BURGER KING IPO: REVIEW, DETAILS & ANALYSIS
BASIS STRUCTURE OF BURGER KING INDIA IPO
The Burger King India IPO is set to hit the markets in December 2020.
The total size of the IPO is about Rs. 810 crores
This Burger King India IPO is of the book-building nature, which means the offer price will be quoted in a price band, and the offering is made up of a fresh issue segment as well as an offer for sale segment.
The fresh issue segment of the Burger King India IPO includes those equity shares which have been newly raised by the company for the purpose of diluting its stake. Any proceeds gathered through this method goes directly to the company.
Through the IPO, Burger King India intends to sell 7.5 crore shares and raise an amount of Rs. 450 crores. This will be primarily used for expansion purposes.
An estimated amount of Rs. 290 crores has been earmarked for the purpose of expanding the chain and opening new restaurants. As for the remaining, the remaining will be utilised for general corporate purposes.
Apart from that, the offer for sale segment of the Burger King India IPO includes those shares which are being sold by existing shareholders. In this case, the existing shareholder, QSR Asia will be offering about 6 crore equity shares to the public.
The offer for sale segment is sized at Rs. 360 crores.
All the proceeds, in this case, will be credited directly to the shareholder and not to the company.
The table below contains all the details about the Burger King India IPO. Questions like “When will Burger King India IPO open?”, “What is the lot size for Burger King India IPO?”, “When is the Burger King India IPO allotment?”, “When is Burger King India IPO listing date?”, etc. will be answered.
|Total number of equity shares||13,50,00,000|
|Offer For Sale||6,00,00,000|
|Face Value of each share||Rs. 10|
|Price Band||Rs. 59-60|
|Size of each lot||250 shares|
|Subscription window||December 2-4, 2020|
|Allotment date||December 9, 2020|
|Listing date||December 14, 2020|
After this IPO, the shares will be listed on the NSE and BSE. The Burger King India share price will be decided then.
AN OVERVIEW OF BURGER KING INDIA
Burger King was originally founded in 1954 in the United States. Owned by Restaurant Brands International Inc., it is currently the second-largest fast-food burger brand across the world.
Burger King India was formed in 2013 when the Everstone Capital Group acquired the exclusive rights to develop the franchise in India.
The first Burger King India restaurant was opened in 2014.
As of June 30, 2019, the company had 202 Burger King restaurants spread across 16 states and union territories in India.
PRODUCTS & SERVICES
The products made by Burger King require no introduction.
The “Home of the Whopper” has a reputation that precedes it, and its burgers are known and loved on a global scale.
It is interesting to note that even though Burger King restaurants operate all around the world, the menus get customised according to local preferences.
The Burger King India menu consists of a combination of 22 different varieties of burgers, both vegetarian and non-vegetarian. Apart from that, they also curate a range of sides and beverages.
Like most other restaurants, Burger King India works on a B2C model.
This means, their products and services are ideally meant for individual customers and not other businesses.
In 2019, the company earned a total of Rs. 630.88 crores in revenue from their customers.
MANAGEMENT SHAREHOLDING PATTERN
The Burger King India franchise is owned and managed by the Everstone Capital Group.
As for the promoter, that is Singapore based QSR Asia. It is primarily a holding company, and holds 99.39% of the stake of Burger King India.
Apart from that, there are a few minor shareholders among the management personnel, namely, the Chief of Business Development Abhishek Gupta, the Chief People Officer Namrata Tiwari and the Company Secretary Ranjana Saboo.
The table below contains the details of the shareholders of the company prior to the Burger King India IPO.
Once the Burger King India IPO is subscribed, the shareholding pattern will change, especially the stake held by QSR Asia.
FINANCIAL OVERVIEW OF BURGER KING INDIA IPO
The table below contains a summary of the Burger King India financials from 2017 till 2019. All the figures stated below are in Rs. crores.
|PROFITS AFTER TAX||(38.28)||(82.23)||(71.85)|
|NET CASH FLOW FROM OPERATING ACTIVITIES||86.54||30.49||(3.28)|
Between 2017 and 2019, the total revenue of Burger King India has shown a CAGR of about 40.12%. During that period, the total assets grew at 9.64%.
Now, coming to the net profit, it is interesting to note that Burger King India is not a profitable company. As of 2019, the company has not made any profits and instead is running on losses. Between 2017 and 2019, the amount of loss incurred has decreased to about 18.93%.
The primary reason for the losses incurred is the fact that the expenses incurred by the company are much higher than what the revenue is.
This means the amount of outflow is greater than the amount of inflow.
A positive point to note here is that, although the company is not profitable, they have been generating some amount of free cash flow from operating activities. Apart from 2017, the other two years show a positive value for the net cash flow from operating activities.
Burger King India does not have any long-term debt.
The one constant that has accompanied the growth in population and income around the world is the boom in the food services industry. India is no different.
Backed by a very supportive demographic profile made up of a predominately young population, the food services industry in India has been growing at a very fast rate.
The graph below shows the growth rate in the Indian food services market.
In 2019, the total food services industry in India was valued at $58.5 billion, out of which $21 billion came from the organised section of the industry and the remaining came from the unorganised section.
In terms of INR, the estimated size of the organised food services market in India was Rs. 1,44,600 crores in 2019. It is expected to grow to Rs. 3,19,100 crores by 2024. The expected CAGR is 17%.
The table below shows the different sub-segments of the Indian food services market.
As for the share of the organised food services market in the total food market, that is expected to grow from 35% in 2019 to 47% in 2024.
The table below shows the growth in the organised food market in India.
Now let us focus on the restaurant chains like Domino’s, Subway, Pizza Hut, and of course, Burger King.
The size of the food chain market in India is about Rs. 35,000 crores. This is expected to grow to Rs. 87,300 crores by 2024. That means, the CAGR is around 20%.
The graph below shows the growth in the chain food market in India.
The table below shows the growth in the chain food market in India.
Now we come to the sub-segment made up of quick-service restaurants (QSR) and casual dining restaurants (CDR).
This section of the food services market occupies about 80% of the total chain market. By 2024, this share is expected to increase to 84%.
Out of that, Domino’s Pizza occupies the largest market share in terms of the number of outlets and by revenue.
In terms of the number of outlets, Burger King’s market share is about 3%, and in terms of revenue, the market share is about 4%.
The food services market is highly fragmented.
Primarily based on a monopolistic competition model, this market is characterised by many sellers and a large number of buyers.
Out of that, Burger King India falls into the category of organised Quick Service Restaurants (QSRs).
This market segment in India is dominated by brands like Domino’s Pizza, McDonald’s, Burger King, KFC and Subway. Together, these brands take up about 45% of the market.
In an industry such as this, competition is very fierce and the companies have to keep adjusting their strategies to address the different sections of the market and to keep abreast of changing circumstances.
Among immediate peers or competitors for Burger King India are Jubilant FoodWorks and West-Life Foods. These companies are the promoters of Domino’s Pizza and McDonald’s respectively.
The table below shows the comparison of key figures.
Now, we have already seen that Burger King India is not a profitable company.
One of the possible reasons for this could be the fact that it is still quite new as compared to its peers. Therefore, its outreach and expansion are not at desirable levels.
If you look at the market share in terms of the number of outlets (graph under industry overview), you will notice that Burger King’s share is very low. Where Domino’s has 1,249 outlets, McDonald’s has 770 outlets, Burger King lags with only 202.
At this point, we need to remember that the intention of the IPO is to raise capital for expansion purposes. In fact, an amount of Rs. 290 crores have been set aside for it.
If Burger King India is able to stick to its expansion plans, it can be expected to follow a similar trajectory to Domino’s. As shown in the table above, the financial figures for Domino’s look very attractive indeed.
The key strategies in the quick-service restaurant business are to increase the scale of operations. Without expansion, it becomes very difficult to break even because of the costs incurred in marketing and operation.
With these points in mind, the fact that Burger King is not turning a profit becomes easier to explain — it is still in the nascent stages of operation as compared to quick-service restaurant chains.
STRENGTHS OF BURGER KING INDIA IPO
Among the strengths of the company, there is the fact that the entire food services industry is poised for a steady bull run. From the increasing number of millennials to the introduction of food delivery apps, all the factors have come together for the food services industry.
This industry is expected to grow at a rate of 17% per annum. It is possible to infer that the positive externalities of this growth will trickle down to the individual sellers, including Burger King.
Another factor that can be considered as promising is that the company is in the nascent stages of its development, and it is on the brink of a growth spurt. If Burger King India is able to stick to its expansion plans and execute its growth strategies optimally, then there is no reason why the company should not yield very good returns for its shareholders.
The third strength for the company is that the parent franchise, Burger King, is already a well-recognised name around the world. With quick-service restaurants, particularly in a competitive environment, reputation and recognition go a long way to generate business.
The rationale is very simple.
Consider a scenario where you have just left from college and are looking to grab a quick bite on your way home. You pass by two takeaway restaurants. The first one is from a very popular chain of fast food restaurants. You have tried their food before from other branches and you can personally vouch for their quality.
You have not heard of the second restaurant before. After a cursory look-through, you realise that the food menus and the price range is very similar.
Nine out of ten times, the person in this situation would choose the first restaurant over the second. It is not anything particular against the second restaurant, just an instinctive urge to go with something you can trust, especially in the case of food.
WEAKNESSES OF BURGER KING INDIA IPO
Among weaknesses, first comes the level of competition.
The market sub-segment for quick-service restaurant chains like Burger King has a few very prominent players who dominate the market. Each of these companies has a considerable market share, and the competition among them is fierce and ever-evolving.
It is very easy to fall behind in such a situation, especially for the smaller sized franchise like Burger King India.
The second weakness is that the entire premise of Burger King India becoming a profitable company is based on a series of assumptions.
If for any reason, the company is not able to implement its growth strategies properly, then the expansion may get delayed, or even put off. Burger King India will not be able to realise any of its potential profit margin in that case.
The third weakness is the outstanding criminal and legal cases against both the company and its directors.
The cases against Burger King India relate to issues regarding police licenses, while the cases against the directors involve an investigation into fraud.
Apart from that, there are several outstanding tax violations against Burger King India, amounting to Rs. 1.15 crores.
The company also has several outstanding dues against creditors. A total of Rs. 10.29 crores was due as on June 30, 2019.
These factors show the other side of the Burger King India IPO.
VALUATION OF BURGER KING INDIA IPO
The table below compares the key financial ratios of this IPO with its peer group of companies in the same industry.
MARKET CAP (Rs. Cr.)
The average industry P/E in the organised food services industry, particularly for quick-service chain restaurants is 25.73.
If the company’s P/E ratio is lower than the industry average, then we can say that the company is undervalued.
As we can see here, Burger King is not a profitable company. The value for Earnings per Share is negative here. This means, it does not make sense to calculate the P/E ratio.
Burger King has a lot of potential to grow into a hugely profitable chain, much like Domino’s (Jubilant FoodWorks).
However, if the company is unable to expand properly, they will not be able to reduce costs and break-even.
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