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Burger King: Initiate coverage with ‘buy’ rating, TP of Rs 210

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Given that the unorganised segment has been severely affected by Covid-19, QSRs can make further gains due to their better hygiene standards and well-positioned alternate channels, especially delivery.Provided that the unorganised section has been severely affected by Covid-19, QSRs could make additional positive factors resulting from their higher hygiene requirements and well-positioned alternate channels, particularly supply.

Burger King India (BURGERKI) is among the youngest and quickest rising gamers in India’s fast service restaurant (QSR) sector. It’s targeted on establishing and working Burger King eating places throughout India. The model is globally fashionable for its signature product Whopper. BURGERKI presents its providers by way of 4 channels — dine-in, takeaway, supply and drive-thrus. We provoke protection with a ‘purchase’ ranking and a goal value of Rs 210.

Whopper of a possibility, massive shift in enterprise mannequin, aggressive enlargement: Provoke protection with ‘purchase’. BURGERKI presents an thrilling funding alternative within the Indian QSR house on account of the next components: The big Indian meals service business (FSI) is anticipated to ship 9% CAGR over the approaching years, and QSRs are finest positioned to faucet this chance. With their excessive affordability, aspirational branding, larger comfort, scale advantages, and technological edge, QSRs are anticipated to develop at 19% CAGR over FY20-25E. Provided that the unorganised section has been severely affected by Covid-19, QSRs could make additional positive factors resulting from their higher hygiene requirements and well-positioned alternate channels, particularly supply.

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BURGERKI’s “barbell” product technique with give attention to premiumisation on the prime finish and worth merchandise on the entry-level makes it well-placed to drive SSSG and margin enlargement. The introduction of BK Café from 4QFY22 onwards will considerably elevate its SSSG and gross margin profile as seen within the case of WLDL’s McCafé. BURGERKI has an aggressive goal of opening 700 shops by Dec’26 that may broaden its community from the present 265 shops, thereby driving its system gross sales development larger. We consider BURGERKI’s premium multiples are prone to maintain resulting from its robust development profile. Provoke protection with ‘purchase’ ranking and goal value of Rs 210 (28x Sep’23 EV/EBITDA). Enormous alternative in FSI for QSRs with established right-to-win The Rs 4.2 trillion ($58 billion) Indian FSI is anticipated to develop at ~9% CAGR over FY20- 25E. Inside the FSI, the QSR section valued at Rs 348 billion ($4.7 billion) has clocked the quickest development however constitutes simply 8% of the FSI and 22% of the organized FSI.

QSRs are anticipated to develop at 19% CAGR over FY20-25E. The benefits for QSRs embody: a) excessive affordability; b) globally well-known and aspirational manufacturers; c) completely different cuisines to cater to evolving style of the youth which were tailored to Indian tastes; d) advantages of scale and higher sourcing; e) comfort and fast service; and f) technological edge over friends. Their merchandise have excessive quantity depth and are amenable to immediate supply. Within the post-Covid world, the place 30-40% of eating places are anticipated to close down completely, QSRs are well-placed to seize share from different FSI segments as branded gamers command larger belief.

Valuation and consider: We anticipate all listed Indian QSRs — BURGERKI, WLDL and JUBI — to be vital beneficiaries of the strengthening tailwinds (led by Covid-19) in favour of QSR gamers. Amongst these, JUBI will stay essentially the most worthwhile and environment friendly participant over the subsequent few years. Nevertheless, Burger King will take pleasure in a sexy alternative for each topline and margin enlargement. This shall be led by an enormous shift in its enterprise mannequin by introduction of barbell product technique and BK Café. As well as, aggressive retailer community enlargement and capped royalty price will even be key drivers of EPS development. We anticipate BURGERKI to register gross sales/EBITDA CAGR of 71%/286% over FY21- 23E (on a mushy base) v/s 32%/38% for JUBI. Over FY21-26E, BURGERKI’s gross sales/EBITDA CAGR is anticipated to face at 43%/110%. We consider BURGERKI’s premium multiples are prone to maintain on account of its robust development profile. Based mostly on a three-year perspective, we arrive at a TP of Rs 365 per share (30% CAGR), assuming 25x a number of.

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