Profitable Play's video: Burger King IPO Multibagger Key Things To Know Five Factor IPO Analysis

Burger King IPO is a main-board IPO, main board IPO means the offer document is signed with Sebi, they will be subjected to quarterly audit and 100% underwritten, so the main board ipo of 135 million equity shares of the face value of ₹10 aggregating up to ₹810.00 Crores. The issue is priced at ₹59 to ₹60 per equity share. The minimum order quantity is 250 Shares. The IPO opens on Dec 2, 2020, and closes on Dec 4, 2020. Ok let’s see how good this IPO is, is it worth buying 6 times its face value. In general there are 5 factors that really define the quality of IPO, that is, Business Strength, Growth Potential, Promoters Intention, Use of Fund and the pricing. Let’s look at each factor one by one, we start with Business Strength. Here you can see the financials of Burger King India. So the assets are growing over time and so is the revenue pre-covid but you can see they are far away from hitting the breakeven, they might have been looking good if the model was completely based on distributing franchise but they are investing in their own locations and that too in the tier one cities and that is resulting in ever increasing assets plus loss because they are fighting head on with McDonanld that has already indianized their meal. They are little late in this market because the affordable target customers are already loyal to Mc Donalds and if you really love juicy burger the way Americans do and you are willing to pay the price, there are local outlets in cities like Mumbai, delhi pune giving direct challenge to Mc Donalds. But I will go back to an article from 7th Oct,2019 by Economic Times to get hang of what could have happened if Covid never happened. Fast food chain Burger King posted a 66% growth in sales in India in the year to March 2019 and significantly narrowed losses on the back of aggressive expansion, entry level pricing and largest vegetarian menu within global quick service restaurant chains. They are not here to sit down, they have a plan and they are aggressive, in fact they have another edge as McDonalds has been there and done that, wherever McDonalds could not make it through, without investing a penny, Burger King won’t even get into the losing market. Lets look at the growth potential, I will refer to a report published by financial express on Feb, 2020 again pre covid but this is very important, India’s food-service industry is expected to grow at 9% CAGR and out of the total informal eating out (IEO) market, western fast food (WFF) chains have just 2-3% share. However, the WFF chains are expected to grow at 2.5 times its current rate. “WFF chains such as McDonald’s, Burger King, Domino’s Pizza, etc. represent just about 2-3% of the total IEO market, they are growing about 2.5 times faster,” the report said. So there is a 2 to 3 times growth opportunity for all the players, now if Burger King slows it down on asset building and try to maximize from the existing location, the short term looks very hopeful and I think this 2 to 3 times growth opportunity will also translate to its share price giving at least 150 to 200% return. But the company will sell new shares worth ₹450 crore to the public, while promoter entity QSR Asia Pte Ltd, owned by private equity firm Everstone Group and its limited partners, will sell up to 60 million shares worth ₹360 crore at the upper end of the price band. Post the IPO, the promoter entity will hold 52.9% in the company. So there is a fall in promoters holding, but to compensate the institutional investors and retail investors when the company goes public, this is ought to happen, with around 48% of shares in play, there would be enough liquidity for the prices to stay fair. What we have seen with Ruchi Soya where the prices shoot from some 16 rs to 1600 was because it had around 91% promoters holding, and if the promoters start reducing their shares in such situation is dubious but here the promoters’ intention is pretty clear, they want a stock to sustain in long run with enough liquidity. Coming to the 4th point i.e. use of the fund, Burger King India said in its red herring prospectus that it will use the funds to repay existing debt and finance capital expenditure for new company-owned stores. So clearly there is a transition from debt to equity and that will substantially reduce the interest they are paying against the borrowing, that will have a great impact on the balance sheet in coming two quarters, considering everything else stays the same. Coming back to the pricing , there is a sentiment that Premium of Rs.60 is way too high to pay for the brand, but The company has raised pre-IPO funding of ₹92 crore from public markets investor Amansa Investments at ₹58.5 per share. Pretty much the same price what is they have proposed in initial offering.