Prabhudas Lilladher IPO report on Barbeque Nation Hospitality
However little scalability of international operations (6 stores) and not so impressive track record of promoter group in scaling up Sayaji Hotels (loss in 5 out of last 10 years), promoter pledge (Rs246mn), insolvency proceedings and OFS by promoters in IPO, merit caution. We believe the company is valued cheaply at 1.4x FY23 EV/Sales however the stock at ~46xFY23EPS offers limited upside. Although we expect reasonable listing gains given IPO euphoria in the markets, the operational delivery needs to improve significantly for any serious re-rating in the long term.
Valuation and Outlook
We assign subscribe rating to the IPO of Barbeque Nation (listing gains), one of the fastest growing Casual Dining Restaurant chain in India. The company has several growth levers such 1) Huge scope of expansion given low penetration 2) Expansion of Delivery business which has already grown from 3% of Revenues pre covid to 15% of Revenues in Nov20. 3) Strong value proposition with niche positioning in high growth casual dining segment. Negative working capital and Rs3.3bn funding (including pre IPO) bodes well for a turnaround and steady growth with an estimated 20 restaurant addition/year.
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