Burger King Ltd – Is it Worth Investing?

Burger King Stock Analysis

Business Introduction:

Burger King India Ltd is an Indian franchise of the multinational quick-service restaurant brand Burger King. It began operations in India in 2014 and has since expanded to over 290 locations across major cities. 

As a master franchisee, the firm has exclusive rights to develop, build, manage, and franchise Burger King-branded locations in India.

The organized QSR market is growing at double-digit and is projected to grow at over 15% for the next 3 years valuing it by over 800 billion $ markets. The organized market is at over 54% and Burger King holds quite a good share in it.

Fundamental Analysis:

The company has sufficient CAPEX planned and the ability to raise money for further requirements and service debt obligations. 

Burger King’s sales numbers are really good. Average Daily sales are at pre-covid levels. With Dine-in and Delivery sales contribution at an almost equal range. 

Companies gross profit margin is extremely good at over 60% and EBITDA stands at just over 10%.

In terms of product category — burgers — BKIL is comparable to Westlife Development (Mc Donalds). The revenue and margin profiles of BKIL and Westlife Development are comparable. However, BKIL’s revenue and EBITDA growth prospects are more favorable. In addition, BKIL has the right to open franchises all over India, unlike Westlife, which only has a limited number of territories.

On the valuation front, with the recent stock correction. The company seems more favorable than its competitors. 

The company’s ability to sustain its recovery growth and improve the same-store sales growth will remain critical to maintaining liquidity and to turning its loss-making business into a profitable one.

Technical Analysis:

Apart from the obvious fuss regarding war. There’s one more reason why the stock is in a free fall. It’s because of the companies Indonesia branch purchase. 

Technically speaking, the stock is in a free fall since August last year. And breached the 200-day Moving average at the beginning of the year. 

But, I can see trend reversal and we may get to see the stock back on track especially the case if the US Russia worries are resolved.

SWOT – Risk Analysis:

Opportunity & Strength 

Sole Franchiser

Burger King India is the sole beneficiary in regards to its franchise for it can open brand locations all around India. 

Growth Potential

The company has shown tremendous growth in its earnings. Margin is also improving. Just a matter of days for the company to become net positive.

Free Cash Potential

QSR is a money pit. It consumes a lot of money to run. And, Burger King has timely & efficiently demonstrated its ability to raise money.

Weakness & Threat

Consume a Lot of Cash!

QSR business is a cash-consuming machine. They take a lot of money to run the business day to day activities. Add a low margin to the picture and you are looking at one of the worst businesses to be in.

Loss Making Business

The company has been losing money since its inception in India. Good topline margin but lousy bottom line!

Tough Competition

Stiff competition from Organized & Unorganized market. 

Conclusion:

Since FY 2014-15, India’s food services market has grown steadily and was predicted to be worth a little over 4 lakh crores in FY 2019-20. During the next five years, the market is expected to grow at a compound annual growth rate (CAGR) of 9%, reaching at least 6.5 lakh crores by fiscal years 2024–25. 

And it’s the organized sector mainly the QSR brands such as Burger King, Mc Donalds, and such that are leading the market. Because, over the years, the shift from the unorganized market dominance to the organized one is very visible.

With that said, Burger King is in the right spot to take on the market. I’ll give 7/10 for the company. Would have given higher ratings had it turned net positive by now. 

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