Quick service restaurant (QSR) Burger King India’s stock more than doubled during the stock market debut on Monday. The stock ended with a gain of 131 per cent – the best listing day performance in over three years — to end at Rs 138 apiece over its issue price of Rs 60. During the part of the day, the stock was locked in upper circuit, with only buyers and no sellers.
The listing day surge follows highly successful initial public offering (IPO), which saw demand exceed supply by more than 156 times.
The stellar listing and the IPO mark a remarkable turnaround for the company operating in the QSR space---one of the worst-hit sector by the covid-19 pandemic.
Burger King India had its offer document in November 2019 and obtained Sebi approval in January 2020. The Mumbai-based firm had almost given up on its IPO plans as the nation-wide lockdowns to curb the spread of the virus forced closure of several of its stores and made a huge dent in sales.
The company had shut over three fourth of its stores in March amid the lockdown. During the June quarter, it operated only half of its 260 stores. But during the September quarter, nearly 90 per cent of its restaurants were back on their feet.
The quick rebound in the equity markets and improved prospects for organised QSR players prompted the company to revive the plan to go public.
Analysts investors are looking at Burger King as a play on the growth food retailing space. The organised QSR space is pegged to grow at annualized rate 19 per cent to Rs 82,500 crore over the next five years. Some believe the growth for the leading brands could be give higher the pandemic has led to closure of many stores, reducing competition. Besides reduced competition, fall in rentals is another tailwind for the QSR industry.
Through the IPO, Burger King has raised Rs 450 crore, which will be used to rollout new outlets and retire debt. The IPO also comprised of secondary share sale worth Rs 360 crore. Burger King currently operates about 270 outlets. It aims to scale it up to 700 outlets by 2026. The IPO proceeds will help open about 190 new stores by 2023.
"Burger King has clear growth considering the amount of stores they are targeting. Also, the opportunities in the sector also limited with just three or four players," said Abhimanyu Sofat, head of research, IIFL.
The company competes with international QSR chains such as McDonalds, KFC, Domino’s Pizza, Subway and Pizza Hut.
At Monday’s closing price, Burger King commanded a market cap of almost Rs 5,300 crore—only 20 per cent less than that of Westlife Development, the company that holds the master franchise in western India and South India for McDonald's, a rival burger chain.
“At the current market price, Burger King is valued at 5.7 times FY20 Price/sales and 17.3x FY20 Price/book value which fully captures its strong brand positioning, robust store expansion plans and the bright growth prospects of the QSR industry in India. However, given its weak financials, the valuation seems a little stretched versus players like Jubiliant Food and Westlife,” said Hemang Jani, Head - Equity Strategy, Broking & Distribution, Motilal Oswal Financial Services.
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