Burger King IPO

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1. As the name itself suggests, Burger King is a specialized ‘Burger’ fast-food franchise. Burger King India is a fast-food franchise operating in various parts of India. It is one of the fastest-growing international QSR (Quick Service Restaurants) chains in India during the first five years of its operations based on the number of restaurants.

2. The globally recognized Burger King brand, also known as the “HOME OF THE WHOPPER®”, was founded in 1954 in the United States and is owned by Burger King Corporation, a subsidiary of Restaurant Brands International Inc., which holds a portfolio of fast-food brands that are recognized around the world that include the BURGER KING®, POPEYES®, and TIM HORTONS® brands.

3. The Burger King brand is the second-largest fast-food burger brand globally as measured by the total number of restaurants, with a global network of over 18,000 restaurants in more than 100 countries and U.S. territories as of June 30, 2019.

4. It has started operation in India with the first restaurant opened up in November 2014, with the aim of growing quickly, consistently, and efficiently into a pan-India QSR chain and capitalizing on the growing market opportunity in India for QSR restaurants. As of Dec 2019, they have 255 restaurants, including seven Sub-Franchised Burger King Restaurants, across 16 states and union territories and 47 cities across India.

What are the Master Franchise and Development agreements?

We all know the Burger King founding company is in the USA, and in order to expand its presence in India, it has signed the Master Franchise and Development Agreement with Burger King India Limited, which gives exclusive right to develop, establish, and operate and franchise the Burger King restaurants in India.

Under this agreement, Burger King India Limited Company is required to develop and open at least 700 restaurants (including Company-owned Burger King Restaurants and Sub-Franchised Burger King Restaurants) by December 31, 2026, which includes the following cumulative opening requirements for calendar years 2019, 2020, 2021 and 2022, subject to a six month cure period if the Company has achieved at least 70% of the difference between such target and the total number of Burger King restaurants opened in India on December 31st of the prior development year.

2019 = 250
2020 = 250
2021 = 300
2022 = 370

Cost of setting up a Burger King company-owned Restaurant?

Equipment cost = 0.92 Cr
Leasehold improvements and other related costs = 1.5 Cr
Information technology infrastructure costs = 0.14 Cr
Store opening franchisee fees = 0.25 Cr.

The total cost of setting up is ~2.8 Crores.

So, to open new ~115 more restaurants up to 2022, they will be needing around ~322 Crores. The company is raising close to 270 Crores from the IPO and the rest money they have to arrange from internal accrual or from debt.

However, as per the agreement, at any point in time, the Burger King company-owned restaurants should not be less than 60%.

Impact of COVID-19 on Burger King India?

We all know that due to COVID-19, the lockdown was imposed in our country, which has badly impacted the business of the burger king and put a high strain on the liquidity position of the company. To make availability of liquidity to sustain the operations of the business;

1. Burger King India Limited has raised 58 Crores from promoters by issuing shares at Rs.44 in May 2020.

2. They have access to 29 Crores of liquidity on term loan from ICICI bank.

3. They have also engaged in rent relief negotiations with all the landlords and arrived at negotiated agreements with respect to reductions in rent.

Objects of the Burger King IPO:

IPO is the combination of Fresh Shares and OFS. 1. Burger King India is raising 450 Crores from investors and will be utilized for the following purpose. a) Repayment of debt = 162 Crores b) Capital expenditure for setting new restaurants = 270 Crores. 2. OFS of 6,00,000,00 shares by QSR ASIA PTE. LTD, the promoter of the company.

Burger King IPO Details:

Open Date: Dec 02 2020
Close Date: Dec 04 2020
Total Shares: 13.5 Cr
Face Value: ₹ 10 Per Equity Share
Issue Type: Book Building
Issue Size: 810 Cr.
Lot Size: 250 Shares
Issue Price: ₹ 59-60 Per Equity Share
Listing At: NSE,BSE
Listing Date: Dec 14 2020

Promoters And Management:

QSR Asia Pte. Ltd. - Holding Company is the promoter of the company. QSR Asia Pte. Limited is operated by Everstone, a Private Equity Fund operating from Singapore. Founded in 2006 by Atul Kapur and Sameer Sain, Everstone has since emerged as a market leader. With a large institutional platform and a team of over 350 experienced professionals based in Singapore, India (Mumbai, Delhi, Bengaluru), London, New York, and Mauritius, the firm manages assets in excess of US$5 billion across private equity, real estate, green infrastructure, and venture capital. In 2013, Everstone hired STEER Partners to introduce it to fast food players in Europe and the US, and talks with the parent company, Burger King Holdings Inc, began. That very year, the two firms agreed to enter into a joint venture to enable Burger King’s foray into India. It was a win-win situation for both parties. Everstone, with its keen eye on real estate, helped the chain identify prime locations far more easily, and used its relationships with mall developers to get Burger King in.

Financials of Burger King IPO:

Particulars(in Crs) Mar-17 Mar-18 Mar-19 Mar-20 6MFY19 6MFY20
Revenue 229 378 632 841 422 135
Cost of material 92 143 230 300 150 49
Employee Cost 51 70 96 136 70 51
Other Expense 90 155 226 299 144 63
EBITDA -4 10 80 106 58 -28
OPM -2% 3% 13% 13% 14% -21%
Other Income 4 10 11 5 3 16
Interest Cost 27 36 46 65 27 42
Depreciation 44 64 82 116 49 62
Profit before tax -71 -80 -37 -70 -15 -116
Tax 0 0 0 0 0 0
Net Profit -71 -80 -37 -70 -15 -116
NPM -31% -21% -6% -8% -4% -86%
Shares 26.5 26.5 26.5 27.7742 26.631 29.0942
EPS in Rs -3 -3 -1 -2.52 -0.56 -3.99
IZ View: a) Revenue: The Company has increased its revenues from INR 140 crores in FY 15-16 to INR 842 crores in FY19-20. A stellar CAGR of 43% for the past 5 years. The company has doubled its revenue in the past two years! b) Net Profit (Loss): The company is still in the ‘investment’ and ‘expansion’ phase. The company is still making losses because of advertising expenses, increasing brand awareness, and opening up new stores. c) EBITDA for the year FY 2019-20 is INR 106 crores. Nevertheless, the company has turned positive in ‘Net operating Cash Flow’ in FY 19-20. d) EV(Post IPO)= 2300Cr (At a price of 60) e) EV/EBITDA = 21 (which is half of Jubilant Food).

Comparison With Peers:

They are competing primarily with international QSR chains operating in India, such as McDonald's, KFC, Domino’s Pizza, Subway, and Pizza Hut, as well as local restaurants in the QSR segment.

Recommendation on Burger King IPO:

Review and Recommendation of InvestorZone are 4/10 Pros: 1. The company has shown excellent growth in the last 5 years. The revenue has gone up from 140 Crores in 2016 to 842 Crores in 2020. 2. The demand for fast food in India is growing very fast as urban youth are inclined to such junk-food whenever they go for outings and all. 3. Burger King is a known global brand in the world. 4. Asking EV/EBITDA is quite reasonable as compared to a listed player like Westlife that has MacD as a brand and Jubilant Foods which owns Dominos. Cons: 1. The issue size is 810 Crores. Out of which only 10% is reserved for Retail investors. So very tough allotment for Retail investors. 2. The Westlife that own Macd has not shown any growth in share value in the last 6 years. And the bottom line has not moved anywhere in the last 10 years. 3. Competition from local food companies supplying burger is huge. Plus healthy option in a burger like Subway can give tough competition.

Registrar of Burger King IPO:

  1. Link Intime India Private Limited

Discussion on Burger King IPO:

    *BURGER KING: RS 221.54CR NSE BLOCK TRADE; FOR ~19692855 SHARES, AT RS 112.5*

    Applied as HNI for 11 lakh, still 0 allotment, i thought it will be proportional allotment. Can someone explain how hni allotment works?

      Yes, it was on proportionate basis:
      You have applied for 11 L or 73 Lot.
      HNI/NII subscription was 354.11 Times.
      So, as you have applied for less than 354 Lot,
      therefore, you got Nil Lot.

      As HNI quota was subscribed by 354x , to get one lot in HNI category, minimum amount of application required was 354*15000= 53 Lakh.

    Amount released… I think fraud ho rha h ab allotment me… Applied 9 application allot 0….

    Burger King IPO subscribed 156.65 times.The public issue subscribed 68.15 times in the retail category, 86.64 times in QIB, and 354.11 times in the NII category by Dec 4,2020 17:00.

    HNI subscription expected to be around 300-400x.

    300x subscription means, to get one lot of 15k in HNI category, the HNI have to put minimum application of 45 lakh.

    300*15k = 45 lakh.

    Now, suppose HNI borrowed this money. Let us say 7% is the interest rate for 8 days of funding.

    Interest money = 45 lakh*7%*8 days/365 = 7000

    Minimum listing Premium required for no loss and no gain = 7000/250= 28

    Current GMP is 38.

    This stock can surprise us all. Strong listing on cards.

    Issue Open : *2-Dec-2020 to 4-Dec-2020*
    Issue Size : *₹810 Cr* (Fresh ₹450 Cr + OFS ₹360 Cr)
    Face Value : *₹10 Per Share*
    Issue Price : *₹59 – ₹60* Per Share
    Market Lot : *250 Shares*
    Min Application : *₹15,000*
    Retail : *10%* (54,000 Forms)
    QIB : 75%
    NII : 15%
    Listing At : *BSE, NSE*

    Registrar : *Linkintime*
    Allotment : *10th Dec*
    Listing : *14th Dec*

    Greetings, we would like to invite you to the Virtual Brokers and Analyst Conference of Burger King India Limited, to announce about their forthcoming IPO, scheduled for tomorrow, November 27, 2020, at 4:00 PM.

    Please click on the link below to attend the Virtual Brokers and Analyst Conference:

    Zoom Webinar Link: https://zoom.us/webinar/register/WN_oPfh0M73R7uknX_7sgUaMA

    1. As of 030.09.2020, Burger King has a debt of 195 Crores.
    2. Burger King will pay 164 Crores towards debt payment from IPO proceeds.
    3. So, the total debt remains after IPO = 30 Crores.
    4. In FY20, they have paid 65 Crores in Interest Cost.
    5. It means roughly Burger King will save 60 Crores on Interest cost.

    As of 30.09.2020, Burger King has 259 Restaurants. The total Revenue of FY20 is 841 Crores. So Per Store Sales is 3.24 Crores.

    BY 2022, they have to open 102 new Burger King Restaurants. The cost required to open one Restaurant is ~3 Cr. So, they will be needing ~300 Crores in the next 2 years. From the IPO proceed, they will use 270 Crores to open new restaurants. So, we can conclude that they have enough money for the next 2 years.

    So, in 2022, the expected revenue would be ~1200 Crores. And EBITDA of 200 Crores.

    EV( Post-IPO) = 3600 ( Considering price of 90)
    EV/EBITDA( 2020) =33
    EV/EBITDA(2022) = 18

    Peer Comparison:

    Jubilant Food has an EV/EBITDA of 45.

    1. As on filing of DRHP i.e. Nov-19, the number of outstanding shares was ~26 Crores.

    2. In May-2020, Burger King India has issued ~1.3 Crores shares to promoter to raise money for day to day operations affected badly due to CORONA.

    3. Fresh shares up to 430 Crores in the IPO at the expected price of Rs.60. So, new shares would be ~7 Cr.

    Total shares outstanding after IPO = 34 Crores

    Valuation Matrix.

    1. Mcap at Rs. 60 per share = ~2000 Crores.
    2. EV = 2100 Crores
    3. Revenue in 2018-19 = 632 Crores.
    4. EBITDA = 80 Crores
    5. Mcap/Revenue = 3.16
    6. EV/EBITDA = 26

    Burger King India has a national master franchisee of Burger King in India and relies significantly on the master franchise and development agreement dated November 19, 2013 (the “Master Franchise and Development Agreement”) entered into with BK AsiaPac, Pte. Ltd.

    What is BK AsiaPac Pt. Limited?

    BK ASIAPAC, is an ACRA-registered entity that has been operating for 14 years 7 months in Singapore since its incorporation in 2006.

    How much BK Asiapac earns from each Burger King Restaurant in India?

    1. For every new Burger King India restaurant opening, Burger King India has to pay 25 Lakh to BK AsiaPac.

    2. Every month Burger King India needs to pay a royalty of 2.5-5% on sales, depending on the opening date of the restaurant.

    Royalty is being paid to use the brand name of Burger King to promote the business in India. Like Jubilant Foods also pay royalty, for using the name of American Company Dominos.

    Tentative Schedule

    03rd Dec – Announcement of Price Band
    07th Dec – Anchor Investors Allotment
    08th Dec – Offer Opens
    10th Dec – Offer Closes
    15th Dec – Finalisation of Basis of Allotment
    16th Dec – Unblocking of ASBA Accounts
    17th Dec – Credit of Equity Shares to Depository Accounts
    18th Dec – Commencement of Trading

    The company has issued 1.32 Crores shares to the investors at Rs. 44 per share in the Pre-IPO and raised 58 Crores.