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Burger King IPO: Burger King grey market premium surges 56% ahead of IPO


Mumbai: Attractive valuations for the Burger King’s initial public offer (IPO) has pushed up the grey market premium for the stock to nearly 56 per cent two days before the offer opens on Wednesday.

The Rs 810 crore offer would comprise of Rs 450 crore of fresh issue and offer for sale of up to 6 crore equity shares by promoter QSR Asia and would be sold in Rs 59-60 price range. At the upper price band, the OFS is valued at Rs 360 crore.

Also, the company raised Rs 92 crore as pre-IPO placement from Amansa Investments in November.

Dealers in the grey market said the stock was being traded at a premium of Rs 30-34, which translates to nearly 56 per cent premium to the offer price.

“The IPO is seeing good traction in the unlisted market. Basically, investors are comparing it with Jubilant FoodWorks, and the valuations are cheap in comparison,” said Dinesh Gupta, co-founder of Unlisted Zone.

Angel Broking pointed Burger King’s peer Jubilant Foodworks is currently trading at 8.7 EV/sales on FY20 basis.

“Burger King won’t get such a premium valuation as Jubilant Foodworks as it does not have a profitability track record like Jubilant. Its outlets are young and we believe that the majority of the Indian people prefer Jubilant–Pizza over burgers sold by Burger King,” Angel Broking said.

“So Burger King has priced its issue at a significant discount compared to Jubilant Foodworks; so looking at the valuation and the growth the company is expected to do in the future, the issue is looking attractive to us at the first look,” it added.

The burger chain intends to use the proceeds from the fresh issue funding the rollout of new company-owned Burger King restaurants by way of repayment or prepayment of outstanding borrowings of the company and for general corporate purposes. Under the Master Franchise and Development Agreement, the company is required to develop and open at least 700 restaurants by December 31, 2026.

The company’s food and beverages revenues jumped over 2-fold to Rs 835.32 crore in FY20 from Rs 375.20 crore in FY18. That said, the Covid crisis has had a significant impact on its results, with the six-month sales falling to Rs 134.69 crore compared with Rs 419.37 crore in the same period last year.

Gross margins, which jumped to Rs 536.79 crore in FY20 over Rs 2,322 crore in FY18, fell to Rs 85.95 crore in the six months ended September 30 compared with Rs 269.94 crore in the year-ago period.

“The IPO space is not very crowded right now, like we saw some time ago. Apart from attractive valuations, this has also pushed up the grey market premium for Burger King,” said a dealer who did wish to be named.

The other striking feature of this IPO was lower quota for retail investors. As per the red herring prospectus (RHP), not more than 10 per cent of the offer would be available for allocation to retail individual bidders, in accordance with the SEBI ICDR Regulations.

The IPO has reserved up to 15 per cent for non-institutional investors and up to 75 per cent for qualified institutional investors. Bids can be made for a minimum of 250 equity shares and in multiples of 250 equity shares thereafter. Burger King shares are expected to debut on bourses around December 14.

Kotak Mahindra Capital Company, CLSA India, Edelweiss Financial Services and JM Financial are the Book Running Lead Managers (BMR) for the IPO.

Among the company’s peers, Domino’s Pizza has achieved the largest market share of the QSR sub-segment by number of outlets (19 per cent in FY2020) due to aggressive marketing, an attractive value proposition and a strong home delivery network.

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