Accumulate Restaurant Brands Asia Ltd For Target Rs.87 by Prabhudas Liladhar Capital Ltd
Demand revival, cost control key to turnaround
Quick Pointers:
* 1QFY25 SSG at 2.6%, focus on innovations across Burgers and café
* Indonesia business sees recovery in dine-in footfalls as geopolitical impact eases off
Restaurant Brands Asia (RBA) posted 2.6% SSG in Q1 led by focus on value proposition led by healthy store traffic with ADS of 120k. Adj loss at Rs116mn went up due to higher manpower cost and overheads partly neutralized by higher other income from 57mn to Rs276mn. Indonesia business reported 6.9% decline in sales however green shoots in demand recovery are visible with stabilizing geopolitical scenario and end to rationalization of stores. RBA’s India strategy is centered around 1) Value focus with combos (2 veg Burgers at Rs79, Chicken at Rs99, and Café at Rs99) 2) digital driven ordering 3) cost reduction in delivery business 4) control over overheads and 5) gradual increase in ADS of Café business from current levels of Rs13k led by innovation and combo offerings. Indonesia is focusing on 1) zero store openings 2) lowering of overheads 3) menu innovations in chicken with focus on local flavors and driving efficiencies in procurement by leveraging Indian operations.
We estimate India business to turn PBT from operations positive by FY28 only. Near term outlook looks cautiously optimistic as demand revival and cost control hold key to improving margins. Retain Accumulate with SOTP based target price of Rs87 with back ended returns.
India Revenues grew by 12.6% YoY to Rs5.5bn (PLe: Rs6.0bn) Gross margins expanded by 6bps YoY to 67.7% (Ple: 68.4%). EBITDA grew by 9% YoY to Rs681.1mn (PLe:Rs851mn); Margins contracted by 41bps YoY to 12.3% (PLe:14%). Adj. losses came at Rs115.7mn (PLe: loss of Rs104mn). mainly supported by sharp increase in other income from 57mn to Rs276mn. But for an increase in other income, losses would have increased by another 20%. SSG came at 2.6% YoY.
Indonesia Revenues declined by 6.9% YoY to Rs1.5bn. Gross margins expanded by 1018bps YoY to 64.8%. EBITDA up by 2516.5% YoY to Rs163.8mn. Adj losses came at Rs221.4mn in 1QFY26 vs Rs252mn in 1QFY25 as demand sees green shoot
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