Prabhudas Lilladher has given Buy recommendation for Burger King India with a target price of Rs. 250 in its research report issued on Aug 28, 2021
Prabhudas Lilladher’s research report on Burger King India
Burger King India has entered into a non-binding understanding to acquire 85% stake in PT Sari Burger Indonesia (“BK Indonesia”) from F&B Asia ventures (65.8%) and Mitra Adiperkasa (19.2%). The transaction values BK Indonesia at USD183mn (Including debt of USD30m) which is single digit EV/EBIDTA at FY23 nos. F&B Asia Ventures owns 83.32% of QSR Asia (Promoters of BK India) thus the transaction will be a related party transaction and will require permission of minority shareholders. Acquisition of BK Indonesia will mark BK India’s entry into the fourth most populated country becoming the second largest QSR brand in Indonesia which offers several synergies and BK’s target positioning of 60% population age under 30 (millennials). BK Indonesia will aim at expansion of GRM’s to India levels by focusing on enhancing chicken proposition (being Chicken heavy market) which is sourced locally vs beef which is imported. Increased focus of Full Service Drive thru (FSDT) will help margins as these stores offer higher margins than mall stores and have a lower payback period. BK Indonesia also plans to introduce Breakfast and BK Café in 4QCY21 which will aid the sales of FSDT as they operate for 24×7.
We believe valuing BK Indonesia at 25% discount to FY23 EV/EBITDA of BK India and accounting for ~21% of equity dilution at Rs 160 (79.84mn shares) can provide an increase in fair value by ~Rs 25/share, which would be higher on DCF basis. We will incorporate BK Indonesia in our Projections once the acquisition is approved. Maintain BUY with an unchanged TP of Rs 250.