While the battle between McDonald’s and its Indian partner for the northern and eastern regions Vikram Bakshi rages on in the Company Law Board, and Bakshi alleges McDonald’s wants to buy him out cheap, the valuation of McDonald’s west and southern operations suggests Bakshi could well get over Rs 2,500 crore. Ironic, since one of the charges levelled by Bakshi is that McDonald’s franchisee in west and south, the Jatias, are behind the move to buy him out.
The Jatias’ story itself is a curious one since the market capitalisation of Westlife Development — which houses the McDonald’s business via subsidiary Hardcastle Restaurants — has jumped meteorically from around Rs 65 crore in early 2012 to over Rs 5,644 crore on September 23, 2013. That’s a jump of 86 times in less than two years. Much of the surge, of course, happened after December 7, 2012, when Westlife informed the Bombay Stock Exchange it planned to make Hardcastle Restaurants a direct subsidiary. The share price then was just Rs 17.24 and the market capitalisation R275.84 crore. Within days, on December 11, the price jumped to R30.18 with just five shares traded.
The price stayed firm despite new shares being issued — on December 12, the company allotted 22,86,010 new equity shares of R10 each as bonus shares to non-promoters — to comply with Sebi’s minimum public shareholding norms that required promoters to bring down their holding in listed firms to a maximum of 75%.
That quick service restaurants are doing well in India with the segment expected to grow at 25% compounded in the next few years is not in doubt. Hardcastle runs 166 restaurants, while Bakshi’s Connaught Plaza Restaurants (CRPL) runs 154. Jubilant Foodworks — which operates the Domino’s chain — has 602 outlets.
In FY13, Hardcastle’s revenues rose 25% to R674.8 crore while Jubilant’s revenues rose 38% to R1,407.5 crore.
Although the businesses are strictly not comparable, from a revenue per store perspective, it would appear, burgers are selling more than pizzas.
However, in terms of Ebitda margins, Jubilant is more profitable – in FY13, it reported a margin of 17% compared to Hardcastle’s 12.5%. In fact, net profits at Hardcastle fell 27.5% to Rs 30.8 crore last year while those for Jubilant rose 28% to Rs 135.1 crore.
Nevertheless, at Rs 370, the Westlife stock – a proxy for Hardcastle since that’s where the bulk of its revenues