Burger King IPO: The Rs 810-crore initial public offering of Burger King India Ltd, which received a huge oversubscription, is likely to be listed on the stock exchanges early next week. Although it has made losses, the quick service restaurant chain (QSR), which is a joint venture between BK Asiapac Pte Ltd, a subsidiary of Burger King Holdings and F&B Asia Ventures (Singapore) Pte Ltd, is unlikely to disappoint the investors, analysts say.

How was the IPO received by the investors?

The IPO evoked a massive oversubscription of 157 times. The retail individual investors segment of the IPO was subscribed over 68 times while the portion meant for qualified institutional buyers (QIBs) was subscribed close to 87 times and non-institutional investors 354 times. The IPO included a fresh issue of shares worth Rs 450 crore and the promoter entity QSR Asia Pte Ltd sold up to 6 crore shares through the IPO. Burger King India plans to use the IPO proceeds to open new stores and reduce debt.

What are the chances of allotment?

The share allotment plan of the IPO is likely to be announced on Wednesday. Chances of investors getting the shares at the upper end of the price band of Rs 60 are less as the IPO received a big response from investors. However, investors who don’t get the allotment can pick up the shares when the shares witness correction after listing on the stock exchanges. Investors can check the allotment status on the website: https://linkintime.co.in/MIPO/Ipoallotment.html

Will there be a premium on listing?

The company’s shares are likely to be listed at a premium. Burger King’s shares were quoting at a premium of 70-75 per cent in the unofficial grey market. Investors who get the allotment are likely to see a good appreciation on the listing day. The question is: should they hold the shares or book profits? At 2.7x P/Sales (price to sales ratio), Burger King is relatively cheap compared to 10.4x P/Sales and 6.32x for Jubilant Foodworks and Westlife Development respectively, said an analyst. 📣 Follow Express Explained on Telegram

How has Burger King expanded in India?

As of November 25, 2020, the company had 259 company-owned Burger King restaurants and 9 sub-franchised Burger King restaurants, of which 249 were operational. As part of the franchisee agreement, the company is obligated to develop and open at least 700 restaurants by Dec 2026, signalling further growth prospects. It has exclusive rights to develop, establish, operate and franchise Burger King branded restaurants as the national master franchisee. The Burger King brand is the second largest food burger brand globally with over 18,675 restaurants across more than 100 countries.

What will be the impact of Covid on Burger King?

Covid-19 has hit the industry hard as most of the restaurants were non-operational in the first half of 2020. Further uncertain events and state-wise lockdowns remain a big threat to the company. Burger King’s debt to equity ratio is comfortable at 0.8x and the CFO (cash flow from operating activities) has improved from the negative territory to Rs 112.7 crore in FY20. The company also plans to use some of the IPO proceeds to repay its debt and for expansion plans. “However, stringent rules due to a new Covid wave might disrupt its plans and could be risky for a relatively new player in India given its strong competition,” said Nirali Shah, Senior Research Analyst, Samco Securities.

How is it doing on the financial front?

Revenues from operations of the company have increased from Rs 378.1 crore in FY18 to Rs 841.2 crore in FY20. While the company is yet to report profit, it has been able to register decent gross margins, EBITDA and a positive operating cash flow in pre-Covid times. “The valuation seems reasonable when compared to peers. While the Covid-19 crisis have impacted short term growth, we believe the company remains well placed for long term growth, given its strong brand position, diverse food offerings, well established supply chain, aggressive expansion plans, cost management efforts and benefit from the gradual recovery in the QSR industry post Covid, Samco Securities said.