Analysts expect the fast-food chain to report its first profit only by FY23. They have targets in a wide range of Rs 160-210 on the stock. The ones expecting delays in store expansion plans and increased competitive intensity in north and east markets have suggested lower targets, while those expecting swift reopening of malls, the introduction of an economical menu and the company’s entry into the cafe segment have set higher price targets. The targets suggest up to 27 per cent potential upside over Tuesday’s close of Rs 165.50 apiece.
The quick-service restaurant (QSR), 55 per cent of whose stores are in malls, reported a narrowing of losses in the June quarter — at Rs 44.35 crore from Rs 80.45 crore loss in the year-ago quarter. Sales soared 289 per cent year-in-year (YoY) to Rs 149.7 crore. Gross margins came in at 65.2 per cent for the quarter, up 290 basis point YoY but down 40 basis points sequentially.
The QSR said recovery in sales was at 76 per cent by the end of the June quarter, when compared with the March quarter, as business was substantially impacted due to the second wave. Even as dine-in was gradually returning back to normal levels over the past two months, the recovery in delivery remained over 170 per cent, the company said, adding that the average daily sales (ADS) recovery in August has been over 95 per cent compared with FY20 level.
Q1 nos in line with peer
JM Financial said Burger King India’s quarterly results were quite similar to those of Westlife Development (which runs MCDonald’s), with a sequential decline of 23.6 per cent in revenue per store against 26.6 per cent for Westlife. While revenues did surprise positively, other expenses were much higher than expected. This led to a disappointment on the margin front, JM Financial said.
“The company’s guidance on flattish same-store sales growth, relative to FY20 levels, seems to suggest a mid-teens growth in H2FY22 and would also give more clarity on the inherent margin improvement that it has achieved. For now, we maintain hold, given the rich valuation. But success in the Café format, not built into our estimates yet, and new store launches could drive upside from current levels,” it said, suggesting a target of Rs 160 on the stock.
The scrip, which hit a record high of Rs 219.15 in December last year, reached the sub-Rs 130 levels in April, before recovering to Rs 180-190 levels. It has lost its mojo since.
Economical menu to aid growth
Analysts said Burger King’s recovery has lagged behind that of
and Westlife, which have a relatively higher salience of convenience channels and a diversified store portfolio.
But Motilal Oswal Securities said as states have allowed operations at malls and dine-in, Burger King would see significant improvement in performance.
Burger King recently launched an economical menu, the Stunner, which has had a good start, the brokerage said, adding that the widening of the value platform and elevation of the entry point might aid significantly to Burger King’s performance. This brokerage has a target of Rs 210 on the stock.
“Burger King brand has all the ingredients of establishing itself in the Indian QSR market over the long term, if it executes its strategy well. It is still not profitable and we expect it to report profit by FY23. At the current market price, it trades at 36.6 times FY22 Ebitda and 24 times FY23 Ebitda. We maintain our accumulate rating,” it said, revising its target to Rs 165 from Rs 155.
Cafe segment launch soon
Burger King has announced its entry in the café segment — akin to McCafe from McDonald’s — and is targeting a soft launch by the December quarter. The company is looking at 75 cafés by March 2023. The management said café formats might help drive incremental footfalls during breakfast and between lunch and dinner. “As has been seen with Westlife Development, the introduction of in-store café does drive same-store sale growth and improves overall store economics,” said Edelweiss Securities. “Our implied value addition to BKI’s target price from factoring in café comes to Rs 40 where we project the build-up till FY35E.” The brokerage has a target of Rs 201 on the stock.
ICICI Securities sees many advantages for Burger King, including a likely sharper revenue recovery due to reopening of malls, operating leverage due to young store maturity and the addition of BK Café bringing in incremental growth. While suggesting a target of Rs 200, the brokerage said Burger King may experience a steep learning curve — and also some potential failures — in tier-2, -3 and -4 cities. It also said the company could see higher competitive intensity in north and east India.
