IPO Analysis: Barbeque Nation

IPO rating- Invest for long-term gain

About the issue 

The casual dining restaurant chain, Barbeque Nation is coming out with its initial public offering (IPO) of equity shares of the face value of Rs 5 each. The public issue comprises a fresh issue of equity shares worth Rs 180 crore and offer-for-sale (OFS) of up to Rs 272.87 crore. The price band of the issue has been fixed at Rs 498 to Rs 500 per equity share. The IPO opens on March 24 while it closes on March 26, 2021. The issue may list on April 7, 2021. The IPO market lot size is 30 shares. A retail-individual investor can apply for up to 13 lots (390 shares or Rs 1,95,000). The quota for retail investors in Barbeque Nation's initial public offering (IPO) has been fixed at 10 per cent of the net offer. The qualified institutional bidder (QIB) quota is fixed at 75 per cent while the non-institutional bidder (NII) quota at 15 per cent. The objective of the offer is to make prepayment/repayment of all, or a part of the company's outstanding borrowings availed on a consolidated basis and also, to meet general corporate purposes. 

About the company 

Barbeque Nation (BBQ Nation) is one of the leading casual dining restaurant chains in India. It offers the best quality of food offerings, ambiance, and services to customers. It also owns & operates Toscano restaurants and UBQ by Barbeque Nation that caters to the delivery segment. The first BBQ Nation restaurant was established in 2008 and as of December 30, 2020, its network has steadily grown to 147 outlets in 77 cities of India along with 7 international restaurants in three countries outside India. The company has recently diversified into another brand namely, Red Apple, which operates ten Italian restaurants in two cities of India i.e. Bengaluru and Chennai. The company is promoted by Sayaji Hotels, Sayaji Housekeeping Services, Kayum Dhanani, Raoof Dhanani & Suchitra Dhanani and is backed by CX Partners, which made its first investment in 2013 and again in 2015. Rakesh Jhunjhunwala's investment firm, Alchemy Capital holds a 2.05 per cent stake in the company.  

Competitive strengths 

One of India's fastest-growing restaurant brands. 

Healthy financial position with a proven track record of revenue growth. 

The company has an attractive offering based on constant menu innovation and customer focus. 

The company has strong business processes and back-end systems that have been established over the past 14 years, leading to efficient operations. 

Financials 

Considering the short financial history, Barbeque Nation Hospitality continued to report losses in every financial year since FY19, though revenue has been increasing during the same periods. The company reported a consolidated loss at Rs 32.93 crore on revenue of Rs 846.97 crore in FY20 along with a loss at Rs 21 crore on revenue of Rs 742 crore in FY19. For the nine-month period ended December 2020, it posted a loss of Rs 99 crore on revenue of Rs 237 crore, largely impacted by the COVID-19 pandemic. However, at the operating level, its performance remained better with EBITDA at Rs 149.39 crore, Rs 168 crore, and Rs 12.59 crore in FY19, FY20, and in the nine-month period ended December 2020. 

Fig. in crore 

Valuation & recommendation  

Barbeque Nation is one of India’s fastest-growing and widely recognised restaurant brands. As the COVID-19 pandemic made the transition to online inevitable for all companies, Barbeque Nation, which is famous for its dine-in business, jumped into the online delivery model. The company launched a new concept of ‘Barbeque in a box’ for delivery. The delivery business has seen a good response and is growing.  The company intends to increase same-store sales growth, revenue per store, and profitability as the vintage of Barbeque Nation restaurants increases, continue expansion in Indian cities, preserve customer and team-focussed culture and values. The listed peers of Barbeque Nation Hospitality Ltd are Jubilant FoodWorks Ltd, Westlife Development Ltd, Speciality Restaurants Ltd, and Burger King India Ltd. The company is going to list at Mcap-to-sales (FY20) of 2.41 times with a market cap of Rs 1,877 crore. Meanwhile, Burger King and McDonald's have Mcap-to-sales (FY20) of 6 and 4.5, respectively. The IPO is priced at an attractive valuation as compared to listed players in the chain restaurants. Moreover, the company has shown excellent growth in the last 5 years. The COVID-19 scare, which was the biggest dampener for the restaurant business in FY20-21 is slowly fading away with a greater number of people getting vaccinated. The entry of Jubilant FoodWorks as an investor will augur well for the company in the future, considering the kind of reach and management prowess they have. Barbeque Nation Hospitality is backed by private equity investor, CX Partners and the renowned stock market investor Rakesh Jhunjhunwala's investment firm, Alchemy Capital. Looking at the above positives, we believe that the company will keep growing its business at a healthy rate, and hence, you can invest for long-term gain.