and the new shareholders.

After the IPO, the Barbeque Nation shares will be listed on the NSE and BSE. 

The table below lists the details about the IPO. Things like Barbeque Nation IPO date, Barbeque Nation IPO size, Barbeque Nation IPO price, and more have been summarised.

Barbeque_Nation_IPO_details

About the Company

Barbeque Nation is the leading casual dining chain in India. 

It is the only chain of restaurants that offers “over the table barbeque” i.e., customers can grill their barbecues at their tables.

It is backed by private equity investor CX Partners and ace investor Rakesh Jhunjhunwala’s firm Alchemy Capital and promoted by Sayaji Hotels, Sayaji Housekeeping Services, Kayum Dhanani, Raoof Dhanani, and Suchitra Dhanani.

Barbeque Nation Hospitalities also operates Toscano restaurants and UBQ by Barbeque Nation Restaurant.

It offers both vegetarian and non-vegetarian ranging from Indian and international cuisines based on seasonal customer preferences and also runs food festivals at their restaurants.

Growth Over the Years 

Graph 1

The graph above shows the growth in the total restaurants and the total cities that Barbeque Nation operates in over the years.

As we can see, between 2017 and 2020, the number of total cities covered in India have increased from 40 to 63.

As for the total number of restaurants, that has increased from 79 to 138.

Products and Services

Barbeque Nation is in the food-service sector and provides casual in-dining services.

The number of in-dining covers at Barbeque Nation Restaurants in India has grown from 6.86 million in Fiscal 2017 to 9.92 million in Fiscal 2020 at a CAGR of 13.08%.

It also operates Italian restaurants. It is working on spreading its presence in Karnataka, Tamil Nadu, and Maharashtra with 8, 2, and 1 Italian restaurant respectively.

Promoter Shareholding Pattern

The offer for sale is by SHKL, Dhanani family, TPL, PPL, AAJVIT, MPL, and Alchemy India aggregating up to 98,22,947 Equity Shares.

Barbeque_Nation_Promoter_Shareholding_Pattern

Financial Overview of Barbeque Nation IPO

The table below summarises the main financial parameters for Barbeque Nation over the past four years. All the figures given below are in Rs. Crores.

Financial Overview

Based on the financial figures, Barbeque Nation has been able to grow in terms of revenue at a CAGR of 16.59%. 

Total Revenue

Between 2017 and 2020, the total assets increased at a CAGR of 16.49%.

The expenses are increased at a CAGR of 18.73%. As for the profits after tax, that has recorded a CAGR of (32.84)%.

Net Profit

Based on the given financial statements, one can see that the company is unable to make profits. This is partly due to the impact of lockdown. 

Barbeque Nation claims that it closed several restaurants across India from March 2020 and has experienced reduced store-level operations, including reduced operating hours and restaurant closures.

As it is leading in the Casual Dining restaurants segment which is meant for ‘Dine in experience’, the COVID-19 pandemic demanded to shut down such operations.

Industry Overview

The Casual Dining Market (CDM) has been increasing its market share over the last few years.

In India, after QSR, the casual dining market has the 2nd largest share in the chain food services market.

Graph 3

In FY 2020, the size of the chain CDM was estimated at Rs. 14,200 crores. The segment is expected to grow at a healthy CAGR of 18% to reach Rs. 30,200 crores by FY 2025. 

If we talk about the 6 main segments of chain food services, CDR occupied a market share of 34% in FY 2019 which was 31% in FY 2014.

The table below shows the market share of various formats under the organized foodservice - chain segment.

Market Share

This market is poised for immense growth. This is backed by the fact that more and more people are developing the habit of eating out frequently.

As for the risks of this market, there is fragmentation and the fact that it is difficult to maintain consistency across various locations.

There is also the fact that online food delivery and the role of technology in food-service is growing steadily. This poses a threat to traditional dine-in restaurants. 

Peer Review of Barbeque Nation IPO

Based on the fact that Barbeque Nation operates in a monopolistically competitive market, it experiences significant competition from its peers. This is because there are no significant entry barriers in this market. If any new company decides to enter into this segment, it will be able to do so easily.

Competition for Barbeque nation depends on many factors that include price, quality of food and service, value, name recognition, location, etc. 

It competes with local, national, and regional restaurant chains. 

If we look at the performance of its listed peers, Westlife Development Ltd has a high P/E ratio which means investors are ready to pay more to buy that share and are expecting higher growth from the company.

You can see that profitability of Jubilant Foodworks is so high among its peers with 25.39%.

Peer review

Strengths of the Barbeque Nation IPO

Barbeque Nation has spent the last decade and a half building up its reputation and optimising its internal systems. This is one of the biggest strengths of its operations. 

In a monopolistically competitive market, brand recognition and marketing play a huge role in capturing market share. In this regard, Barbeque Nation is one of India's leading Casual Dining Restaurant chains. Its recognition spans the entire country.

Barbeque Nation's market is not concentrated in any particular geography. In order to capture the market in different parts of the country, the company offers a localised menu selection to optimise the experience for customers.

Even though the company is currently not profitable, it has shown stable revenue growth over the years.

Weaknesses of the Barbeque Nation IPO

As stated above, Barbeque Nation is not profitable. This raises a red flag. Even though the company has shown stable growth, it is still not able to realise any profits.

Barbeque Nation is embroiled in certain legal proceedings relating to Section 171 of the GST Act. is facing some legal issues amounting to ₹325.88 million under Section 171 of the GST Act.

Some of the promoters and directors of the company are involved in ongoing criminal and insolvency proceedings. These matters have not been resolved yet.

Some of the promoters and directors started a similar line of business. This could pose a conflict of interest later on.

Valuation of Barbeque Nation IPO

Barbeque Nation is currently at losses. So, we will estimate the growth rate based on its revenue.

We are going to use Price to Sales ratio to find out the valuation of a company. 

FY20 Revenue from operations = Rs. 787.52 crores 

It's Market Capitalisation is Rs. 1877 Cr

Price to Sales Ratio = Market Cap/Annual Sales

                             = 1877/787.52

                             = 2.38

As per the basis structure, Barbeque Nation is currently aiming for a market capitalisation of Rs. 1877 crores.

Hence, we can conclude that the Barbeque Nation IPO is undervalued.

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