Burger King India (BKIL) stock made a strong debut on the exchanges on Monday, and the Quick Service Restaurant (QSR) stock almost doubled against its issue price. The stock is trading at Rs 115.35, a premium of 92 percent against its issue price of Rs 60 on the BSE. The stock rose as the trade progressed and reached levels of Rs 131, up 131 percent from its issue price on the BSE.
On the National Stock Exchange (NSE), the shares peaked at Rs 119, after opening at Rs 112.50, a premium of 87.5 percent to the issue price.
The QSR chain’s initial public offering (IPO) of Rs 810 crore received an overwhelming response from investors, with the public offering subscribed 156.65 times. The issue led to offers for 11.7 billion shares, worth Rs 70 billion, compared to just Rs 75 million on offer, making it one of the most subscribed IPOs in history.
The company intends to use the new proceeds to fund the launch of new company-owned Burger King restaurants and to serve general corporate purposes.
BKIL, analysts say, is a game in the organized QSR space, which is set to grow at an annualized rate of 19 percent to 82.5 billion rupees over the next five years. Some set the growth rate to be even higher for organized actors, as the unorganized sector has been severely affected by the pandemic.
“Sustained improvement in gross margins that stood at around 64 percent in FY2020 and negative working capital that helped improve operating cash flows during FY2018-20. FY2021 will be the year of disruption for the QSR industry as Q1FY2021 performance was disrupted by store closures during the Indian closing period. Strong franchise model, negative working capital, market share gains from independent players and strong expansion plans of stores would help improve growth prospects in the coming years, “Sharekhan analysts said in an IPO note.
Should I reserve earnings?
After the stock’s stellar debut, analysts are suggesting to investors to take earnings off the table, as the company is a loss-making unit and may continue in the red for years to come.
“A premium of more than 90 percent is an impressive listing gain. However, the company has only 5 percent market share and has been running losses for a while. And even though they have big expansion plans to open 700 restaurants by December 2026, one would need profit to run. Also, if they expand, their losses are likely to increase … Therefore, we believe, the company is unlikely to make a profit in the next two years. and exits, “says AK Prabhakar, head of research at IDBI Capital.
Burger King India reported losses in FY18, FY19, FY20 and H1FY21 which led to negative retained earnings of Rs 462 in H1FY21. This has resulted in the erosion of a substantial part of your other assets.
S Ranganathan, Head of Research at LKP Securities, is also of the opinion that investors can post profit on half of their initial investment and keep half of the balance for long-term profit, as the company can reap the benefits of a QSR space fast growing.
That being said, Gaurang Shah, chief investment strategist at Geojit Financial Services, says that while investors who had invested in the IPO through loans should post a profit and pay off their obligation, others could remain invested for long-term profit.
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