After Q4, Burger King’s appetizing guidance may support stock’s valuations
Premium- Burger King is now looking at a gross margin of 66% in FY22 and 68% in FY24
- The number of stores is expected to increase to 470 in FY24 from 320 in FY22
Shares of Burger King India Ltd have increased more than 150% so far compared with its issue price of ₹60 apiece. Of course, most of the appreciation owes to the gains seen on 14 December 2020, the day on which the shares listed on stock exchanges. As such, the increase in the share price vis-à-vis the closing price on listing day is relatively modest at around 15%.
Now, while the company’s March quarter results are not particularly inspiring, analysts are upbeat on growth prospects. “We are increasing our DCF based target price to ₹250 ( ₹221 earlier) as we factor in: BK Café launch by 22 January (75 cafés by FY23); superior margin delivery and upgraded guidance; success of BK App (200% growth); sustained innovations with launch of stunner menu at price point of ₹50 and ₹70," wrote analysts from Prabhudas Lilladher Pvt. Ltd in their March quarter results update. DCF stands for discounted cash flow.
MORE FROM THIS SECTIONSee All
Burger King is now looking at a gross margin of 66% in FY22 and 68% in FY24. For perspective: gross margin in FY21 stood at 64.5%. The number of stores is expected to increase to 470 in FY24 from 320 in FY22. As on 31 March, the company had 265 stores. Further, from a same store sales growth (SSSG) point of view, Burger King is looking at a flattish performance in FY22 vis-à-vis FY20. This is encouraging, considering that the current quarter (June) is set to be a washout owing to the pandemic-led lockdowns. “This implies that delivery sales are ramping-up fast even when dine-in is struggling and enhances confidence on Burger King achieving average revenue per store higher than pre-pandemic levels in a more normalized environment," said analysts from JM Financial Institutional Securities Ltd in a report on 27 May.
Coming to the March quarter, Burger King’s revenues have increased by 2.6% year-on-year to ₹196 crore. Sequentially, revenues have grown by 20%. Even so, Burger King has underperformed Westlife Development Ltd on the SSSG front during the March quarter. The measure declined by 4.9% for Burger King whereas Westlife saw 10.5% growth. This can be attributed to Burger King’s higher salience in shopping malls and a larger presence in the North, which was impacted owing to farmer protests.
What augurs well is that Burger King has managed to improve its gross margin by 170 basis points to 65.6% last quarter. One basis point is 0.01%.
It goes without saying that investors would track progress on the guidance, moving ahead. Although the meaningful appreciation in the stock suggests a good portion of the optimism is baked into the price. “(We) find current valuations expensive. Would await a better entry point," point out JM Financial’s analysts.
Never miss a story! Stay connected and informed with Mint. Download our App Now!!