Quick Service Restaurants

Burger King: Will it bring Value for Investors with its fast pace?

Burger King India Limited (‘BKIL’) is the national master franchisee of the BURGER KING® brand in India, with exclusive rights to develop, establish, operate and franchise Burger King branded restaurants in India.

  • BKIL incorporated as a private ltd company on November 11, 2013 and then later in September 2019, its constitution changed to a public Ltd company.
  • As of March 31, 2021, Burger King had a widespread network of 265 restaurants, including 9 sub-franchisee restaurants across 58 cities in the country. Moreover it is one of the fastest growing international Quick Service Restaurant (QSR) chains in India.
  • Burger King is brand by Burger King Corp, a subsidiary of Restaurant Brands International Inc., which holds a portfolio of fast food brands that include the Burger King, Popeye’s and Tim Hortons.
  • In comparison to other chains that have Indian partner as a Master Franchise, BKI is promoted by QSR Asia Pte Ltd (Singapore) which is a Joint Venture between BK Asiapac Pte Ltd, a subsidiary of Buger King Holdings and F&B Asia Ventures (Singapore) Pte Ltd.

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IPO by Burger King India Ltd

Burger King launched its first restaurant in India in November 2014. In December 2020, Burger King launched its Initial Public Offering (IPO). The total issue size was Rs 810 crore in which fresh issue was of Rs 450 crore and offer for sale was Rs 360 crore. The IPO met with a tremendous response and oversubscribed 157x. It received more than 2,40,000 applications, and against an IPO size of 8,100 Million, the company received 770,000 Million. This stellar subscription saw the shares listing at a premium of 92.25% over the issue price of Rs 60 per share.

(1) Shareholding Pattern

Burger King India Ltd. Detailed research with Shareholding pattern
Burger King India Ltd. Detailed research with Shareholders holding more than 1%

The Company was promoted by QSR Asia Pte Ltd (QSR Asia), which was held by F&B Asia Ventures (Singapore) Pte Ltd (82.71%) and BK AsiaPac (14.52%). The company came up with an IPO in December 2020, following which the share of QSR Asia's shareholding diluted to 52.88% from the previously held stake of 85.38%.

(2) Executive Board Members

(a) Shivakumar Pullaya Dega - Chairman and Independent Director

He studied at IIT Madras and IIM Calcutta. He was the CEO of Nokia India and then Head of Emerging Markets for Nokia. Also he was Chairman and CEO of Pepsico South Asia. Currently he is the Group Executive President for strategy and business development at Aditya Birla Group.

He was appointed as Chairman and Independent Director of the company on Oct-14, 2019.

He has been on the Board of Godrej Consumer Products and was the President of the All-India Management Association; the Chairman of the Mobile Marketing Association; and the Chairman of the Advertising Standards Council of India.

(b) Rajeev Varman - CEO and Whole time Director

He holds a Bachelor’s degree in mechanical engineering from Bangalore University and a MBA in marketing from GGU in California.

Mr. Rajeev was appointed as CEO in Nov 2013 and has been on the Board of the company since Feb-27, 2014.

He has over 20 years of experience in the food and beverage industry, having worked with the Tricon/Taco Bell brand, Lal Enterprises Inc., and Burger King Corporation, where he held leading positions.

Total Remuneration of Mr. Rajeev Varman for FY21 is 4.04 crore which is 0.82% of net sales.

(3) Products offered by Burger King India Ltd

(4) Burger King India Ltd - Operating Parameters

(a) Store count

Burger king detailed research with no. of store count

Burger King crossed the number of 200 restaurants in just first five years. The company is aggressively working on its expansion strategy. The company has total 265 stores as on Mar-21 of which 55% are in malls, 30% in high street and 15% are drive thru and transit locations. In FY21 the company opened 16 new stores and closed 11 existing stores. The reason behind closing the store was Non performing stores and reallocation.

Moreover the company has a target to open 700 restaurants in India by Dec 2026.

(b) Presence across India

Burger King India Ltd. Detailed research with presence in cities

Burger King India Ltd is present across different cities in the country. The company has wide presence across north and west region. However its peer, Westlife Development does not have much presence in North region. Moreover by CY26 the company has a target to open 300 stores in north, 165 stores in west, 70 stores in east and 165 stores in south.

(c) Burger King - Same store sales growth

Burger King India Ltd. Detailed research with Same Store Sales growth

Same-store sales refers to the difference in revenue generated by a retail chain's existing outlets over a certain period, compared to an identical period in the past, usually in the previous year.

The SSSG ( Same store sales growth) of Burger King in 2021 remained at -35%. This is because of effect of Covid-19 and other lockdown restrictions by the Government of India. Moreover the company has 60% of the company's stores are in North and out of them 55% of them are in Malls. These got effected because of farmers' protest in Delhi, due to which stores were not opened in weekend and high street roads were also affected in Punjab and Delhi. Thus, this effected the SSSG of some of the stores of the company which in North area. However by FY 2022-23 onwards, it expects SSSG growth at 5-7%.

(d) Sales Mix

Burger King India Ltd. Detailed research with Sales Mix

Various restrictions for Dine-in in different states during lockdowns by Government of India had adverse affect on the company sales. Thus the sales mix of the company varied as by the time.

(5) Financial Parameters

Burger king detailed research with financials
Burger King India Ltd. Detailed research with Expenditure as % of sales

The company reported operating profit growth till FY20 but in FY21, the growth of operating profit was negative. Also, the company incurred net loss of 174 crores which was higher than previous year's net loss. Moreover the interest and depreciation expenses of the company has also been increasing from last five years.

The main reason for Increase in Interest and Depreciation cost is the adoption of Ind AS116. Because of this, operating lease expenses (fixed part) will be replaced by Interest and depreciation cost. Thus, impacting EBITDA, EBIT, PBT and PAT.

The company's Cash and Investments as a % of sales were 27% in FY17. However after FY 17 the company reported decrease in cash and investments. Further in FY 21 the ratio went up to 24% due to cash inflow on account of IPO.

(6) Major Competitors

  1. Jubilant Foodworks Ltd.
  2. Westlife Ltd.
  3. Barbeque Nation

(7) Management Outlook

(a) Master franchisee arrangement

Burger King India Limited is the national master franchisee of the “BURGER KING®” brand, with exclusive rights to develop, establish, operate, and franchise Burger King branded restaurants in India. Under this arrangement, BKIL has been provided the flexibility to prepare a tailor-made menu according to the tastes and preferences of the Indian masses, following which, promotions and pricing strategy has been panned out. In addition, it facilitates the Company to use Burger King’s globally recognised brand name to grow business in India, while leveraging the technical, marketing, and operational expertise associated with the global brand.

(b) Tap into Café Industry

Burger King India plans to enter the Rs 2,500 Crore café market in India through Burger King Café. The company will provide contemporary café experience and is intend to scale this up to about 75 stores by the exit of FY2023. Moreover in BK café there will be Incremental Dine In and Take away occasion opportunity post lockdown.

(c) Whopper in making

Burger King is investing behind building Whopper almost as a sub brand of Burger King. In quarter 4 of FY21, the company ran a trial program to get consumers to experience the Whopper and saw a fantastic response. Moreover, the company saw 50% increase in volumes and a significant increase in awareness of the Whopper from 4% to 53%. The company wants to take the whopper brand to the next level so there is a menu mix or a product mix strategy that is effective in improving the gross margins.

(d) Burger King App

The company launched its own application. So that customer can make orders directly from the Burger king app downloaded on their mobile phones. As this will increase the efficiency for the customers as well as for the company. Moreover this will help the company to be engaged with its customers. Within the months of its launch it witnessed a 130% QoQ sales growth in own app orders and over 1m app downloads in 1QFY22.

(e) Aggressive expansion plan

The company is making aggressive plan to increase the number of Burger King Stores across India. Company has a target to open 320 stores by FY22 and 700 by CY26 (265 as on FY21). The company has a strategy to open stores in the areas where the transportation cost is minimized. Thus which will increase the margins of the companies as expenses will be less.

The management intends to expand by setting up new Company-owned Burger King restaurants in various cities across India to meet the growing demands of western QSR culture amongst the consumers.

(f) Gross Margin Outlook

The Company intends to achieve a gross margin of 66% in FY 2021-22 and 68% in FY 2023-24.

(8) Opportunities and Strengths

(a) Well recognised brand with wide range of product offerings

BKIL is operating as the national master franchisee of the “Burger King” brand in India. The company has a wide product portfolio comprising requisite mix of veg/non-veg burgers along with desserts and snacks, which are designed considering Indian consumer taste. BKIL has a pan India presence through a chain of 265 restaurants including franchise stores as on FY 21.

(b) Company with zero Debt

The company received equity infusion to the extent of Rs.150.0 crore through pre- IPO placement and Rs. 450 crore through IPO in FY2021. The company had an outstanding debt of Rs. 198.6 crore as on March 31, 2020 (excluding lease liabilities), which the company repaid from the IPO proceedings; thus, becoming a debt-free company. The company has no debt as on FY 21.

(c) Burger Chains offer huge scope of growth and scalability

  • Burger chains offer huge scope of growth in India given that global leader McDonalds has ~480 stores. While No2 chain Burger king has 270 stores.
  • Burger chains grew at a CAGR of 19.4% between FY14-20 and are expected to sustain momentum in the coming years led by improved affordability, rising consumer aspiration and favorable demographics.
  • Moreover the organised QSR sub-segment in India is projected to grow at a CAGR of 19% between FY 2019-20 and FY 2024-25 on the back of consistently improving QSR infrastructure.
  • Further, with the increasing penetration of internet and adoption of digital payments, the QSR market will grow even faster.

(d) Competitive Advantage

Burger King has a competitive advantage over its peer that is McDonalds. As the Mater Franchise rights of McDonalds India is distributed among two players. That is Westlife Development Ltd for South and west region and Connaught Plazza Restaurants for North and East region. On the other hand Burger King India has sole right on Master franchise of Burger King in India.

(9) Risks

(a) Compliance with Conditions laid out in the MFDA

BKIL has received exclusive rights to develop, establish, operate and franchise Burger King (BK) restaurants in India pursuant to MFDA (Master franchise development agreement). As per terms and conditions mentioned in MFDA. BKIL must open at least 700 restaurants by December 31, 2026 (revised from 2025) and should maintain debt to equity ratio below 2x always, among others. In case of any non-compliance with the terms and conditions laid out in the MFDA. BK AsiaPac holds the right to terminate the developmental rights given to BKIL. Therefore, complying with all terms and conditions laid out in the MFDA remains critical for BKIL’s ongoing operations.

(b) Relies on a single third-party distributor

BKIL relies on a single third-party distributor. Mainly for procurement of ingredients and packaging materials, primary logistics from supplier facilities to distribution centers, warehousing, inventory management and secondary logistics to the restaurants. Any disruption in ColdEx’s distribution channel might have an adverse impact on BKIL’s supply chain operations. However, it is also noted that since Coldex is just as aggregator of the services/products for BKIL. Thus the disruption will be limited till BKIL finds a suitable alternative supplier in case of discontinuation of service from ColdEx.

(c) Competition from organised and unorganised market

BKIL faces increasing competition from other international QSR brands, for Instance McDonald’s, KFC and several local players from the unorganised market in India. As a result they can limit BKIL’s operating profitability to certain extent.

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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry's Publications.

Disclaimer: The report only represents personal opinions and views of the author. No part of the report should be considered as recommendation for buying/selling any stock. Thus, the report & references mentioned are only for the information of the readers about the industry stated.

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