Burger King IPO : Today announcement of share allotment status
The Rs 810-crore initial public offering of Burger King India Ltd, which received , is likely to be listed on the stock exchanges early next week. Analyst said that after a huge losses of this company, QSR quick service restaurant chain is a joint venture between BK Asiapac Pte Ltd, a subsidiary of Burger King Holdings and F&B Asia Ventures (Singapore) Pte Ltd and it is disappointment for the investors.
The IPO evoked a massive oversubscription of 157 times. The retail individual investors segment, qualified institutional buyers (QIBs) and non-institutional investors of the IPO was subscribed over 68 times, 87 times and 354 times respectively. The IPO included a fresh issue of shares worth Rs 450 crore and the promoter entity QSR Asia Pte Ltd sold up to 6 crore shares through the IPO. By using IPO, Burger King India plans proceeds to open new stores and reduce debt.
The of the IPO is likely to be announced on Wednesday. Moreover chances of investors getting the shares of the price band of Rs 60 are less than investor invested in IPO. However, investors who don’t get the allotment can pick up the shares when the shares witness correction after listing on the stock exchanges.
The company’s shares are likely to be listed at a premium. Burger King’s shares were quoting at a premium of 70-75 per cent in the unofficial grey market. Investors who get the allotment are likely to see a good appreciation on the listing day. The question is: should they hold the shares or book profits? At 2.7x P/Sales (price to sales ratio), Burger King is relatively cheap compared to 10.4x P/Sales and 6.32x for Jubilant Foodworks and Westlife Development respectively, said an analyst.
As of November 25, 2020, the company had 259 company-owned Burger King restaurants and 9 sub-franchised Burger King restaurants, of which 249 were operational. As part of the franchisee agreement, the company is obligated to develop and open at least 700 restaurants by Dec 2026, signalling further growth prospects. It has exclusive rights to develop, establish, operate and franchise Burger King branded restaurants as the national master franchisee. The Burger King brand is the second largest food burger brand globally with over 18,675 restaurants across more than 100 countries.
Covid-19 has made more losses to the industry as well as most of the restaurants were non-operational in the first half of 2020. Further it was a big threat to the company as per state wise lockdown and unexpected events happened. Burger King’s debt to equity ratio is comfortable at 0.8x and the CFO (cash flow from operating activities) has improved from the negative territory to Rs 112.7 crore in FY20. The company also plans to use some of the IPO proceeds to repay its debt and for expansion plans. “However, stringent rules due to a new Covid wave might disrupt its plans and could be risky for a relatively new player in India given its strong competition,” said Nirali Shah, Senior Research Analyst, Samco Securities.
Revenues from operations of the company have increased from Rs 378.1 crore in FY18 to Rs 841.2 crore in FY20. While the company is yet to report profit, it has been able to register decent gross margins, EBITDA and a positive operating cash flow in pre-Covid times. “The valuation seems reasonable when compared to peers. In report, Senior Research Analyst Samco Securities said that as per Covid-19 crisis have impacted short term growth, we believe the company remains well placed for long term growth, given its strong brand position, diverse food offerings, well established supply chain, aggressive expansion plans, cost management efforts and benefit from the gradual recovery in the QSR industry post Covid.