Burger King IPO: Burger King India IPO to open on December 2: Here’s all you need to know

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NEW DELHI: Burger King India is all set to open its initial public offer (IPO) on Wednesday, December 2 next week.

The Rs 810 crore offer would comprise of Rs 450 crore of fresh issue and offer for sale of up to 6 crore equity shares by promoter QSR Asia and would be sold in Rs 59-60 price range. At the upper price band, OFS is valued at Rs 360 crore. Here is what you need to know about the IPO:

About the company

As the national master franchisee of the Burger King brand in India, Burger King India has exclusive rights to develop, establish, operate and franchise Burger King branded restaurants in India. Its master franchisee arrangement provides it with the ability to use Burger King’s brand name, while leveraging the technical, marketing and operational expertise associated with the global brand. Since starting its first restaurant in November 2014, the company has opened 261 restaurants, including eight sub-franchised Burger King restaurants, across 17 states and union territories and 57 cities across India.

Change in offer size

The company was earlier looking to raise Rs 600 crore through fresh issue. But the company undertook a pre-IPO placement via a rights issue of 1,32,00,000 equity shares to its promoter at a price of Rs 44 per share, aggregating to Rs 58.080 crore. It also made a preferential allotment of 15,712,820 shares to AIL for cash at a price of Rs 58.50 per share, aggregating to Rs 91.92 crore.

The size of the fresh issue of up to Rs 600 crore was thus reduced by Rs 150 crore pursuant to the pre-IPO placement, and accordingly, the fresh issue size is up to Rs 450 crore. Offer for sale size at up to 6 crore shares remained the same.

Peers comparison

In terms of sales, Domino’s Pizza (Jubilant FoodWorks) had the largest market share of the chain QSR sub-segment at 21 per cent in FY20 followed by McDonald’ 11 per cent, KFC 10 per cent, Subway 6 per cent. A relatively new entrant, Burger King commands 5 per cent sales in the OSR sub-segment.

In growth terms, Burger King saw a sales growth of 56.3 per cent over FY16-20 against Westlife Development (McDonald’s) 17 per cent and Domino’s 12 per cent during the same period.

Same store sales for these players tapered in FY20. Same store sales (SSS) growth for Westlife Development tapered to 4 per cent in FY20 from 17.4 per cent FY 19. In comparison, Burger King saw SSS degrowing 0.3 per cent in FY20 from 29.2 per cent in FY19. Domino’s growth also eased to 3.2 per cent in FY20 from 16.4 per cent in FY19.

Geography

In terms of geography, 50 per cent of Burger King’s 261 stores were in North India. West accounted for 26 per cent, South 21 per cent and East India accounted for 3 per cent of its outlets. Key competitor McDonald’s (including two of its operators) had 38 per cent of its 481 outlets in West, followed by 32 per cent in North, 28 per cent in South and 2 per cent in east.

Unlisted KFC, on the other hand, has 40 per cent of its 454 outlets in South, followed by 29 per cent in North, 17 per cent in East and 14 per cent in West. Domino’s has 1,354 outlets; 33 per cent in North, 28 per cent in South, 12 per cent in East and 27 per cent in West.

In terms of the number of outlets, Domino’s Pizza had 19 per cent share in the chain QSR sub-segment due to aggressive marketing, an attractive value proposition and a strong home delivery network. It is followed by Subway 8 per cent, McDonald’s 7 per cent and KFC 6 per cent. In comparison, Burger King had 4 per cent outlets.

Financials

The company’s food and beverages revenues jumped over 2-fold to Rs 835.32 crore in FY20 from Rs 375.20 crore in FY18. That said, the Covid crisis has had a significant impact on its results, with the six-month sales falling to Rs 134.69 crore compared with Rs 419.37 crore in the same period last year.

Gross margins, which jumped to Rs 536.79 crore in FY20 over Rs 2,322 crore in FY18, fell to Rs 85.95 crore in the six months ended September 30 compared with Rs 269.94 crore in the year-ago period.

Covid Impact

A study by Technopak suggested that quick service restaurants (QSRs), particularly the chain QSRs, were the first to demonstrate recovery from the impacts of Covid-19.

“Chain QSRs, including Burger King, had the infrastructure and process for delivery services in place long before the Covid-19 crisis and were able to adapt to the government restrictions swiftly. Therefore, while dine-in services had been affected, the chain QSRs were able to maintain growth and revenues through enhancing their delivery services. Consumers are also more inclined to order from reputable international QSR chains given they generally maintain high hygiene and safety standards,” Technopak Analysis noted.

The study suggested that sales recovery for QSR brands started as early as May when home delivery of food was allowed. The pandemic has not only accelerated delivery but takeaways.

“QSR chains such as McDonalds, Burger King, etc. are also recovering in sales as most of their outlets had opened up by the end of second quarter of FY21 and there has been significant growth in the share of ‘Delivery’ and ‘Takeaway’ for them,” the report suggested.

Expansion plans

The company said that the Covid crisis has adversely affected its ability to open new restaurants and expand its restaurant network temporarily. It said that it would continue to evaluate the pace and quantity of new restaurant openings and the expansion of the restaurant network. As of September 30, out of the 261 restaurants, 226 were operational.

“We plan to continue to build our restaurant network using a cluster approach and penetration strategy with the objective to provide greater convenience and accessibility for our customers across relevant geographies. We launch our brand from flagship locations in high traffic and high visibility locations in key metropolitan areas and cities across India and then develop new restaurants within that cluster. This approach also helps us to efficiently manage our vertically managed and scalable supply chain and drive down costs, due to the proximity of our restaurants to each other and to the distribution centres of our third-party distributor,” it said.

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