Prabhudas Lilladher has given Accumulate recommendation for Restaurant Brands Asia with a target price of Rs. 148 in its research report issued on Aug 12, 2022

Prabhudas Lilladher’s research report on Restaurant Brands Asia

Restaurant Brands Asia (RBA) reported in-line revenues but missed on margins mainly due to higher ad spends & increase in operating expenses due to aggressive opening of Burger King stores and BK cafe. ADS has moved up from Rs 104k in 4Q22 to Rs 120k in 1Q23 and July trends at Rs 131k looks encouraging. India dine-in is expected to be stabilize at 60-65% of sales mix. Indonesia operations reported 71% recovery to Pre covid levels with 78% recovery in July. Indonesia reported sales of Rs1.52bn and Pre IND AS EBIDTA loss of Rs135mn. Accelerated ramp up of BK Café in FY23 to 250 (vs 200 earlier) and increase in consumer occasions for breakfast in non-peak hours will boost ADS/store. Sustained normalcy in operations (no covid wave) will continue to further drive ADS in coming quarters. We expect RBA to capitalize on growth opportunities on account of strong competitive advantages like 1) sharp focus on store opening with target of 390/475 stores by FY23/FY24 and 700 by CY26 (328 in 1Q23), 2) consumer acceptance of Stunner Menu and new innovations in Whopper 3) fixed royalty at 5% 4) sustained traction on the BK App resulting in 3.7mn downloads 5) success of BK café with wide menu options.

Outlook

We believe Indonesia business as a whole will take time to turnaround due to delay in post covid recovery and initial losses in Popeyes (300 stores in 10 years). We value the company at Rs 148 (from NA earlier) on SOTP basis & assign a rating of ACCUMULATE (Under Review earlier) for long term gains.

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