Markets
Why Barbeque Nation’s shares are selling like hot kebabs
Summary
At the onset of fiscal 2021, Barbeque’s business model was predominantly dine-in. As such, the contribution of delivery sales was small. During the year, the company increased its focus on the delivery vertical in the light of the pandemic
Business at Barbeque Nation outlets has been hit severely this quarter, because of restrictions in various parts of the country due to the second covid wave.
But, shares of Barbeque Nation Hospitality Ltd are selling like hot cakes, or kebabs, if you will. They have risen as high as 40% this week. What explains the sudden euphoria?
“People are looking beyond near-term concerns and for opening up plays. Barbeque Nation is a good candidate for that. Additionally, Barbeque’s March-quarter results may be a proxy of how things will be post opening," said an analyst requesting anonymity.
On Monday, Barbeque Nation announced quarterly results for the first time since its listing. The numbers were encouraging and management commentary was upbeat. Sequentially, consolidated revenues for Q4FY21 rose 16% to ₹226 crore. Revenues increased by 18.5% year-on-year (y-o-y). Same store sales growth was up 20%, helped by a favourable base, as the metric had dropped 16.7% in Q4FY20.
During FY21, the firm increased its focus on the delivery vertical in the light of the pandemic. It launched a new product called Barbeque-in-a-Box (including starters, main course, desserts) in June 2020 to cater to the rapid growth in the delivery business. The performance of Barbeque-in-a-Box has surprised positively. “The share of revenue from digital platforms increased to 24.7% from 20.1% in Q4FY20, while the delivery business has grown around 6 times in Q4FY21 compared to the same period last year," said Barbeque Nation. True, the growth of the delivery segment is off a low base. In FY22, Barbeque Nation expects that segment to double.
Further, the company intends to open 20 new stores during the year. The adverse impact of the pandemic has meant that its revenues have declined 40% y-o-y in FY21. Of course, the recovery has been faster in the second half of the fiscal as restrictions were eased gradually. Investors hope that the same trend would persist once the lockdowns of the second covid wave are relaxed.
The fact that the firm has raised sufficient funds through the IPO also means it is financially in a better place, compared to where things were after the first wave. Back then, its financial condition was so precarious that it raised funds at rock-bottom valuations in a sort of emergency funding ahead of the IPO.
Of course, the near term remains challenging. “With the onset of the second wave, subsequent lockdowns and temporary store closures, our dine-in channel in the current ongoing quarter has been impacted," the management said in an earnings call.
Meanwhile, Barbeque Nation’s stock is now around 75% higher than its issue price during listing. To be sure, the broader rally in the stock markets has also contributed to the optimism for the stock. Be that as it may, given the business conditions, investors would have to brace for a decline in revenues in the short run.
