Barbeque Nation: Should you invest in casual dining company’s IPO?

The company is backed by private equity investor CX Partners and Alchemy Capital, billionaire investor Rakesh Jhunjhunwala's investment firm

Staff Writer   /   March 24, 2021

Barbeque Nation is another Rakesh Jhunjhunwala backed company doing IPO, after gamng company Nazara Technologies. The Rs 453 crore public offer opens on March 24. Should you buy? Here is all the information you would need.

IPO key details

Issue opens – Mar 24 (Wednesday)
Issue closes – Mar 26 (Friday)
Issue size – Rs 453 crore
Price band – Rs 498 – 500 per equity share
Bid lot – 30 shares and in multiples thereof
Book Running Lead Manager: IIFL Securities Limited, Axis Capital Limited, Ambit Capital Private Limited, SBI Capital Markets Limited
Registrar to issue: Link Intime India Private Limited

About Barbeque Nation

Barbeque Nation Hospitality Ltd (BNHL) owns and operates Barbeque Nation Restaurants, a leading casual dining restaurant chains and International Barbeque Nation Restaurants. It also owns and operates Toscano Restaurants and UBQ by Barbeque Nation Restaurant. It has 147 Barbeque Nation Restaurants (including opened, temporarily closed and under construction outlets) across 77 cities in India and six International Barbeque Nation Restaurants in three countries outside India as of December 31, 2020.

IPO proceeds usage

Initial public offer of equity shares aggregating up to Rs 1.8 billion (bn) and an offer for sale of up to 5.5 million (mn) shares by CX Investor, AAJV Investor, SHKSL, Sadiya Dhanani, Sanya Dhanani and Azar Dhanani.

Proceeds of the public offer are proposed to be utilized for (i) Capex to the tune of Rs 54.6 crore for opening new restaurants in India (ii) Pre-payment/repayment of certain outstanding borrowings worth Rs 75 crore.

CX Advisors is offloading 10% through offer for sale, post which its holding will stand at 16.5%.

Jubilant Foodworks is a pure play financial investor but it is also a key strategic player in the industry. While there is no commitment from either side, both parties will see how the partnership pans out once things settle down.

IPO factbox:

CompanyBarbeque Nation Hospitality
Face value₹5 per equity share
Open dateMar. 24
Close dateMar. 26
Allotment dateApr. 1
Listing dateApr. 7
IPO size ₹453 crore approx.
IPO band₹498 to ₹500 per equity share
Bid lot30 shares


Store expansion plan

The company has opened 70 stores in the last 3 years and plans to open 20 new stores in FY22. Going ahead, 70% of store openings would be in existing metro/tier-I markets and 30% in new markets.

Each outlet requires capex of Rs 2.5-2.7 crore. Average revenue per mature store stands at Rs 7 crore. Gross margin stands at 65-66%.

The company has closed two international restaurants since FY18 due to commercial reasons. The company is not planning to add any new outlets in the international markets as of now.

USP of company

Barbeque Nation generates 50% of its revenue during weekdays (Monday-Thursday). Lunch covers as a % of revenue at Barbeque Nation stand at ~45%.

For the company, 85% contribution came from dine-in & 15% from delivery. Management does not believe that delivery can significantly replace dine-in as the experience that the latter offers can’t be packed in a box.

The company’s pricing strategy is dynamic. In metros, the average per cover (APC) is Rs 900 whereas in tier-II/tier-III towns it is Rs 650.

Average bill size is about Rs 2,900-3,000.

The rent-to-revenue ratio for the company is low compared to other brands at 10%. Employee cost forms 20% of sales and other expenses form 10-12%, resulting in a store level EBITDA margin of 3% at maturity. Depending on store location, breakeven happens within 2-4 months. Payback period at the restaurant level is 3 years.

Concerns

The company has been posting losses since FY19.

For the first eight months of FY21, the company has posted a loss of Rs 100 crore.

The IPO is priced nearly double against pre-IPO placement a few months before.

Resurgence of pandemic scare and their effect looms large.

Question mark over promoter group track record in terms of scale-up, as seen in Sayaji Hotels.

Valuations

Prabhudas Lilladher said the stock at 46 times FY23 EPS offers limited upside.

“Commenting on the price & valuation of the pre-IPO placement, the management stated that they were not fussy about valuation or stake dilution while raising equity since the industry was going through liquidity crunch and was in a difficult spot,” says Nirmal Bang Institutional Research that attended Barbeque-Nation Hospitality Ltd IPO Analyst Meet.

Pre-IPO fund raise

Casual dining chain Barbeque Nation Hospitality announced on Tuesday that it has raised Rs 203 crore from anchor investors ahead of its IPO.

The company’s IPO committee has decided to allocate 40,57,861 shares at Rs 500 apiece to 21 anchor investors. At this price, the company raised Rs 202.89 crore, according to a statement.

The anchor investors include Goldman Sachs India Ltd, Nomura Funds Ireland Public Limited Company, Fidelity Investment Trust, SBI Mutual Fund (MF), ICICI Prudential MF, Kotak MF, Aditya Birla Sunlife MF, HDFC MF, HDFC Life Insurance Company, Kuber India Fund, Pioneer Investment Fund and UPS Global Trust.

Analyst views

“Company is targeting a market cap of Rs 18.8bn post-issue which equates to 12.2x FY20 EV/EBITDA and 2.2x P/S, which is significantly lesser than QSR peers like Westlife and Burger King. But given the highly capital intensive and more volatile dine-in business model, we believe the discount is justified. Moreover, given the recent pre-IPO allotment in December and January was done at 50% less than IPO price and COVID concerns have again come back which would be a near term headwind for the space, the pricing looks on the higher side with not a lot left on the table for investors. We also note that earlier fund raises in 2018 have been done at a much higher price, but fundamentals have deteriorated since. Despite a strong growth outlook for the space (18% expected industry CAGR) and strong brand equity for the company which should help market share gains, we would advise avoiding the IPO and awaiting better entry opportunities post listing, ” says Yes Securities.

Angel Research says: “While the company has posted revenue growth of 20% CAGR between FY18-FY20 it has been continuously incurring losses at PAT level despite topline growth. The Covid-19 pandemic too has had an adverse impact on the operations of the company hence we expect profits will remain under pressure over the medium term. At the higher end of the price band the company is asking for a valuation of 2.4x FY20 EV/Sales which we believe is expensive given the current environment and hence we recommend a NEUTRAL rating to the IPO.”

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