Buy Restaurant Brands Asia Ltd for the Target Rs.135 by Motilal Oswal Financial Services Ltd
Exciting India print; Indonesia’s progress awaits
* Restaurant Brands Asia (RBA) posted India revenue growth of 13% YoY (inline), led by a 14% YoY rise in store additions. The same-store sales rose 2.6%, led by healthy traction across both the channels and value offerings. RBA’s outperformance has continued at a time when peers have been struggling during the last 6-8 quarters. RBA plans to launch new limitedtime offers every quarter to drive customer engagement and strengthen its premium offerings.
* In 1QFY26, India GM remained flat both YoY and QoQ at 67.7% (est. 68%). The RM inflation has been offset through supply chain efficiencies. We model ~68-68.5% GM for FY26 and FY27. RBA aspires to achieve a 70% GM level by FY29. India ROM (pre–Ind AS) increased 23% YoY to INR536m. Margins expanded 80bp YoY to 9.7%. EBITDA (Pre-Ind-AS) rose 29% YoY to INR225m. Margins expanded 50bp YoY to 4.1%. RBA plans to continue enhancing delivery profitability by optimizing pricing, improvising its menu, and cutting fixed costs such as utilities.
* Indonesia’s revenue dipped 7% YoY, hit by geopolitical crises and store closures (4 BK store closures in 1QFY26). Indonesia BK ADS grew 2% YoY. Indonesia ROM (pre-IND AS) was INR2mn in 1QFY26 vs. a loss of INR27m in 4QFY25 and a profit of INR25m in 1QFY25. In Indonesia, the company has no store expansion plans for either Burger King or Popeyes.
* Consolidated revenue was up 8% YoY to INR6.97b led by a healthy India business, while the Indonesia business continued to be a laggard. Consol. reported EBITDA (post-IND-AS) rose 15% YoY to INR755m and the margin improved 60bp YoY to 10.8%. High operating costs and interest expenses led to a consolidated loss of INR454m.
* With its focus on improving store unit economics in India and sustaining store rollouts, the India story appears very promising. The company has outperformed other dine-in peers on all fronts in FY25, and we expect this trend to continue in FY26 as well. Indonesia is seeing early green shoots, and we need to monitor the trend in the near term to see the recovery. The company is taking several initiatives to control costs in Indonesia to cut down the losses. We reiterate our BUY rating with a TP of INR135. We value India at 30x Jun’27E EV/EBITDA (pre-IND-AS) and Indonesia EV at INR5b (based on ~0.75x EV/sales FY27E).
India delivers ~3% SSSG; Indonesia continues to see store rationalization
India business
* India SSSG up 2.6% - The India business revenue rose 13% YoY to INR5.5b (est. INR5.5b), led by 14% YoY store addition. Same-store sales growth was 2.6% (est. 2.5%), led by consistent growth across dine-in & delivery channels. The India business ADS rose 1% YoY to INR120k. The company added six stores in 1QFY26 in India, taking the total store count to 519 stores. The BK Café store count reached 482 stores (93% of total BK stores).
* Margin expansion – India GP was up 13% YoY to INR3.7b (est. INR3.7b), and the margin remained flat YoY and QoQ at 67.7%, backed by supply chain efficiencies. India ROM (pre-Ind-AS) increased 23% YoY to INR536m. The margin expanded 80bp YoY to 9.7% (est. 10.3%). EBITDA (Pre-Ind-AS) rose 29% YoY to INR225m; the margin expanded 50bp YoY to 4.1%. EBITDA (Post-Ind-AS) up 21% YoY to INR745m (est. INR772m) and the margin expanded 90bp YoY to 13.5% (est. 14.0%).
* Higher operating costs and interest led to a loss in the India business to INR116m in 1QFY26 (est. loss of INR 174m).
Indonesia business continues to see store rationalization
* Indonesia revenue declined by 7% YoY to INR1,454m due to store rationalization (6% YoY dip in BK store count) and geopolitical headwinds.
* BK’s ADS was up 2% YoY at IDR19.7m
* The company closed four BK stores during the quarter (139 BK stores/25 Indonesia Popeyes stores).
* Indonesia GP declined 3% YoY to INR825m with gross margin expanding 210bp YoY to 56.7% (56.5% in 4QFY25).
* EBITDA (post IND AS) was INR10m in 1QFY26 vs. a loss of INR5m in 4QFY25 and a profit of INR33m in 1QFY25.
* Indonesia ROM (pre-IND AS) was INR2m in 1QFY26 vs. a loss of INR27m in 4QFY25 and a profit of INR25m in 1QFY25.
* There was an operating loss (Pre-Ind-AS) of INR106m vs. a loss of INR89m in 1QFY25.
Consolidated business
* Consol revenue increased 8% YoY to INR6.97b led by healthy India business performance, while Indonesia business continued to be a laggard.
* Consol GP was up 9% YoY to INR4.6b, and margin expanded 90bp YoY and 10bp QoQ to 65.4%.
* Consol reported EBITDA (post-IND-AS) rose 15% YoY to INR755m and margins improved 60bp YoY to 10.8%.
* High operating costs and interest costs led to a consolidated loss of INR454m.
Key takeaways from the management commentary
* In 2Q, RBA expects a vegetarian-skewed demand given Hindu festivities such as Shravan, Shradh, and Navratri, which they see positively as vegetarian offerings have higher margins.
* RBA plans on launching a new limited-time offer every quarter to drive customer engagement and strengthen its premium offering, as the Korean burgers are selling at INR200, and they continue to perform really well.
* BK plans to open 60-80 new restaurants every year and plans to have 800 restaurants by FY29, up from the current 519 restaurants.
* The company aspires to achieve a 70% gross margin level by FY29; the current GM stands at 67.7%.
* In Indonesia, the company has no plans for store expansion for either Burger King or Popeyes, instead prioritizing profitability by strengthening its dine-in business and optimizing the store portfolio.
Valuation and view
* 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 (519 stores by 1QFY26), leading to strong store-led growth. BK Café and cost efficiencies are likely to be key growth and margin drivers 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 non-performing stores.
* We reiterate BUY with a TP of INR135. We value India at 30x Jun’27E EV/EBITDA (pre IND AS) and Indonesia EV at INR5bn (~0.75x EV/sales FY27E). Quarterly Standalone Performance (
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412
