Burger King IPO opens: Should you subscribe? Here's what brokerages say

Most brokerage houses have recommended a 'subscribe' rating on the issue on the back of a strong franchisee model, negative working capital, market share gains and expansion plans. Expected revenue growth and robust growth in restaurant additions following its last five-year record are also key positives.

As per the brokerage, the company enjoys exclusive rights to develop, establish, operate and franchise Burger King branded restaurants as the national master franchisee. The company's revenue grew around 49 percent CAGR over FY18-FY20 led by significant store additions.

"At the upper price band of Rs 60, a share of Burger King India is available at 29 times FY20 EV/Ebitda and 3.6 times FY20 EV/sales, which Geojit said is attractive. This is considering the company's robust growth in-store additions and an expected rise in future revenues. The brokerage has recommended 'subscribe' rating on the issue with a long-term perspective," it noted.

The brokerage recommends subscribing to the IPO given the brand's success in just five years with 260 stores. The firm has a target of 700 stores by 2026. The company plans to utilize proceeds of IPO for store expansion and has plans to add 50/70/80 stores in the coming three years.

The brokerage believes Burger King has competitive advantages which make it well placed to capitalise on emerging opportunities, however, expects near-term financials to remain under pressure. The firm suffered a loss of Rs 118 crore in the first half of 2021 (H121) but Prbhdal Lilladher expects a turnaround by FY23/24, led by post-Covid-19 recovery and new store openings.

As per the brokerage, Burger King's key competitive strength are exclusive national master franchise rights in India, strong customer proposition, the brand positioned for millennials, operational quality, well-defined restaurant development process, and professional management team. Hence the brokerage recommends a 'subscribe' rating for the issue.

However, key risks remain unfavorable macroeconomic conditions, continuation or worsening of the Covid-19 crisis, slower expansion in the restaurant network, and competition from other QSR entities and delivery aggregators.

The brokerage believes benefiting from reduced competition from unorganized smaller local restaurants due to COVID related disruptions and expansion of food delivery businesses, the company is well-positioned to expand its footprint in India.

"We believe Burger King would be able to capture the growth largely aided by changing habits of eating out/ordering outside food. The company was quick to scale up its operating margins to double-digit in the last two years. However, it is still making a loss at the bottom line level due to high depreciation provision," said the brokerage which has a 'subscribe' recommendation on the stock.

As per the brokerage, Burger King won't get a premium valuation as Jubilant Foodworks since it does not have a profitability track record like Jubilant. However, Burger King has priced its issue at a significant discount compared to Jubilant Foodworks, so looking at the valuation and the growth the company is expected to report in the future, the issue is looking attractive.