Top Brokerage Upgrades Target Price For The Franchisee Of Burger King, Accumulate Stock

Prabhudas Lilladher, a top brokerage firm recommends investors to accumulate the stock of Restaurant Brands Asia, which is the franchisee of Burger King (BK).

Stock To Buy: Target Price & Financials

The Current Market Price (CMP) of Restaurant Brands Asia is Rs. 129. Prabhudas Lilladher has estimated a Target Price for the stock at Rs. 156. It is a mid-cap stock with a market capitalization of around Rs. 6,111 crore. This stock has the potential to give 20.93% return, in the upcoming 1 year.

Stock Outlook
Current Market Price (CMP)	Rs. 129
Target Price	Rs. 156
Potential 1 year return	20.93%
52 week high share price	Rs. 138.95
52 week low share price	Rs. 86.50

Financials

The company's net revenue in FY22 was recorded at Rs. 9,437 mn, which is expected to be at Rs. 14,953 mn in FY23. Their EBIT in FY22 stood at Rs. 902 mn, which is expected to be at Rs. 1,844 mn in FY23. The company's adj. PAT in FY22 was recorded at Rs. 929 mn, which is expected to be at Rs. 599 mn in FY23.

Burger King business

India is on track with rising store count and throughput, menu innovations (Whopper, King's & Stunner ranges), user acceptance of BK app with 3.7mn downloads and ramp up of BK Café (ADS - Rs. 8000). Addition of 215 new BK Café's in FY23 will impact margins in the short term, but we expect pace to stabilize at 80-100 BK Cafe's/ annum in the medium term. We foresee scale benefits flowing through over 2HFY23-FY24 and build in 740bps pre-Indas EBITDA margin expansion to 6% in FY24 (-1.4% in FY22), the brokerage firm said.

Stock Advantages: Prabhudas Lilladher

According to Prabhudas Lilladher, "We remain constructive on Restaurant Brands Asia (RBA) post recent management interaction and retain 'Accumulate' for long term gains. We believe RBA presents a compelling opportunity to play Burger King brand in India and Indonesia along with Popeyes in Indonesia. BK India remains on track to be PAT positive by FY24 led by rising ADS in BK sustained menu innovations (Kings and Stunner Collections) ability to capture higher wallet share with café & breakfast and aggressive store expansion targeting 475 BK and 350 BK Café by FY24. Though footfalls are 20% lower from pre-Covid levels there is scope to increase ADS, as India has skirted the 4th wave."

Indonesia business

Indonesia's pre-Covid recovery at 80% has been delayed in 1Q23, as the country is experiencing Covid waves with a lag. Indonesia has favorable opportunities to drive consumption, as its population consumes 3 meals out-of-home & is a coffee drinking nation. We believe shift in store format towards Free Standing Drive Through (FSDT) will provide higher operating hours, throughput coupled lower rentals and aid margin expansion. Popeyes franchisee is anticipated to open 20 stores in FY23 & generate revenues of Rs 10-11bn by FY24 with ADS of Rs. 180-200k in FY24 (McDonald's - Rs. 300k, Burger King at Rs. 150k).

Margin expectations

The firm expects 200bps gross margin expansion by FY24 from 66% in FY22 through premiumisation, annual price increases of 3-4% and BK Café. Reduction of 150bps in rentals (13.5% in FY22), 200bps in utility costs (11%), 100-150bps in restaurant employee costs (11%), 100bps in corporate overheads (5-6%). 70% of store expansion to be in existing cities, while 30% to be in new cities. Metro store margins are lower vs smaller towns but have higher productivity and higher absolute profits.

Company Portfolio

Restaurant Brands Asia is a globally reputed QSR chain in India. The company started its operations in 2014 and it has established above 260 restaurants across major cities. Restaurant Brands Asia is the franchisee of Burger King (BK). New restaurant additions to include BK Café with a target of 250/350 BK Café by FY23/FY24

Disclaimer

The above stock was picked from the brokerage report of Prabhudas Lilladher. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.