IGI Logo

Leading brand in fast-growing casual restaurant dining market

Barbeque Nation (BBQN) is one of the leading casual dining restaurant chains which pioneered the “live grill on the table” format. After starting in 2008, the company has now grown to 164 restaurants – 147 BBQ Nation stores in India, 6 international stores and 11 stores of Italian cuisine Toscano. The company has also entered the delivery segment by introducing “UBQ” providing a-la-carte Indian cuisine in the value segment and “Barbeque-in-a-Box” as one of their flagship delivery products. Promoted by Sayaji Hotels and the Dhanani family, key shareholders include CX Partners, Jubilant Foodworks, Xponentia and Alchemy.

Sales have recovered post pandemic but risks resurfacing again

The management has ensured a strong recovery post getting severely hit by the pandemic in 1HFY21 with sales recovering to 84% by November 2020. A key reason or this recovery has been the strong growth in the delivery business which now contributes about 15% to total revenue vs 3% in FY20. The company has updated their BBQ App to further strengthen its digital offering and also undertaken various cost optimization initiatives. A pre-IPO placement of Rs 1.5bn has helped in improving liquidity and ensured continuity of operations. A second wave of the pandemic remains a near-term operational risk for the company.

Future growth strategy centered around footprint and delivery expansion

While the concept is no longer a novelty, the company is focused on menu innovation and continuously improving guest satisfaction and experience to stay ahead of competition. A well-integrated customer reservation system helps in quality customer data analytics. Adding a loyalty program has increased repeat business while adding the delivery platform has helped increase restaurant throughput without significant additional costs. Given the Italian cuisine foray is still in its infancy (6% of revenue) and international foray (5% of revenue) has not yielded strong results, entire expansion will be in India only in the foreseeable future in addition to further ramping up the delivery business.

Operating leverage and debt repayment crucial for turning profitable

Despite relatively high EBITDA margins, the company has not yet turned profitable given the high depreciation and interest costs which have ballooned on account of aggressive store expansion. Margins have also been coming down due to losses in international stores in FY19 and COVID impact in FY20 and 8MFY21. Post the pre-IPO fund raise and IPO, debt should come down which can take the company close to profitability if pace of expansion is controlled. In last 3 years, store expansion CAGR has been higher than revenue CAGR indicating weak performance of new stores. Therefore, strong SSSG rates for stores opened in last 3 years is crucial for the company to reach its target of becoming profitable.

Some concerns on valuations in light of near-term headwinds

Company is targeting a market cap of Rs 18.8bn post-issue which equates to 12.2x FY20 EV/EBITDA and 2.2x P/S, which is significantly lesser than QSR peers like Westlife and Burger King. But given the highly capital intensive and more volatile dine-in business model, we believe the discount is justified. Moreover, given the recent pre-IPO allotment in December and January was done at 50% less than IPO price and COVID concerns have again come back which would be a near term headwind for the space, the pricing looks on the higher side with not a lot left on the table for investors. We also note that earlier fund raises in 2018 have been done at a much higher price, but fundamentals have deteriorated since. Despite a strong growth outlook for the space (18% expected industry CAGR) and strong brand equity for the company which should help market share gains, we would advise avoiding the IPO and awaiting better entry opportunities post listing.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632

Above views are of the author and not of the website kindly read disclaimer