Would you bet on a stock that’s currently priced under Rs 150? Motilal Oswal has given a target price of Rs 125 on Restaurant Brands Asia, the company behind Burger King outlets. That’s a possible 75% upside on the table from current levels.
What exactly is driving the brokerage’s investment rationale? Here’s a look at the top factors driving the positive recommendation –
Burger King operator reports strong sales
The company reported a better-than-expected performance in the June quarter. This was majorly led by its India business.
The company posted a 24% year-on-year revenue growth in India, ahead of the brokerage’s expectation of around 19%.
What stood out even more was the company’s Same Store Sales Growth (SSSG). Restaurant Brands Asia’s both dine-in customers and delivery orders contributed to this, helped along by value-for-money offers.
What is driving footfall lately? New menu additions seem to be doing their bit. Items like Peri Burgers and Korean Burgers have found favour with customers, and management noted that this momentum carried into July as well.
Expansion Guidance & Valuation Framework
Growing sales is one thing. Growing profit margins while doing it is another and this is where the report gets more interesting.
Restaurant Brands Asia’s gross margin in India expanded to 70.8%, up 310 basis points from a year earlier. This improvement came from a better product mix, smarter menu planning, and tighter supply-chain management.
Interestingly, the Burger King operator achieved this without announcing any major price increases during the quarter.
Indonesia still a challenge
While India continued to perform well, the Indonesia business remained relatively weak for Restaurant Brands Asia.
As per the Motilal Oswal report, revenue in Indonesia declined by 4% year-on-year.
However, losses have started narrowing after the company shut underperforming Burger King outlets.
The report said the company is “focused on reducing losses through tighter cost controls and operational improvements.”
For now, management does not plan aggressive expansion in Indonesia and is prioritising profitability instead.
Expansion plans remain intact
Can Restaurant Brands Asia continue growing? Motilal Oswal believes store expansion remains one of the biggest growth drivers.
Motilal Oswal noted, “The company added nine stores in the first quarter and reiterated its plan to open 80 stores in FY27.” As more newly opened stores mature, the brokerage expects profitability to improve further.
Why has Motilal Oswal retained its Buy rating?
Following the better-than-expected performance, the brokerage has increased its earnings estimates for Restaurant Brands Asia.
According to the report, “We raise our EBITDA estimates by 5% for FY27 and 8% for FY28 considering the better delivery of margins.”
According to the brokerage report, the valuation is based on 25 times Enterprise Value to EBITDA for the India business and an enterprise value of Rs 500 crore for the Indonesia operations.
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