One of the most awaited IPOs of 2020 is going to be launched in the first week of December. The quick-service restaurant, Burger King India, will launch its initial public offer on 2nd December 2020. The issue will open for subscription on 2nd December and close on 4th December. It will consist of fresh issuance of shares worth Rs 450 crore and an offer for sale worth Rs 360 crore.
About Burger King
Burger King is India’s fastest-growing quick-service restaurant chain. Its huge network of chains includes 216 Burger King restaurants and 7 Sub-Franchised Burger King restaurants. You may have seen a Burger King outlet in your nearby mall too! Founded in 1954 in Florida, it currently holds the position of second-largest fast-food hamburger chain in the world. Burger King entered the Indian market in 2014. Currently, 99.39% of the total stake is owned by the promoters. Post issue, promoters’ holding will fall to 52.9%.
The current CEO of Burger King India, Rajeev Varman, is an experienced individual. He worked at Taco Bell for more than 5 years before joining Burger King. For the next 13 years, he worked for Burger King in the US, Canada and North-West Europe. Since 2013, he has been working for Burger King India. Working in India has been a different experience for him. This is because the menu and the product line which has to be used in India is completely different from what is used in other countries. Beef is highly used in western countries but using beef in India would not have been a wise choice, as noted by Rajeev. Thus, all the decisions have to be taken from scratch, yet Rajeev Varman has been able to deal with all the issues comprehensively.
The Indian subsidiary of US-based Burger King focusses on India-centric offerings, the growing millennial population and premium product offerings to generate demand. Also, they use online food orderings, home delivery and social media to attract more customers of younger age. According to the company, increasing nuclearisation of families, rising disposable incomes and urbanisation have led people to eat out.
|Profit After Tax||-76.57||-38.27||-82.23|
As we can see, the company is not able to make profits even with growing revenue numbers. In fact, losses are widening mainly due to the company’s competitive pricing model.
About the IPO
Burger King aims to raise Rs 810 crore via the issue. The company has reserved 10% and 15% portions of IPO for retail investors and non-institutional investors. Rest 75% is for qualified institutional investors. Even though the IPO issue ends on 4th December, equity shares of Burger King will debut on the markets around December 14, 2020.
The price band for the IPO has been fixed at Rs 59-60 per share. Burger King’s promoter QSR Asia Pte Ltd will be selling up to 60 million shares as a part of Offer for Sale. Proceeds from Offer for Sale go to the pockets of the promoters, as their exit. The retail investors can apply for a maximum of 3,250 equity shares, that is 13 lots. The minimum amount to be spent to by an individual would range between Rs 14,750-Rs 15,000 for a lot (Rs 59 x 250 = Rs 14,750 to Rs 60 x 250 = Rs 15,000).
The proceeds from the IPO will be used to finance the roll-out of new company-owned Burger King Restaurants. Burger King plans to expand by setting-up new restaurants in various cities across India with the focus to meet the growing demand. They aim to open at least 700 restaurants by December 31, 2025.
Other than this, the proceeds from the IPO will also be used for general corporate purposes. These general purposes include brand building, marketing efforts, strengthening of the marketing capabilities, partnerships, tie-ups, joint ventures and more. The money will also be spent on meeting long-term and short-term working requirements.
|IPO Date||Dec 2, 2020 – Dec 4, 2020|
|Issue Size||Aggregating up to Rs 810 crore|
|Issue Type||Book Built Issue IPO|
|Offer for Sale||Aggregating up to Rs 360 crore|
|Fresh Issue||Aggregating up to Rs 450 crore|
|Face Value||Rs 10 per equity share|
|IPO Price||Rs 59 to Rs 60 per equity share|
|Lot Size||250 shares|
|Listing At||BSE, NSE|
Book running lead managers for this IPO are Kotak Mahindra Capital Company, CLSA India, Edelweiss Financial Services and JM Financial.
Risk Factors for Burger King
- Just like for any food-chain business, Burger King is susceptible to health concerns arising from food-borne illness. Negative food-related incidents could diminish the brand value of the company as well as lose the trust of the customers. A possibility of an outbreak of a food-borne illness or a health epidemic cannot be dismissed as well.
- The development of Burger King depends on the policies of the government who can impose certain restrictions on the operations.
- Demand for burgers will see a significant fall if the food preferences of the people changes in the coming future.
- Any lapse in the quality control systems of the third-party delivery aggregators, suppliers or distributors can hurt their business and reputation.
- Inflation, seasonality, global supply and demand and demand in local and international markets will increase the prices of raw materials. If this happens, Burger King will find it hard to cut costs and increase the prices of its products across the country. With this, they can even lose market share.
- The quick-service restaurant industry in India is very competitive. Burger King competes with the likes of McDonald’s, KFC, Domino’s Pizza, Subway, Pizza Hut and more.
- EPS stands for Earnings per Share. You can read about EPS here. NAV is computed as the closing net worth divided by the closing outstanding number of equity shares.
|Name of Company||Face Value||Total Income FY19(in crores)||EPS||NAV|
|Burger King India||Rs 10||Rs 644.13||-1.44||9.42|
|Jubilant Foodworks||Rs 10||Rs 3,610.50||24.23||95.45|
|Westlife Development||Rs 2||Rs 1,417.67||2.59||37.47|
Burger King is one of the favourite fast-food chains in India. It is especially loved by the people of younger generations. Other QSRs also took the public route to generate funds so that they open more stores across the country. This approach will help Burger King to spread their wings in different states and reach out to more customers.
Indian FMCG sector has allowed many participants to shine over the years. Let’s look at Jubilant Foodworks’ share price was around Rs 110 in January 2010. Currently, it is trading at more than Rs 2,500. The younger population of India offers a huge potential to these Quick Service Restaurants(QSRs) to attract customers. Urbanization and increasing disposable income have helped people to move out of their homes and eat. This massive potential of the Indian market will only increase from here. Thus, offering a big opportunity to companies like Burger King. It depends on the company that how better they can understand the Indian market and offer products suitable to them. Burger King looks all set to grow and conquer the Indian organised fast-food industry.
The company filed its red herring prospectus with SEBI, which you can find here.