Background
Incorporated in 2006, Barbeque Nation Restaurants is one of the leading casual dining restaurant chains in India. It offers the best quality of food offerings, ambiance, and services to customers. It also owns and operates Toscano Restaurants and UBQ by Barbeque Nation that caters to the delivery segment.
The first Barbeque Nation Restaurant was established in 2008 and as of November 30, 2019, the network has been steadily grown to 138 Barbeque Nation Restaurants in 73 cities in India and 7 International Barbeque Nation Restaurants in 3 countries outside India. The company has recently diversified into another brand “Red Apple” which operates 10 Italian restaurants in 2 cities of India i.e. Bengaluru and Chennai.
Barbeque Nation Restaurants has pioneered ‘over the table barbeque’ concept in Indian restaurants. Their fixed price menu offers their customers a varying spread of consistently delicious food at a value-oriented price in a pleasant and casual dining environment.”.
The company has integrated digital ecosystem of app, reservation system, delivery & loyalty program. The company has significant online presence and they have witnessed increased reservations through their online platforms. In Fiscal 2020 and the 8 months ended November 30, 2020, over 46.7% and 60.8% of total reservations at Barbeque Nation Restaurants were made online. Also, as of December 31, 2020, their BBQ App had registered over 2.2 million downloads.
Objectives of the issue
i. Capital expenditure for expansion and opening of new restaurants by the Company
ii. Company intend to utilise a portion of Net Proceeds aggregating to INR 546.19 million for setting up 26 new Barbeque Nation Restaurants during Fiscal 2022 and Fiscal 2023.
iii. Prepayment or repayment of borrowings ~ INR 750 million
iv. General corporate purpose
Financials
The company reported consolidated loss at Rs 32.93 crore on revenue of Rs 846.97 crore in FY20, loss at Rs 38.4 crore on revenue of Rs 739 crore in FY19 and loss at Rs 5.8 crore on revenue at Rs 586.3 crore in FY18. For eight months period ended November 2020, it posted a loss of Rs 100.65 crore on revenue Rs 201 crore, largely impacted by the COVID-19 pandemic.
But at the operating level, the performance remained better with EBITDA (earnings before interest, tax, depreciation and amortisation) at Rs 140.37 crore, Rs 149.39 crore, Rs 168 crore and Rs 12.59 crore in FY18, FY19, FY20 and in eight months period ended November 2020.
Strengths
i. One of India’s fastest growing and widely recognised restaurant brands in the rapidly growing CDR (Casual dining restaurant) market.
ii. Attractive offerings based on constant menu innovation and customer focus.
iii. Steady growth in covers and consistent APC with a relatively high proportion of total revenues from weekday sales and lunch covers.
iv. Strong business processes and back-end systems leading to efficient operations.
v. Experienced staff and value-oriented business culture led by some of Promoters and senior management team bringing experience from well-known hospitality brands.
Business Strategies
i. Increase same store sales growth, revenue per store and profitability as the vintage of the Barbeque Nation Restaurants increases.
ii. Continue expansion in Indian cities.
iii. Preserve the customer and team-focused culture and values.
iv. Expansion through owned & franchise formats in select international markets.
v. Continue evaluating strategic brand acquisitions.
Key Risks
i. Covid 19 Uncertainty on restaurant business.
ii. The company has a very high debt to equity which has created a huge interest and debt repayment obligation.
iii. It also has a very high contingent liability as against negative equity as on November 20, 2020.
vi. One of the Promoters and Managing Director, Kayum Dhanani has secured certain personal and promoter group debt obligations by creating a pledge on certain equity shares held by him within specified periods from the date of allotment.
v. The company’s business, financial condition, results of operations, cash flows and prospects may be adversely affected by the enforcement of the pledge provided by the Promoter and Managing Director.
Credit Rating
On Feb 19th 2020 Barbeque Nation Hospitality Limited Long-term credit rating was reaffirmed by ICRA while short-term rating was downgraded to [ICRA]A1; outlook revised was revised to Negative.
Peer Comparison
Company’s RoNW is lowest among the peers which is negative 556.59 %.
Grey market premium
The issue price band is 498 -500.
Since NII portion is just Rs. 67.94 Crs & RII position 10%/ only 905747 Shares / Rs. 45.28 Crs, Grey Market operators are not willing to take on any risk of huge oversubscription and falling in losses.
Valuation and View
The company is going to list at EV/Sales of 2.41 times based on its FY20 sales with a market cap of Rs.18,771 million.
Despite an increase in the number of the Barbeque Nation Restaurants and growth in consolidated revenues the EBITDA margins are decreasing.
There are also issues of promotor pledging of shares and contingent liability which is very high.
Debt-funded capex/investment in past is impacting net margins but in future due to repayments of loan from the proceeds of this ipo, net margins will improve.
The company had also Stretched free cash flow position and is operating in a segment where there is intense competition due to which they will have limited pricing power.
There is also uncertainty due to covid 19 impact on restaurant operation.
However, the company has strong brand image and healthy revenue growth for Indian operation before covid.
Investors who are applying for this IPO for listing gains need to be cautious while applying for this ipo because as offer price is ~ 10 times of EV/EBITDA of FY 2020 figs., competitors like Burger king is trading at lesser valuation ~ 4.5 times EV/EBITDA, also there is no GMP available for this IPO hence the listing gains cannot be estimated properly.
For longer term invest only after all the uncertainty related to the covid 19 is factored out and one need to wait for improvement of financial performance of company.
References:
- DHRP
- Various Sources
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