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* Barbeque Nation (BBQN) delivered flat revenue growth in 3QFY24, led by 5% YoY decline in same-store-sales. Weak demand continues to adversely impact the growth metrics; similar trend witnessed across brands/formats. Dine-in revenue was flat, while delivery was up 5% YoY.

* GM was healthy at 68% (+120/200bp YoY/QoQ) and support the overall operating performance. Despite the challenging growth trajectory, operating margin improved by over 100bp YoY. However, PBT margin at ~2% is still much lower than QSR players.

* The management is looking to add 25-30 stores in FY25, despite a sluggish demand environment.

* BBQN’s current valuations at 16.7x FY25E and 13.1x FY26E pre-Ind AS EV/EBITDA are comfortably positioned. However, we are watchful of BBQN’s operating margin profile in FY25 amidst the existing challenging environment. We reiterate our Neutral rating on the stock, with a TP of INR675, based on 15x FY26E Pre Ind-AS EV/EBITDA.

Sluggish industry demand

Weak SSSG: BBQN sales was flat YoY at INR3.3b in 3QFY24 with a 2% YoY store growth. Delivery channel (14% of sales) grew 5% YoY to INR473m, led by Dum Safar. The dine-in channel (86% of sales) exhibited a stable YoY performance.

Digital KPIs: Cumulative App downloads stood at 6.5m vs. 6.3m in 2QFY24 and 5.4m in 3QFY23. Own digital asset contribution stood at 26.7% vs. 29.6% in 2QFY24 and 27.6% in 3QFY23.

Store addition: The Company added 8 stores and closed 4 stores, leading to the total count of 216 stores. Out of 216 stores, BBQN has 186 stores (closed 2 stores), 8 international BBQN stores, 16 Toscano and 6 Salt outlets. Stores in metro and tier-1 cities accounted for 168 stores and tier 2/3 accounted for 48 stores.

Better-than-expected margins: GM expanding 120bp YoY to 68%, improved QoQ by 200bp. EBITDA grew 7% YoY to INR663m. EBITDA margin expanded 110bp YoY to 20.2%. (est. 16.5%). Pre-Ind AS EBITDA increased 8% YoY to INR379m in 3QFY24; margin up 70bp YoY to 11.4%.

PBT margin at 2%: PBT was down 16% YoY to INR75m. PBT margin was at 2.3% vs. 2% in 3QFY23. BBQN reported a profit of INR48m.

Weak 9MFY24 performance: Sales remained flat at INR 9,565 and EBITDA declined 17.4% to INR1,574m. Adj. loss came in at INR111m.

Highlights from the management commentary

* Revenue growth has been negatively impacted by a 4.9% decline in same-store-sales, slower store expansion, and network rationalization.

* The EBITDA margin expansion of 110bp is due to the benefits derived from GP margin expansion, rationalization programs, cost initiatives, and the benefits of operating leverage.

* Currently, 5 restaurants are under construction and 10 more are in an advanced stage of the pipeline. The management expects to open 25-30 new stores in FY25.

* In FY25, capex would be ~INR800-900m, including the maintenance operation. The capex requirement will be financed by the company internally. Cash generation amounted to INR380m in 3QFY24 and INR800m in 9MFY24 vs INR1,050m in 9MFY23.

Valuation and view

* We broadly maintain our estimates for FY25E and FY26E.

* BBQN’s PBT margin profile is weaker than QSR players. Thereby, despite a  comfortable position on valuation, we are watchful of operating margin delivery in FY25.

* BBQN’s current valuation stands at 16.7x FY25E and 13.1x FY26E pre-Ind AS EV/EBITDA. We reiterate our Neutral rating on the stock with a TP of INR675, based on 15x FY26E Pre Ind-AS EV/EBITDA.

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