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    Burger King IPO hits market tomorrow: Here's what brokerages say

    Synopsis

    Retail investors willing to invest in Buger King IPO can buy a lot of 250 shares and a maximum of 3,250 shares.

    Agencies
    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.
    NEW DELHI: Burger King India initial public offer (IPO) is all set to hit the primary market on Wednesday. A host of brokerages have recommended a 'subscribe' on the issue, even as they expect the company's near-term financials to remain under pressure due to Covid and the fact that Burger King is still in the expansion phase.

    Strong franchisee model, negative working capital, market share gains from standalone players and strong store expansion plans would help the quick serve restaurant (QSR) chain in improving growth prospects in the coming years, analysts said.

    The Rs 810 crore issue consists of a fresh issue of Rs 450 crore and an offer for sale (OFS) of up to 6 crore shares, aggregating Rs 360 crore at the upper limit of the price band of Rs 59-60 apiece. Retail investors willing to invest can buy a lot of 250 shares and a maximum of 3,250 shares.

    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.
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