Uncover Burger King IPO: Equity Shares Fundamental Analysis

Burger King was established in the year 1954 in Florida, United States. The multinational instant food company has its foot in over 100 countries with 18675 restaurants. In which, India holds 268 restaurants (259 – company-owned; 9 – Sub-franchised)

Initially, the company was started under the name of Insta Burger, later the name changed to Burger King of Miami. Later in 1959, the company was renamed Burger King Corporation.

Burger King India Limited enters as a public company with an IPO size of Rs. 810 Cr for a total of 13.5 Cr equity shares. The price band of a share is between Rs. 59-60. This IPO involves both Offer for Sale (OFS) and Fresh Issues.

  • Offer for sale – 6 Cr Equity shares (Rs. 450 Cr)
  •  Fresh Issue – 7.5 Cr Equity Shares (Rs. 360 Cr)

Please have a look at the company’s Red Herring Document filled by the company and submitted to SEBI.

The main purpose of this Initial public offerings are,

  1. To open at least 700 retail outlets in India by 31st December 2026.
  2. Close off the debts and borrowings
  3. Growth of Corporate purposes.

This article will be an eye-opener for investors to update their knowledge of the companies,

  • Industry Overview.
  • Business Overview.
  •  Financial Performance
  • Fundamental analysis
  • Insights to Investors.

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Industry Overview – Quick Service Restaurant (QSR):

There are many segments in India under the Food industry. In which the company falls under Quick Service Restaurant (QSR)

The total size of the Indian Food Industry is Rs. 423600 Cr. It comprises four categories,

  • Restaurants in Hotels – Rs. 11,600 Cr
  • Chain Market Size – Rs. 39,800 Cr
  • Standalone Restaurants – Rs. 1,20,300 Cr
  • Unorganized Hotels – Rs. 2,51,900 Cr

In this Quick Service Restaurant comes under Chain Market. The chain market is expected to grow from 397 Billion INR to 966 Billion INR by 2025 at a CAGR of 19.65%.

  • The biggest market of the food industry is covered by unorganized roadside foods.
  • India’s average age is about 27.8 years old. This means more than 50% of people are millennials.
  • Increasing the rate of urbanization and per capita Income will certainly boost the growth of chain market restaurants.
  • The major concern is Burger King sells only premium burgers, and the roadside shop sells the same at a cheaper price. Of course, the quality is a question mark. We people will prefer to taste over quality and health when it comes to food.

Challenges in the Food Industry:

  • Next to the tourism industry, the Quick Service restaurant food industry lines up as the most affected by COVID-19.
  • Many shops have closed with huge money burnt due to the lockdown.
  • Heavy competition, has a huge impact more than the opportunities the industry has.
  • A cheaper price with affordable cost is an easy win game for the industry.

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Business Overview – Burger King:

  • One of the fast-growing Quick service restaurants, mostly connected in metropolitan cities.
  • The company has an option of operating self-owned and franchised.
  • Self-owned office space is not completely owned or rented. It is acquired on a lease basis.
  • They are entitled to provide 2.5-5% of their profit as Royalty shares to their parent company. In addition, 5% for advertisement and marketing-related expenses.
  • The approximate cost spent by a business owner to buy a franchise is almost Rs. 1.5 Cr. This might be the biggest reason, why franchise outlets haven’t increased over the years.

Key Qualitative strengths of the company:

  • Strong Customer proposition.
  • Brand positioned for Millennials
  • Vertically managed and scalable supply chain.
  • Operational quality, a people-centric operating culture, and effective technology systems.
  • Well defined restaurant rollout and development process.
  • Experienced, passionate, and professional management team.

Key Qualitative Weakness of the company:

  • The outlets that are not placed in big malls are burning cash without any improvement in profits.
  • Corporate employees and corporate companies are the maximum customers.
  • The profits are shared in a huge percentage of royalty and advertisements.
  • Even after the IPO and extension of the retail outlet, there is a low possibility of the company switching over to a profit.

Financial Performance – Burger King:

ParticularsFor the year/period ended (₹ in million)
Total Assets11,771.1811,977.079,204.727,303.55
Total Revenue1,516.548,468.296,441.303,887.37
Profit After Tax(1,189.46)(765.70)(382.79)(822.32)

The above table elaborates on the key financial aspects of the company.

  • Only in the Financial Year 2018-19, the company has shown a slight in terms of PAT. After which it started declining.
  • In 2020, the major year went into lockdown, making the company book a huge loss. Really investors should have a look at these aspects before applying for this IPO.
  • The only positive here to highlight is the revenue of the company has strong growth.
  • So, the company has to focus on the ways of,
    • Limiting the expenses.
    • Closing all the outstanding debts and borrowings.
  • By which, the company has to come to a position of making profits.

Fundamental Analysis – Burger King:

In terms of fundaments analysis, there is nothing on the part of strengths.

Here are key weaknesses, that the company should focus on and rectify rapidly.

  • Current ratio – 0.48 (Minimum it should be 2)
  • Cash Ratio – 0.17
  • Debt to Equity – 3.55

Other details of the IPO:

  • IPO date – 2nd December to 4th December
  • Issue Type – Book Built Issue IPO
  • Issue Size – 1.35 Cr shares
  • Issue Value – 810 Cr
  • Face Value – Rs. 10 per equity share.
  • IPO Price band – Rs. 59-60
  • Minimum Lot Size – 250 Shares
  • Maximum Lot Size – 3250 Shares
  • Finalization of Basis of Allotment – 9th Dec 2020
  • Initiation of Refunds – 10th Dec 2020
  • The credit of shares to DEMAT account – 11th Dec 2020
  • IPO Shares listing date – 14th Dec 2020.

Grey Market Premium:

There is a huge vibe around the grey market of this share. GMP is expected to be 40-56%, which is about Rs. 70-75 per share.

The GMP is used to calculate whether the stock will be having a listing gain. Apart from that, there is nothing a beauty for an investor in the long run.

Insights for Investors:

  • Even with strong qualitative factors, the company hasn’t shown any profit for the last 40+ months.
  • It is hard to judge, whether they can be in profit within the next two years.
  • Only for listing gain benefits, you can invest in this IPO, which is not an assured one.
  • If you aim for a long-term investment, you have to wait for a minimum of 2 years to think about this share.