Buy Restaurant Brands Asia Ltd for the Target Rs. 120 by Motilal Oswal Financial Services Ltd
India sees steady performance; Indonesia remains gloomy
* Restaurant Brands Asia (RBA) posted revenue growth of 16% YoY for its Indian business (in line), led by a 15% YoY rise in store additions. Same-store sales rose 2.8%, led by healthy traction across both the channels and value offerings. RBA witnessed a strong performance in October following the GST rate reduction and a healthy festive season. Management remains confident of a robust 3QFY26 performance.
* In 2QFY26, its Indian business GM expanded 80bp YoY and 60bp QoQ to 68.3%, backed by changes in the menu mix and supply chain efficiencies. We model ~68-68.5% GM for FY26 and FY27. RBA aspires to achieve 70% GM by FY29. India ROM (pre-Ind AS) expanded 14% YoY to INR592m, while margins contracted 20bp YoY to 10.4% (est. 10.2%). EBITDA (Pre-Ind AS) rose 16% YoY to INR284m, while margins remained flat YoY to 5%. RBA remains focused on enhancing delivery profitability by optimizing pricing, improvising its menu, and cutting fixed costs such as utilities.
* In 2QFY26, its Indian business GM expanded 80bp YoY and 60bp QoQ to 68.3%, backed by changes in the menu mix and supply chain efficiencies. We model ~68-68.5% GM for FY26 and FY27. RBA aspires to achieve 70% GM by FY29. India ROM (pre-Ind AS) expanded 14% YoY to INR592m, while margins contracted 20bp YoY to 10.4% (est. 10.2%). EBITDA (Pre-Ind AS) rose 16% YoY to INR284m, while margins remained flat YoY to 5%. RBA remains focused on enhancing delivery profitability by optimizing pricing, improvising its menu, and cutting fixed costs such as utilities.
* Indonesia’s revenue dipped 4% YoY, hit by geopolitical crises and store closures (3 BK store closures in 2QFY26). Indonesia BK ADS grew 7% YoY. Indonesia ROM (pre-IND AS) witnessed a loss of INR63mn in 2QFY26 vs. a loss of INR67m in 2QFY25 and a profit of INR2m in 1QFY26. The loss was mainly due to higher promotional spends. Adjusted for this, margins were slightly positive. In Indonesia, RBA has largely concluded the rationalization of BK stores but does not plan to pursue expansion plans for Popeyes at this stage.
* Consolidated revenue rose 11% YoY to INR7b, led by a healthy performance in the Indian business, while the Indonesian business continued to be a laggard. Consolidated reported EBITDA (post IND AS) rose 24% YoY to INR762m, and margins expanded 110bp YoY to 10.8%. High operating costs and interest costs led to a consolidated loss of INR633m.
* RBA’s continued emphasis on improving store unit economics in India and sustaining store rollouts positions its Indian business for strong growth. The company has outperformed other dine-in peers on all fronts in FY25, and we expect the company to continue delivering a strong performance in FY26. RBA opened 20 stores in 1HFY26 and plans to reach 580 stores by the end of FY26 and 800 stores by FY29. Indonesia experienced some geopolitical turbulence towards the end of 2Q, but conditions have since normalized. The trend will need to be monitored in the near term to assess the recovery. The company is taking several initiatives to control costs in Indonesia and cut down on losses. We reiterate BUY with a TP of INR120. We value India at 25x Sep’27E EV/EBITDA (pre-IND AS) and Indonesia EV at INR5b (~0.7x EV/sales Sep’27E).
India delivers ~3% SSSG; Indonesia performance remains subdued
India business
* India SSSG rose 2.8%: The Indian business revenue rose 16% YoY to INR5.7b (est. INR5.6b), led by 15% YoY store additions. Same-store sales growth was 2.8% (est. 2.5%), led by consistent growth across the dine-in and delivery channels. The Indian business ADS rose 1% YoY to INR119k. The company added 14 stores in 2QFY26 in India, bringing the total store count to 533 stores. BK Café’s store count reached 507 stores (95% of total BK stores).
* Margin expansion continues: India’s GP rose 17% YoY to INR3.9b (est. INR3.8), while margins expanded 80bp YoY and 60bp QoQ to 68.3%, backed by changes in the menu mix and supply chain efficiencies. India’s ROM (pre-Ind AS) increased 14% YoY to INR592m, while margins contracted 20bp YoY to 10.4% (est. 10.2%). EBITDA (Pre-Ind AS) rose 16% YoY to INR284m, and margins remained flat YoY to 5%. EBITDA (Post-Ind AS) rose 16% YoY to INR813m (est. INR794m). Margins expanded 10bp YoY to 14.3% (est. 14.1%). Higher operating and interest costs led to a loss of INR202m in the Indian business in 2QFY26 (est. loss of INR146m).
Indonesian business continues to witness store rationalization
* The Indonesian business revenue declined 4% YoY to INR1,348m due to store rationalization (7% YoY dip in the BK store count) and geopolitical headwinds. BK’s ADS rose 7% YoY to IDR18.1m. The company closed three BK stores during the quarter (136 BK stores/25 Indonesia Popeyes stores).
* Indonesia GP declined 2% YoY to INR767m, with gross margin expansion of 110bp YoY to 56.9% (56.7% in 1QFY26).
* EBITDA (post-IND AS) witnessed a loss of INR51m in 2QFY26 vs. a loss of INR87m in 2QFY25 and a profit of INR10m in 1QFY26.
* Indonesia ROM (pre-IND AS) faced a loss of INR63m in 2QFY26 vs. a loss of INR67m in 2QFY25 and a profit of INR2m in 1QFY26.
* EBITDA (Pre-Ind As) witnessed a loss of INR170m vs a loss of INR206m in 2QFY25.
Consolidated business
* Consol revenue rose 11% YoY to INR7b, led by healthy Indian business performance, while the Indonesian business continued to be a laggard.
* Consolidated GP rose 13% YoY to INR4.65b, and margins expanded 120bp YoY and 70bp QoQ to 66.1%.
* Consolidated reported EBITDA (post IND AS) rose 24% YoY to INR762m, and margins expanded 110bp YoY to 10.8%.
* High operating and interest costs led to a consolidated loss of INR633m.
Key takeaways from the management commentary
* RBA witnessed a strong performance in October following the GST rate reduction and a healthy festive season. Management remains confident of a strong 3QFY26 performance.
* Delivery channel revenue grew 15.6%, while profits rose 1%, as the company continues to drive restaurant traffic and focus on delivery and restaurant-level profitability.
* BK plans to open 60-80 new restaurants each year, targeting 800 restaurants by FY29 from its current count of 533 (20 stores opened in 1HFY26). RBA aims to reach 580 stores by FY26 end.
* BK continues to deliver steady performance. The 2Q performance was impacted for about a week and a half in September by geopolitical headwind, but management indicated that conditions have stabilized from October onwards.
* RBA has largely completed BK store optimization in Indonesia.
Valuation and view
* RBA added 20 restaurants in 1HFY26 and plans to expand to 580 restaurants by the end of FY26, up from the current 533. Further, it plans to open 60-80 new restaurants each year in India, targeting 800 restaurants by FY29, leading to strong store-led growth. BK Café and ongoing cost-efficiency measures are likely to be key drivers of growth and margins over the medium term. EBITDA margin is also expected to expand with higher dine-in traffic, improved traction/penetration of BK Café, and other cost-saving initiatives
* As more stores mature, improving the contribution of new outlets across the network is expected to support margin recovery. The Indonesian business should witness a gradual recovery as the company has rationalized its portfolio by closing non-performing stores. That said, we expect near-term challenges in Indonesia to sustain.
* We reiterate BUY with a TP of INR120. We value India at 25x Sep’27E EV/EBITDA (pre-IND AS) and Indonesia EV at INR5b (~0.7x EV/sales Sep’27E).
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