Barbeque Nation IPO analysis!

Barbeque Nation is set to raise up to Rs 453 crore via IPO which opens on 24th March, Wednesday. Here are the details:

About Barbeque Nation

• Barbeque Nation Restaurants pioneered the format of ‘over the table barbeque’ concept in Indian restaurants. Barbeque Nation’s fixed price ‘all you can eat’ concept offers customers a varying spread of good food at a value-oriented price in a pleasant and casual dining environment. 
• “Barbeque-in-a-Box,” which was launched in June 2020, provides a wide range of starters, main course and desserts. This is in addition to two other products, “Grills in a Box” and “Meals in our Box”.
• The company has grown its network from a single restaurant in 2008 to 147 Barbeque Nation Restaurants across 77 cities in India and six overseas outlets in three countries outside India as of December 31, 2020.
• Barbeque-Nation Hospitality Ltd also owns and operates Toscano Restaurants and UBQ by Barbeque Nation Restaurant.
•  The company has recently diversified into another brand 'Red Apple' which operates 10 Italian restaurants in 2 cities of India i.e. Bengaluru and Chennai. 
• The company has increased its online presence significantly. In FY20 and the 8 months ended November 30, 2020, over 46.7% and 60.8% of total reservations at Barbeque Nation Restaurants were made online. Also, as of December 31, 2020, BBQ App had registered over 2.2 million downloads.
• Despite Barbeque Nation Hospitality is backed by private equity investor CX Partners and renowned stock market investor Rakesh Jhunjhunwala’s investment firm Alchemy Capital.

Peers

• Barbeque Nation operates in a very competitive market. Listed comparables for Barbeque Nation include Westlife Development, (which holds the master franchise for McDonald’s in West and South India), Jubilant Foodworks, (which holds the master franchise for Domino's Pizza and Dunkin' Donuts), Burger King and Speciality Restaurants. Some non-listed competitors are KFC, Subway and Pizza Hut, besides local restaurants in the segment. 
• While the DHRP does not mention market share, Barbeque Nation’s revenue was in the same ballpark range of Rs 850 crore in FY20, similar to Burger King. Burger King has a 5% share in terms of revenue. The table below shows a comparison with listed peers.
• As shown in the table below, Barbeque Nation has a negative EPS and RoNW for FY20, similar to its listed peers. Only Jubilant Foodworks has reported positive bottomline and RoNW in the previous fiscal.

Important highlights

• The average bill size (excluding taxes) for Barbeque Nation Restaurants owned and operated by them in India was ₹3,249 and ₹2,757 in FY20, and in the 8 months ended November 30, 2020.
• As of December 31, 2020, they had 7,298 full-time employees in the company.
• Proceeds of the issue will be utilised to fund the company’s capital expenditure for expansion (Rs 55 crore), besides prepayment or repayment of certain borrowings (Rs 75 crore) and expenses related to general corporate purposes.
• Barbeque Nation had done a pre-IPO placement in December 2020/January 2021 at Rs. 252 per share of Rs. 5 face value and now for IPO it is asking for a price of Rs. 498 - Rs. 500. This has raised concerns. 

Financials

• The revenues have grown from Rs 586 crore in FY18 to around Rs 847 crore in FY20, at a CAGR of 20.18%. However, the business has been severely impacted due to Covid-19 disruptions, as the revenue fell to Rs 201 crore in the first eight months of FY21.
• The company has reported an EBITDA margin in the range of 9-14% in the last three years. IN 8MFY21, the EBITDA margin is negative. 
• For the last three fiscals, the company has (on a consolidated basis) posted an average negative EPS of Rs. - (11.12) per share and an average RoNW of - (288.68)%. 
• The delivery business has expanded and grown from 3% of revenues pre Covid-19 to 15% of revenues in November 2020.
• The company has reported positive cash flow from operations in the last three fiscals.
• As at the end of the previous fiscal, Barbeque Nation has a total debt of around Rs 206 crore. This is higher compared to its peers. As of November 2020, the company’s net debt was ₹148 crore.

About the issue

Issue open: 24th Mar 2021- 26th March 2021

Price band: ₹498- ₹500 per share

Issue Size: Rs 453 crore, out of which Fresh Issue of Equity shares aggregating upto Rs 180 Cr and Offer for sale of upto 5,457,470 equity shares

Reservation for QIB  75% , Retail -10%, Non institutional Investors -15%

Bid lot: 30 shares, and in multiples of 30 shares

Post issue market cap ₹1,877 crore

INDmoney Recommendation

At the higher end of the price band, Barbeque Nation IPO is priced at a negative P/BV and P/E ratio. Considering its post-IPO NAV of Rs. 83.92, the issue is priced at an aggressive P/BV of ~5.95. The company’s return ratios are worse as compared to peers. Further, the Covid-19 pandemic has hurt the company’s performance in 8MY21. Promoter pledge (Rs 24.6 crore), insolvency proceedings and OFS by promoters in IPO (2.03mn shares), are also some other concerns. 

On the positive front, the company has good scope of expansion given low penetration, the delivery business has delivered robust growth, and good value proposition with niche positioning in the high growth casual dining segment.

As is the case this IPO season, good businesses are getting valued at expensive valuations. Given the IPO euphoria and positive sentiment around its marquee investors, the issue could see healthy subscription and listing gains. Hence, we remain positive on the prospects of the issue from listing gains point of view.