Barbeque Nation’s share price defies risks from 2nd covid wave

After raising funds via pre-IPO placement and IPO, Barbeque Nation now has a better liquidity cushion than before.

2 min read . Updated: 08 Apr 2021, 10:57 PM IST Harsha Jethmalani

The Barbeque Nation stock is now trading at a 41% premium, as compared to its listing price of ₹500

Shares of Barbeque Nation Hospitality Ltd were locked at the upper end of the circuit filter for the second day in a row on the National Stock Exchange (NSE). Compared to its initial public offering (IPO) price of ₹500, the stock is now trading at a 41% premium.

This is surprising, to say the least, considering analysts were expecting the shares to have a weak listing owing to the second covid-19 wave.

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The bulk deals data released on Wednesday, the stock’s listing day, showed that UTI Mutual Fund acquired 250,942 shares in the company for a price of ₹579.62 per share.

But investors shouldn’t get carried away by one domestic institutional investor picking up shares in the company. It should be noted that another large investor, Integrated Core Strategies Asia Pte Ltd, sold 401,815 shares in the company at ₹545.15 per share.

There could be a technical reason for the sharp movement in the share price, as some short sellers tend to get trapped when a stock is stuck at the upper end of the circuit filter.

A similar trend was seen during the listing of Burger King last December.

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Nonetheless, investors should remain focused on the fundamentals, say analysts. It should be noted that Barbeque Nation gets the majority of its revenue from in-house dining, which accounted for 85% of revenue at last count. In-house dining has currently been disallowed in the new restrictions imposed by Maharashtra, a key market for the company. In comparison, firms such as Burger King and McDonald’s, which is run by Westlife Development Ltd in western India and South India, get relatively higher revenue from the take-aways.

“50% of Westlife Development’s sales come from convenience channels (delivery, drive-thru, and on-the-go). We estimate the restrictions in Maharashtra to impact FY22E sales by 1.1–1.8%. We cut our FY22E sales estimates by 1.5% which leads to a 12% cut in our PAT estimates for the year," analysts at Motilal Oswal Financial Services said in a note to clients on Westlife.

Westlife shares are down around over 8% this month. This makes the rally in Barbeque Nation even more surprising.

On the positive side, after raising ₹330 crore via a pre-IPO placement and the IPO, Barbeque Nation now has a better liquidity cushion than before.

A few months before the IPO, it faced a liquidity squeeze, forcing it to raise survival capital at just ₹252 per share. Still, the surge in Barbeque Nation stock suggests that investors are overlooking the risks to the company’s revenue and profit.

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