Home / Markets / Mark To Market /  Restaurant Brands Asia’s slow recovery is worrisome

Restaurant Brands Asia Ltd (RBA), previously known as Burger King India Ltd, has seen a slow recovery post covid. Consequently, the stock is down by 25.6% calendar year to date on BSE. The sentiment is mute towards other quick-service restaurant operators, as well. For instance, shares of Westlife Development Ltd, which owns and operates McDonald’s restaurants, are down by 18.3% in 2022.

But in the case of RBA, the downbeat sentiment is more pronounced.

Sluggish mode
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Sluggish mode

This is due to the company’s 55% mall-centric portfolio and the dine-in centric model, which contributed about 70% to the revenue pre-covid, note analysts at Nirmal Bang Equities Pvt. Ltd in a report on 1 June. In simple terms, higher exposure to these segments has weighed on the company’s overall recovery.

However, with waning covid cases and restrictions lifted, RBA is seeing a recovery in dine-in average daily sales (ADS), which stood at 96% of pre-covid levels in May. On the other hand, delivery ADS surpassed pre-covid levels.

The company plans to expand its presence by adding stores. The store count as of FY22 end stood at 315. In FY23, the management aims to reach 390 stores and has guided for 25% same-store sales growth (SSSG). It sees SSSG of 7-10% from FY24 onwards. The guidance for FY24 has been revised upwards due to the increased momentum seen for BK Cafés.

RBA plans to reach the count of 200 BK Cafés by FY23 and 300 by FY24. The count stood at 35 at the end of FY22. Note that the BK Café is a high-margin business.

Besides café addition and recovery in dine-in, cost control measures would aid RBA in delivering an expansion in Ebitda (earnings before interest, tax, depreciation and amortization) margin.

While this commentary bodes well for the stock’s near-term outlook, the re-emergence of coronavirus in key states like Maharashtra poses a risk to operations.

Also, with respect to operations in Indonesia, though covid led restrictions are being lifted, margin recovery will remain a key monitorable.

Against this backdrop, investors would do well to closely track the execution of store openings as any disappointment on that front would be a dampener.

Meanwhile, post the recent correction in share price, analysts say the stock is trading at a discount to peers. However, the risks mentioned above need to be watched out for.


Vineetha Sampath

Vineetha Sampath is a chartered accountant and is experienced in the field of research analysis. She joined Mint's Mark to Market team recently and this is her first stint in journalism.
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