Burger King IPO day 1: Issue subscribed 55%, retail portion booked 3 times

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The initial public offering of Burger King India, a quick-service restaurant chain, has subscribed 55 percent so far on December 2, the first day of bidding.

The Rs 810-crore public issue has received bids for 4.17 crore equity shares against IPO size of 7.45 crore equity shares, as per the data available on stock exchanges.

The IPO size, mentioned above, excluded anchor book portion. The company has already raised Rs 364.5 crore from anchor investors on December 1, a day before the issue opening.

Retail investors also seem to be interested in Burger King IPO as their reserved portion is oversubscribed 3 times so far on Day 1, while the portion set aside for non-institutional investors is subscribed 2.8 percent, but qualified institutional investors are yet to put in their bids.

The public issue comprises a fresh issue of Rs 450 crore and an offer for sale of 6 crore equity shares (i.e. Rs 360 crore at higher price band) by promoter QSR Asia.

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The price band for the issue, which will close on December 4, has been fixed at Rs 59-60 per share.

Burger King is the the second largest burger brand globally and is the fastest growing QSR chain with a target to reach 700 restaurants by the end of 2026. As the company is in a growth phase it has been making losses, but its revenue is growing at a CAGR of over 50 percent due to rapid expansion.

"Burger King is in the race to take advantage of India's fast growing QSR industry as well as the shifting trend towards organized sector. However, 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. For now the debt to equity ratio is comfortable at 0.8x and the CFO has improved from the negative territory to Rs 112.7 crore in FY20," Nirali Shah, Senior Research Analyst at Samco Securities told Moneycontrol.

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The company 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. At 2.7x P/Sales, Burger King is relatively cheap compared to 10.4x P/Sales and 6.32x for Jubilant Foodworks and Westlife Development respectively. Keeping the risks in mind, we advise investors to Subscribe for listing gains only for now," she said.

Further improvement in bottomline, reduction of debt and same store sales growth should be analysed in the following quarters to take a long-term call, she added.

In the last around 6 years of operations in India, the company has opened 268 stores. But as of September 2020, it had 261 restaurants, including eight sub-franchised Burger King Restaurants, across 17 states and union territories and 57 cities across India.

As on November 25, the date of Red Herring Prospectus filing, the company had 259 company-owned Burger King Restaurants and nine Sub-Franchised Burger King Restaurants.

Looking at the run rate, Angel Broking believes management will be able to achieve the target of 700 stores by December 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. We believe that there is a good possibility of listing gains given lower valuations as compared to other listed peers," said the brokerage.