Burger King India grey market premium zooms 42% ahead of IPO; should you subscribe?

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Updated: Dec 01, 2020 4:16 PM

Burger King India is expected to turnaround by FY23/24 led by post COVID-19 recovery and benefits from rising economies of scale and new store openings.

US IPO, online traders, investing, Shares, DoorDash, Airbnb.The number of searches for IPOs on Google spiked to the highest level in at least 16 years.

Burger King India’s initial public offer (IPO) is set to open for subscription on Wednesday. The Rs 810-crore IPO will close on December 4, 2020. The IPO of one of the fastest-growing QSR brands would be the fourteenth IPO in the current fiscal. Ahead of the IPO, the grey market premium of Burger King India shares has risen. According to an independent dealer in unlisted shares, today Burger King India shares were seen trading with a Rs 25 premium in the grey market, as compared to a Rs 13 premium last week over the issue price of Rs 60 apiece.

Burger King India 14th IPO so far this fiscal

So far this year, over a dozen of companies including SBI Cards and Payment Services, Rossari Biotech, Route Mobile, Happiest Minds Technologies, Computer Age Management Services (CAMS), Mazagon Dock Shipbuilders, UTI AMC, and Gland Pharma have come up with their public issues. Analysts say that quick-service restaurant (QSR) business is low margin but still continues to be a highly attractive business in a consumption-driven economy like India. “Even though the OPM (operating profit margin) of Burger King India has stabilised at around 12-13 per cent and a strong No. 2 brand position behind McDonald’s, in the last 2 years, it’s inability to generate profit remains a huge concern,” Abhijeet Ramachandran, Independent Analyst/ Co-Founder and Trainer, Tips2Trade told Financial Express Online.

Also read: Burger King IPO opens tomorrow: Should you buy this Whopper? Check bid price, lot size, details

Ramachandran also added saying that an attractive IPO price band with strong expansion in North and West India coupled with strong expected growth in QSR business in India in the coming years, retail investors can subscribe at current valuations for listing gains of at least 15-20 per cent returns.

Burger King met with fancy among the millennial generation that helped the company for speedy expansion of its footprint. Manthan Mehta, Head Unlisted & Private Equity Rurash Financial Services Pvt Ltd, told Financial Express Online, that the management of the company seems to be focused on taking cost control measures, such as aiming to become debt-free company post IPO, capping the royalty cost, etc. Going forward, this will help in the expansion of margins and an increase in profitability.

In grey market, Burger King India shares premium zoomed 42 per cent or Rs 26 over the issue price of Rs 60 apiece. “Overall, we feel this IPO should be subscribed as it is being offered at discount in comparison to its peers, both for listing gains and long-term investments,” Manthan Mehta said.

Should you subscribe to Burger King India IPO?

Analysts at Prabhudas Lilladher expect near-term financials to remain under pressure as Burger King India has suffered a loss of Rs 1.18 billion in the first half of FY21. “We expect Burger King to turnaround by FY23/24 led by post Covid recovery and benefits from rising economies of scale and new store openings,” analysts said. Burger King is offered at 2.9x FY20 EV/Sales in comparison to 8.4x for Jubilant FoodWorks and 4.4x for Westlife Development. It has recommended to ‘subscribe’ the issue.

Geojit Financial Services also maintained a ‘subscribe’ rating to the issue with a long term perspective. “At the upper price band of Rs 60, Burger King India is available at 29x FY20 EV/EBITDA and 3.6x FY20 EV/Sales which seems attractive considering its robust growth in store additions and future revenue,” it said.

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