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Recovery play in discretionary; initiate at BUY

Burger King India (BKI) is one of the fastest expanding international QSR chains in India during the first five years of operations (opened ~260 stores) and it plans to open 700 restaurants by Dec’26. We believe the flexibility around three key business aspects (menu, pricing and supply chain) along-with QSR industry’s expected growth of 23% CAGR over FY20-FY25P are key growth drivers.

We see multiple short-to-medium-term tailwinds:

(1) likely sharper revenue recovery (once consumption normalize) given the overindexation of mall stores,

(2) young store maturity provides operating leverage and

(3) addition of BK Café as incremental growth.

Key risks are (1) BKI may go-through a steep learning curve of expansion (and some potential failures) in tier-2/3/4 cities and (2) potentially higher competitive intensity in north, east India.

We Initiate at BUY with a DCF-based target price of Rs200.

Restaurant Brand International (brand owner of Burger King globally) granting the franchise rights of its Popeye’s brand for Indian subcontinent to Jubilant Foodworks is viewed as a negative for BKI by some investors.

* Master franchise agreement provides flexibility in three key business aspects – menu, pricing, and supply chain: In terms of menu, BKI has been able to change the brand’s perception away from just a base brand. Flexibility in menu pricing has been vital to gain prominence as a value player. Further, BKI has set up most of its supply chain from scratch to avoid paying premium to existing QSR vendors. This has led to gross margin expansion of 460bps to 64.5% over the last 5 years.

* Value proposition along with premiumisation: BKI is positioned as value-focused. It deliberately and with efforts, ensured a strong presence in value segment. We believe it will continue to focus on value, and, at the same time, will be communicating to consumers about its premium range of Whopper and King’s Collection.

* Chained players to grow fastest in the Indian food service market: We believe outperformance of the chained market in India will be driven by category formalization, store network expansion by chained players, and rising consumer preference for new cuisines and branded offerings. Within the overall chained market, chained QSR is likely to grow even faster at 23% CAGR over FY20-FY25P.

* Consumer trends likely to drive QSR growth: We note that both the frequency and the average spend by the younger population is higher as compared to consumers over 35 years of age. QSR players have been focusing on providing a proposition that caters to youth in the 15-34 age group (34% of total Indian population).

* Valuation and risks: We model revenue / EBITDA CAGR of 21% / 36% over FY20- 24E. Initiate at BUY with a DCF-based target price of Rs200. Key downside risks are delays in store expansion plans and increased competitive intensity in north and east markets.

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