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Salient features of the IPO:

* Barbeque-Nation Hospitality Ltd. (BNHL), a casual dining restaurant chain is planning to raise up to Rs. 4,530mn through an IPO, which opens on 24th Mar. and closes on 26th Mar. 2021. The price band is Rs. 498 - 500 per share.

* The issue is a combination of fresh and OFS. The company will not receive any proceeds from the OFS part of the issue. Of the net proceeds from the fresh issue, Rs. 546.2mn will be utilized to fund the ongoing restaurant expansion and another Rs. 750mn will be used to prepay or repayment of the debt availed by the company. Residual funds will be used for general corporate purposes.

* BNHL has undertaken a pre-IPO placement of 5.951mn shares at a price of Rs. 252 per share, aggregating to Rs. 1,500mn. Consequently, the fresh issue size has got reduced from initial Rs. 3,300mn to Rs. 1,800mn.

Key competitive strengths:

* One of India’s fastest growing and widely recognized restaurant brands in the rapidly growing CDR market

* Steady growth in covers and consistent average per covers with a relatively high proportion of total revenues from weekday sales and lunch covers

* Attractive offerings based on constant menu innovation and customer focus

* Strong business processes and back-end systems leading to efficient operations

* Experienced staff and value-oriented business culture led by some of its promoters and senior management team bringing experience from well-known hospitality brands

* Proven track record of revenue growth

Risk and concerns:

* Re-emergence of the Covid-19 infection

* Poor customer spending and unfavorable business environment

* Delay in store expansion

* Inability to maintain profitability

* Competition

Peer comparison and valuation:

In FY20, BNHL was loss making at PAT levels. At higher price band of Rs. 500, the company is demanding an EV/Sales multiple of 3x (to its FY20 sales of Rs. 8,470mn), which is at discount to the peer average of 3.9x (excluding Jubilant Foodworks Ltd.).

Below are a few key observations of the issue: (continued in next page)

* The Chain Casual Dining Restaurant (CDR) market in India has been flourishing over the last few years. The Chain CDR segment is the second largest in the chain food services market in India after Quick Service Restaurant. In FY20, the size of the Chain CDR market is estimated at Rs. 134bn and is expected to grow at a healthy rate of 18% CAGR to reach the size of Rs. 302bn by FY25.

* In term of the restaurant counts as of 30th Sept. 2020, BNHL is one of the India’s leading casual dining restaurant chains. The company owns and operates Barbeque Nation Restaurants and International Barbeque Nation Restaurants. It also owns and operates Toscano Restaurants and UBQ. BNHL is the pioneer in the “over the table barbeque” concept in restaurants in India

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