Burger King shares nearly triple from IPO price in 7 months; Motilal Oswal says ‘buy’, sees 26% rally in 1-yr

The brokerage firm believes that Burger King India offers an exciting investment opportunity in the Indian QSR space. Image: Reuters

Burger King India share price gained 5 per cent to Rs 177 apiece in intraday on BSE, even as BSE Sensex and Nifty 50 dive deep in red. Burger King was listed at Rs 108.40 apiece, last year in December. Since then, the stock has soared over 63 per cent, while it has zoomed a massive 195 per cent from IPO price of Rs 60 apiece. Research and brokerage firm Motilal Oswal Financial Services has initiated coverage on this quick-service restaurant’s (QSR) stock, with a buy rating and sees over 26 per cent rally in the stock.

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The brokerage firm believes that Burger King India offers an exciting investment opportunity in the Indian QSR space as the large Indian Food Service Industry (FSI) is expected to deliver 9 per cent CAGR over the coming years, and QSRs are best placed to tap this opportunity. “With their high affordability, aspirational branding, higher convenience, scale benefits, and technological edge, QSRs are expected to grow at 19% CAGR over FY20-25E,” it added.

Motilal Oswal Financial Services expects all listed Indian QSRs — Burger King India, Westlife Development and Jubilant FoodWorks — to be significant beneficiaries of the strengthening tailwinds led by COVID-19 pandemic in favor of QSR players. Among these, it believes that Jubilant FoodWorks will remain the most profitable and efficient player over the next few years. Based on a three-year perspective, Motilal Oswal Financial Services has pegged target price of Rs 365 per share, a 166 per cent rally (30% CAGR) in Burger King India stock, assuming 25x multiple.

Burger King India share price is down 4 per cent in this calendar year so far. It had hit a 52-week high of Rs 219.15 on December 17, 2020, a few after bumper listing on stock exchanges. In a post COVID-19 world, where up to 40 per cent of restaurants are expected to shut down permanently, Motilal Oswal Financial Services see QSRs as well-placed to grab share from other FSI segments as branded players command greater trust.

The brokerage firm expects Burger King India to expand its store network to 700 by Dec’26 from the current 265 which will drive its topline growth higher. “Burger King’s network expansion is much faster than that of Jubilant FoodWorks and Westlife Development which are typically expanding by 8-10 per cent every year,” it added. Moreover, in terms of royalty rates, Burger King has capped royalty of 5 per cent until 2039, offering comfort for margin expansion, unlike Westlife Development where the tremendous efforts being made by the company to drive margin expansion will be offset by higher royalty. Jubilant FoodWorks has the lowest royalty rate of 3 per cent while both KFC and Pizza Hut have a royalty rate of 6.3 per cent, each. Westlife Development’s royalty rate is currently at 4 per cent, but is set to see a staggering increase to 8 per cent in FY27 and maintain those levels thereafter. Its looming high royalty rate remains a concern, said Motilal Oswal Financial Services.