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Undated handout photo of Burger King's new reusable containers (Photo: Reuters)
Undated handout photo of Burger King's new reusable containers (Photo: Reuters)

Queues at Burger King have shrunk, but investors may line up for its IPO

After Gland IPO, which listed at a hefty premium, investors may be wary of missing out on an IPO that offers listing gains

Getting crowds back to dine at restaurants is a challenge, at least for now. But Burger King India Ltd’s initial public offering (IPO) could still manage to attract more than enough investors and see the issue through.

The quick-service-restaurant chain (QSR) has, of course, been badly affected by the coronavirus pandemic.

Vaccination for millions of Indians is still some time away, suggesting that a large number of families will likely shy away from stepping out. For now, it’s the younger crowd that is seen dining at restaurants.

As a result, same-store sales fell as much as 57% in the fiscal first half. It also means that Burger King could continue to see losses at the net level for some time.

Eyes on the fries
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Eyes on the fries

“Dine-in recovery will be seen in phases. A 50% recovery to pre-covid levels is another four-six months away, which is a guesstimate ballpark number. A full recovery could take a year," said Karan Taurani, analyst, Elara Securities India Pvt. Ltd. “That will extend the break-even threshold for restaurants."

Even so, given the smaller store size compared to some of its peers, Burger King’s costs for setting up a restaurant are lower.

Further, it generates about 1.8 times sales against capex compared to 1.2 times that of Westlife Development Ltd, which runs the McDonald’s QSR chain, point out analysts.

Burger King’s higher sales per square feet of restaurant space would help drive faster profit growth. Analysts peg Burger King’s sales per square feet at about 31,000, compared to 15,700 for Westlife and about 13,600 for Subway.

The pandemic is also not a deterrent to expanding its store footprint. Burger King plans to expand to about 700 stores by December 2026 from the current 268 stores.

The company management also said that it will not require funds for expansion either through equity or debt, which is another advantage.

Further, the pandemic means that some of the market share gains for organized players would increase in the coming months. After the relaxation in lockdown restrictions, some restaurants have downed their shutters, which could benefit the likes of Burger King.

The offer is priced lower than peers such as Westlife Development Ltd. “Compared to other QSR chains, the Burger King IPO is at a discount to its peers on EV/Ebitda, so there could be some gains seen in the coming months," said Taurani.

Besides, after the recent Gland Pharma IPO, which listed at a hefty premium to its offer price, investors may be worried about missing out on another potential IPO that could offer listing gains.

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