Buy Burger King Franchisee Stock For 54% Upside, Reported Sales Grew 37.1% YoY: Motilal Oswal

Reputed brokerage firm Motilal Oswal recently suggested investors buying the stocks of Restaurant Brands Asia. In 4QFY22., its reported sales have grown 37.1% YoY to Rs. 2.7b, according to the report.

Stock Target Price, Current Market Price, Market-Cap

The Current Market Price (CMP) of Restaurant Brands Asia is Rs. 98. Motilal Oswal has estimated a Target Price for the stock at Rs. 150. Stock is anticipated to give a 54% return, in 1 year. This is a small-cap company with a market capitalization of Rs. 4,915 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 98
Target Price	Rs. 150
Potential 1 year return	54.00%
52 week high share price	Rs. 138.95
52 week low share price	Rs. 86.50

The company's total sales in FY 22 were recorded at Rs. 14.9b, which is expected to grow at Rs. 22.1b in FY 23. Their EBITDA in FY 22 stood at 1.0b, which is expected to grow to 2.5b in FY 23. its gross margin was up 50bp YoY to 66.1%. Restaurant EBITDA margin stood at 17.3% as against 17.1%/17.2% in 4QFY21/3QFY22. Reported EBITDA grew 23.6% YoY to Rs. 302m. Positively, its net loss has narrowed to Rs. 132m as against a loss of Rs. 204m in 4QFY21.

Stock advantages according to Motilal Oswal

Retaining a buy rating, Motilal Oswal said, "RBA seems well-placed to deliver strong domestic growth. BK Café is likely to be the key growth driver going forward. Along with rapid revenue growth, RBA is geared up to deliver an EBITDA margin expansion, led by a recovery in dine-in, the addition of BK Café, and cost saving initiatives. The Indonesia business is likely to witness a healthy revenue growth and margin expansion from 2HFY23. This will cover around half of the expected stores in FY23 and nearly two-thirds of stores by FY24. Restaurant Brands Asia has opened 22 and closed one Burger King store in India, leading to 315 stores at the end of 4QFY22. Around 13 restaurants are under construction and 50 restaurants are in the pipeline."

However, mentioning the challenges that occurred during the pandemic, the firm added, "India sales and earnings missed our estimates due to impact from the Omicron Covid wave in Jan-Feb'22. The recovery in average daily sales (ADS) has been strong from Mar-May'22. The recovery in dine-in stood at 96% in May'22, with delivery sustaining at higher levels. Overall, ADS were 111% of pre-Covid levels in May'22."

About the company:

Restaurant Brands Asia is the franchisee of Burger King, one of the leading players in the quick service restaurants (QSR) peers. The management is guiding at 25% SSSG in FY23 and 7-10% SSG from FY24 onwards. If inflationary trends don't worsen, then its FY23 SSSG target can also be surpassed. It guided at 67%/68% gross margin in FY23/FY24. It is targeting a double-digit pre-Ind AS EBITDA margin in India by FY24. The management is targeting a cumulative 200/300 BK Cafes by FY23/FY24 from 35 at the end of FY22. With the recent correction in its share price, RBA now trades at a significant discount to its QSR peers.

Disclaimer

The above stock was picked from the brokerage report of Motilal Oswal. 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.