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Valuation play

Barbeque-Nation (BARBEQUE) is among the few scalable casual dining players with a healthy store economics and net cash balance sheet. In the last one year, weak macro has adversely impacted SSSG earnings. Management has rationalized the store and with a steady CFO, it is well-positioned to comfortably manage 15-20% growth through internal funding once the market recovers. At EV/Sales of 1.4x and EV/EBITDA of 14x on FY26E, it is the lowest in the retail space, offering a better risk reward opportunity.

Management’s rational approach

Over the last few quarter, macro headwinds have had an adverse impact on SSSG (average at -6%). Taking cognizance of the weak environment and sluggish ADS, the company had decided to pause new store additions in FY24 and is redirecting its focus toward optimizing store economics by closing down unprofitable stores (closed 19 stores in last 12 months). We expect the company to resume its target of adding 25-30 stores across formats from FY25 onwards, on the back of recovery in the demand environment.

Steady store economics

BARBEQUE is among the few scalable casual dining players, with a robust brand that deeply connects with consumers. Its healthy store economics, marked by an ADS and revenue/store of INR160k/INR58m per store, contribute to achieving a 20-22% store-level EBITDA margin with a payback period of three years. This is due to its right product-pricing strategy, appropriate store size of 4,500 sqft (rationalizing further to 3,500-4,000 sqft) and standardized product, which is difficult to scale in the casual dining. Even amidst the current weak environment, it’s expected to achieve 12-16% restaurant EBITDA margin. Similarly, formats such as SALT and Toscano demonstrate similar strong store economics.

Growth from internal accruals

BARBEQUE has a strong cash flow and a healthy debt-free balance sheet that should help drive growth without any external capital. We expect it to generate INR760m CFO in FY24, and INR1.5b in FY25 which should comfortably suffice for ~15% store adds, i.e., 30-40 store adds, (Capex INR28m/store) even in a down cycle. Out of 30-40 store adds target, BARBEQUE India would be adding around 15-17 stores, BARBEQUE international ~3-4 stores, Toscano/SALT ~5 stores each and the remaining in Fiesta. The company has now 4 formats in CDR/FDR viz., BARBEQUE (India and International), Toscano, SALT, Fiesta (covering existing BARBEQUE format). Additionally, it has embraced a delivery channel representing 15% of sales delivery channel - UBQ and Dum Safar. Both India and international formats should grow independently through internal accruals.

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