Buy Restaurant Brands Asia Ltd for the Target Rs. 135 by Motilal Oswal Financial Services Ltd
Best performer in dine-in; cost initiatives drive margins
* Restaurant Brands Asia (RBA) posted a 12% YoY India revenue growth (inline), led by a 13% YoY increase in store additions. The same-store sales rose 5%, led by dine-in traffic growth and value offerings. The company remained an outperformer among the dine-in players.
* India GM was up 10bp YoY/ flat QoQ to 67.8% (est. 68.2). The RM inflation has been offset through supply chain efficiencies. We model ~68.0-68.5% GM for FY26 and FY27.
* India ROM (pre-Ind-AS) increased 51% YoY to INR516m. Margins were up 270bp YoY to 10.5%. EBITDA margins (Pre-Ind-AS) expanded 300bp YoY to 5.4%. EBITDA was up by 150% to INR266mn. RBA plans to continue enhancing its delivery profitability by optimizing its pricing, improvising its menu, and cutting fixed costs such as utilities.
* RBA’s Indonesia revenue declined 10% YoY, hurt by geopolitical crises and store closures (7 BK stores were closed in FY25). Indonesia BK is showing early signs of improvement as SSSG rose 2% YoY and ADS increased 5% YoY. Indonesia ROM (pre-IND AS) posted a loss of INR27m in 4QFY25 (vs. a profit of INR16m in 4QFY24 and a loss of INR70m in 3QFY25).
* RBA’s consol. revenue rose 6% YoY to INR6.3b. Consol. EBITDA (Pre-INDAS) margin expanded 280bp YoY to 2.3%. Reported EBITDA dipped 11% YoY to INR772m and margin contracted 240bp YoY to 12.2%. High depreciation (up 19% YoY) and lower other income (down 17% YoY) led to a consolidated loss of INR604m.
* With a focus on improving store unit economics in India and sustaining store rollouts, the India story looks very promising. The company has outperformed other dine-in peers on all fronts in FY25. Indonesia has seen early positive signs; we need to monitor the near-term trend to predict any recovery. The company is taking several initiatives to control costs in Indonesia to lower its losses. We reiterate our BUY rating with a TP of INR135. We value the India business at 30x FY27E EV/EBITDA (pre-INDAS) and Indonesia EV at INR5b (based on ~0.75x EV/sales FY27E).
India delivers 5% SSSG; Indonesia shows signs of improvement
India business
* India SSSG up 5%: The India business revenue rose 12% YoY to INR4.9b (est. INR5.0b), led by a 13% YoY store addition. The same-store sales grew 5.1% (est. of 3.4%), led by dine-in traffic growth and value offerings. The India business ADS was up 3% YoY to INR108k. The company added three stores in 4QFY25 in India, taking the total store count to 513. The BK Café store count reached 464 (90% of the total BK stores).
* Margin expansion: India GP was up 12% YoY to INR3.3b (est. INR3.4), and margin inched up 10bp YoY/flat QoQ at 67.8% as inflation was offset by supply chain efficiencies. India ROM (pre-Ind-AS) increased 51% YoY to INR516m. Margin expanded 270bp YoY to 10.5% (est. 10%). EBITDA (Pre Ind AS) jumped 151% YoY to INR266m; margin expanded 300bp YoY to 5.4%. EBITDA (Post-Ind-AS) was up 41% YoY to INR777m (est. of INR723m), and margin expanded 330bp YoY to 15.9% (est. 14.3%).
* Higher depreciation and interest led to a loss in the India business of INR254m in 4QFY25. (estimated loss at INR119m).
* In FY25, the India business delivered 1% SSSG, and revenue grew 12% YoY. EBITDA (Pre-Ind-AS) was up 32% YoY to INR994m.
Indonesia business – Showing signs of improvement
* Indonesia revenue declined by 10% YoY to INR1,428m due to store closures (4% YoY dip in BK store count) and geopolitical headwinds.
* BK’s ADS up 5% YoY at IDR18.5m
* The same-store sales grew 2% YoY (-4% in 3QFY25).
* The company closed four BK stores during the quarter (143 BK stores/25 Indonesian Popeyes stores).
* Indonesia GP declined 7% YoY to INR807m, with gross margin expansion of 190bp YoY to 56.5% (57.8% in 3QFY25).
* RBA posted an operating loss (Post-IND-AS) of INR5m in 4QFY25 vs. a loss of INR62m in 3QFY25 and a profit of INR320m in 4QFY24.
* Indonesia ROM (Pre-IND-AS) reported a loss of INR27m in 4QFY25 vs. a loss of INR70m in 3QFY25 and a profit of INR16m in 4QFY24.
* RBA posted an operating loss (Pre-IND-AS) of INR120m vs. a loss of 138m in 4QFY24.
* In FY25, Indonesia reported a revenue decline of 14% due to store rationalization and geopolitical headwinds. BK’s same-store sales declined 6% YoY due to geopolitical headwinds.
Consolidated business
* Consol. revenue was up 6% YoY to INR6.3b. Consol GP rose 8% YoY to INR4.1b, and margin expanded 100bp YoY, while it contracted 30bp QoQ to 65.3%.
* Consol. reported EBITDA (Post-IND-AS) was down 11% YoY to INR772m, and the margin contracted 240bp YoY to 12.2%.
* High depreciation (up 19% YoY) and lower other income (down 17% YoY) led to a consolidated loss of INR604m.
Key takeaways from the management commentary
* In FY25, dine-in traffic grew 9% YoY, backed by value offerings. Moreover, RBA clocked 3x growth in dine-in app transactions over FY24.
* The company has rolled out a new initiative called King's Journey. Significant investments in digital sales channels have resulted in 90% of dine-in orders at certain locations being placed through digital platforms, including self-ordering kiosks (SOKs) and the BK App.
* In Indonesia, the company has no plans for store expansion for both Burger King and Popeyes, instead prioritizing profitability by strengthening its dine-in business and optimizing the store portfolio.
* RBA launched an authentic Korean Spicy Fest, capitalizing on the culture and flavor trends – Korean Paneer Burger, Korean Chicken Burger, Korean Boneless Chicken, Korean Chicken Wings, and Korean Fries.
Valuation and view
* There are no material changes to our EBITDA estimates for FY26 and FY27.
* In FY25, the India business reported 1% same-store sales growth (SSSG), driven by a 9% increase in dine-in traffic and strong traction in value offerings. Unlike most QSR peers (barring JUBI), RBA delivered positive SSSG during the year.
* RBA’s store addition during the quarter remained slow; however, it plans to open 60-80 new restaurants every year in India and plans to have 800 restaurants by FY29 (513 stores by FY25), leading to strong store-led growth. BK Café and cost efficiencies are likely to be a key growth and margin driver over the medium term. EBITDA margin should also improve with the improvement in dine-in traffic, better traction/penetration of BK Café, and other cost-saving initiatives.
* As more and more stores mature, improving the contribution of new stores in the network would also support the margin recovery. The Indonesian business should also witness a healthy revenue growth and margin expansion in the medium term, as the company has rationalized its portfolio by closing the nonperforming stores.
* We reiterate our BUY rating with a TP of INR135. We value the India business at 30x FY27E EV/EBITDA (pre-IND-AS) and Indonesia’s EV at INR5b (based on ~0.75x EV/sales FY27E).
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