The last IPO of the fiscal year 2021 by casual dining chain Barbeque Nation opens today. Owing to the impact of Covid 19 on the hotel industry, most of the brokerages have given an avoid call on the issue.
The issue size of the IPO is Rs. 453 crore and includes a fresh share issuance of Rs. 180 crore and an offer for sale or OFS of up to 54,57,470 equity shares. Ipo price band is Rs. 498-500
Link Intime India Private Ltd is the registrar of the IPO. As per brokerages, the share allocation for Barbeque Nation is likely to be completed by April 1 and the stock will debut on the bourses on April 7.
The lot size for subscription is 30 and 10% of the quota is reserved for retail investors.
The investment bankers for the issue are IIFL Securities, Axis Capital, Ambit Capital and SBI Capital Markets.
Promoters of Barbeque Nation include Sayaji Hotels, Sayaji Housekeeping Services, Kayum Dhanani, Raoof Dhanani and Suchitra Dhanani and is also backed by CX Partners.
Further, ahead of the issue, the company aggregated Rs. 202 crore from 15 anchor investors.
The company owns and operates a chain of Barbeque Nation restaurants across India. Also it has Toscano restaurant and UBQ by Barbeque Nation Restaurant under its banner. Jhunjhunwala holds stake in the firm through his investment firm Alchemy Capital that has the ownership in 5,75,000 shares or 2% stake in Barbeque Nation Hospitality.
As of the quarter ended December, the company owns and operates 164 restaurants that include 147 Barbeque Nation fine dining restaurants across 77 Indian cities, 7 international outlets and 11 Toscano stores offering Italian cuisine.
Some of the key shareholders in the firm are
CX Partners, Jubilant Foodworks, Xponentia and Alchemy.
The proceeds from the issue will be put towards expanding and opening of new restaurants, pre-payment or repayment of all or a part of company's outstanding borrowings and general corporate purposes.
Sales have registered recovery after the pandemic but risks emerges again
After being hit severely amid the pandemic, the company has recorded recovery in sales, with sales scaling to 84% by November 2020. Primarily, the strong recovery is led by the company's delivery business which now accounts for close to 15% of the total firm's revenue against 3 percent in FY20. What has further helped the company is its various cost optimization measures and strengthening of its digital offering after it revamped its BBQ App. But now the second Covid 19 wave remains an operational risk for the company in the near term.
Future growth prospects depend on delivery and footprint expansion
The company remains focused on menu innovation and augmenting customer experience and improving their satisfaction level. Further by adding the delivery platform, the company has managed to increase restaurant throughput without additional costs pressure. So, as the Italian cuisine foray is in the early phase and international presence has also not yielded substantial results, overall expansion in the near future shall be in the country while at the same time delivery business shall also be ramped up.
Owing to the high depreciation and interest charges that have swollen due to aggressive company expansion, the company despite high EBITDA margins has not yet become a profitable entity. Margins have also been impacted owing to losses suffered in international outlets in FY 19 and Covid impact in FY20 and 8MFY21. Now after the pre-IPO fund raise and IPO, debt is likely to reduce which can bring the company closer to profitability.
Considering near term headwinds, Yes Securities has come up with some concerns on the valuation front. "Company is targeting a market cap of Rs 18.8bn post-issue which equates to 12.2x FY20 EV/EBITDA and 2.2x P/S, which is significantly lesser than QSR peers like Westlife and Burger King. But given the highly capital intensive and more volatile dine-in business model, we believe the discount is justified. Moreover, given the recent pre-IPO allotment in December and January was done at 50% less than IPO price and COVID concerns have again come back which would be a near term headwind for the space, the pricing looks on the higher side with not a lot left on the table for investors", said the brokerage.
Should you subscribe to the IPO of Barbeque Nation?
Though there has been a strong growth outlook for the sector with industry CAGR expected at 18% and strong brand equity that should facilitate the company in grabbing market share, Yes Securities advices on avoiding the IPO and look for better entry point post listing of the issue.