Equity Analyst, LightStream Research

Oshadhi Kumarasiri

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Capital Markets

Restaurant Brands Asia / Equity Capital Markets

<ul>
<li>India’s fastest growing quick-service restaurant (QSR) chain, <a href="https://www.smartkarma.com/entities/burger-king-india" target="_blank" data-smartkarma-citation="entities:28445:1" rel="noopener">Burger King India (BKI IN)</a> filed an updated prospectus with the Securities and Exchange Board on 27th of November 2020, offering 135 million shares (75 million new shares) at a price range of INR 59.0-60.0 per share.</li>
<li>Applications open on 2nd December and close on 4th December and shares are expected to start trading on 14th December. According to news articles, Burger King India shares are available at a 34%-42% premium to the offer price in the grey market.</li>
<li>Burger King India will utilise INR 1.65 billion of the net proceeds from the IPO to repay outstanding borrowings related to the opening of new company-owned restaurants, and another INR 1.77 billion, of which 63% on FY22 and 30% in FY23, to open new company-owned Burger King restaurants. The remaining amount will be used for general corporate purposes.</li>
<li>Shares are offered at a significant discount to peers. However, it does not necessarily mean that the shares are undervalued or has long term upside potential. Indian QSR players are currently trading at lofty forward multiples. We believe the market has significantly overvalued QSR players, considering only the rapid growth potential and ignoring the extreme competition and its impact on profitability. Therefore, we believe Burger King India is overvalued on absolute value.</li>
</ul>


India’s fastest growing quick-service restaurant (QSR) chain, Burger King India (BKI IN) filed an updated prospectus with the Securities and Exchange Board on 27th of November 2020, offering 135 million shares (75 million new shares) at a price range of INR 59.0-60.0 per share.
Applications open on 2nd December and close on 4th December and shares are expected to start trading on 14th December. According to news articles, Burger King India shares are available at a 34%-42% premium to the offer price in the grey market.
Burger King India will utilise INR 1.65 billion of the net proceeds from the IPO to repay outstanding borrowings related to the opening of new company-owned restaurants, and another INR 1.77 billion, of which 63% on FY22 and 30% in FY23, to open new company-owned Burger King restaurants. The remaining amount will be used for general corporate purposes.
Shares are offered at a significant discount to peers. However, it does not necessarily mean that the shares are undervalued or has long term upside potential. Indian QSR players are currently trading at lofty forward multiples. We believe the market has significantly overvalued QSR players, considering only the rapid growth potential and ignoring the extreme competition and its impact on profitability. Therefore, we believe Burger King India is overvalued on absolute value.


Burger King India IPO Valuation: Offered at a Discount to Peers, But Not Cheap on Absolute Value

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

<div>
Burger King India (BKI) aims to raise around US$110m via a mix of selling primary and secondary shares in India. 
BKI is the national master franchisee of the Burger King brand in India. As of Sep 2020, it operated 261 restaurants, including 8 sub-franchised restaurants, across 57 cities in India. 
BKI’s no. of restaurants have increased by 2.95x over FY17-20, while its revenue has grown even faster at 54% CAGR over FY17-20. Although BKI hasn’t managed to break-even, with the COVID induced lockdown pushing it back into losses.
As compared to its two main listed peers, BKI appears to lie in between on most measures, although its cost structure leaves much to be desired, as of now.
I’ve covered various aspects of the deal in my earlier notes:
<ul>
<li dir="ltr"><a href="https://www.smartkarma.com/insights/burger-king-india-pre-ipo-has-been-growing-fast-and-plans-to-grow-even-faster" target="_blank" rel="noopener">Burger King India Pre-IPO - Has been growing fast and plans to grow even faster</a></li>
<li dir="ltr"><a href="https://www.smartkarma.com/insights/burger-king-india-pre-ipo-peer-comparison-yields-interesting-nuggets-on-profitability-and-capex" target="_blank" rel="noopener">Burger King India Pre-IPO - Peer comparison yields interesting nuggets on profitability and capex</a></li>
</ul>
In this note, I’ll cover the updates in the company’s latest filings and run the deal through our ECM framework
</div>


Burger King India (BKI) aims to raise around US$110m via a mix of selling primary and secondary shares in India. 
BKI is the national master franchisee of the Burger King brand in India. As of Sep 2020, it operated 261 restaurants, including 8 sub-franchised restaurants, across 57 cities in India. 
BKI’s no. of restaurants have increased by 2.95x over FY17-20, while its revenue has grown even faster at 54% CAGR over FY17-20. Although BKI hasn’t managed to break-even, with the COVID induced lockdown pushing it back into losses.
As compared to its two main listed peers, BKI appears to lie in between on most measures, although its cost structure leaves much to be desired, as of now.
I’ve covered various aspects of the deal in my earlier notes:

Burger King India Pre-IPO - Has been growing fast and plans to grow even faster
Burger King India Pre-IPO - Peer comparison yields interesting nuggets on profitability and capex

In this note, I’ll cover the updates in the company’s latest filings and run the deal through our ECM framework


Burger King India IPO - Can Still Grow Fast

APAC IPOs & Placements

Zhen Zhou, Toh


Aequitas Research puts out a weekly update on the deals that have been covered by the team recently along with updates for upcoming IPOs.




It has been another busy week in the ECM space. There were a few big launches in Hong Kong. Evergrande Property Services (6666 HK) and China Resources Mixc Lifestyle Services (1209 HK) are the two latest property services companies to come to market with deal sizes of US$2bn and US$1.5bn. Both IPOs had substantial support from cornerstone investors. Evergrande Svcs's support came from a long list of China investors whereas CR Mixc pulled in reputable institutional heavy weights such as GIC, Hillhouse, Matthews Funds, CDH and etc.


CR Mixc Lifestyle Services (华润万象生活) IPO - Needs Time to Prove Itself 

Evergrande Services (恒大物业) IPO - Overhang Issues 

Then there was JD Health (6618 HK) US$3.5bn bookbuild launch which also drew interests from a few familiar names, GIC, Tiger Global, BlackRock, Hillhouse and etc. We discussed valuation, updates post Ali Health's results, and index implications in our notes:


JD Health (京东健康) IPO - Ali Health 1H Results Read Through and Index Inclusions 

JD Health (京东健康) IPO - Paying to Ride the Early Innings of Healthcare Transformation 

Other upcoming Hong Kong IPOs that will likely launch in the coming week includes POP MART (POP HK), Harbour Biomed (HMD HK), Sino-Ocean Service (1827597D HK) and Blue Moon Group Holdings (BMG HK) which we have covered them over the past few weeks, including updates from PHIP filing. 


Pop Mart Pre-IPO - PHIP Updates - Still Riding on past Expansion 
Pop Mart Pre-IPO - PHIP - Valuation Updates

Sino-Ocean Services (远洋服务) Pre-IPO - Nothing Stands Out 

Blue Moon Group Pre-IPO - Valuation Updates 

HBM (和珀医药) Pre-IPO: Thoughts on Valuation 

Last but not least, New Horizon Health (NHH HK), which Ke Yan, CFA, FRM has covered this week, will probably list some time next year and expecting to raise up to US$300m


New Horizon Health (诺辉健康) Pre-IPO: A Hot Medical Device Deal in Making 

In Australia, Nuix (NXL AU) will debut this coming Friday while Dalrymple Bay Infrastructure (DBI AT) is expected trade on the Tuesday the week after. We covered them in the two notes:


Nuix Limited IPO -  A Stable and Predictable Niche 

Dalrymple Bay Infrastructure - Highly Curious Timing 

In India, sentiment is gearing to be ready for more IPOs, especially after the strong performance of Gland Pharma (7172753Z IN) last Friday. Burger King India (BKI IN) revealed its bookbuild details and anchor book will open on the 2nd of December. Aside form that, Sumeet Singh also covered Brookfield India REIT's fundamental, positives, and negatives in two notes.


Brookfields India Real Estate Trust Pre-IPO - The Positives- Provides Different Geographic Exposure 
Brookfields India Real Estate Trust Pre-IPO- The Negatives- Asset Details Leave Questions Unanswered
Burger King India Pre-IPO - Has Been Growing Fast and Plans to Grow Even Faster
Burger King India Pre-IPO - Peer Comparison Yields Interesting Nuggets on Profitability and Capex

In the U.S, aside from the incredible rally of recently listed China EVs, there hasn't been much activity. 17 Education and Technology (YQ US) is the latest online tuition provider that is looking to raise up to US$300m. But a major decision will be made next week to decide whether Chinese firms need to comply with audit-oversight rules.


17 Edu &amp; Tech (一起教育) Pre-IPO: Far from Profitability 

Placements this week:


China Hongqiao Placement - Deep Discount for a Big Deal 

ESR Cayman Placement - Back to Sell Again 

Bega Cheese Placement + Entitlement Offer - A Sensible Acquisition 





Accuracy Rate:



Our overall accuracy rate is 73.3% for IPOs and 66.1% for Placements 


(Performance measurement criteria is explained at the end of the note)






No new IPO filings this week  




Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.







News on Upcoming IPOs  





JD Health IPO helps cure Hong Kong market blues after Ant
Large listings poised to push Hong Kong’s funds raised via IPO to 10-year high
Burger King India IPO to open on December 2
House to Vote on Booting Chinese Stocks From U.S. Over Audit Rules




Analysis on Upcoming IPOs






Name
Insight


Hong Kong


Blue Moon

Blue Moon Group Pre-IPO - The Positives - Dominant Market Share, Strong Online Sales 



Blue Moon

Blue Moon Group Pre-IPO - The Negatives - Flagging Offline Sales, Not Really a Primary Raising 



Blue Moon

Blue Moon: No. 1 But No Exclusive Advantage, Observation on the Ground 



Blue Moon

Blue Moon Group Pre-IPO - Online Reviews and Peer Comparison 



ByteDance

ByteDance (字节跳动) IPO: How Jinri Toutiao Paves The Way for a Bigger Empire (Part 1)



ByteDance

ByteDance (字节跳动) Pre-IPO: Why Facebook Should Worry About TikTok 



ByteDance

ByteDance (字节跳动) IPO: Tiktok the No.1 Short Video App for a Good Reason (Part 2)



ByteDance

ByteDance (字节跳动) Pre-IPO: How Has It Done in 1H? 



ByteDance

ByteDance: The Unlisted Company’s Video Apps Leading the Market and Threatening Internet Giants 



ByteDance

ByteDance (字节跳动) Pre-IPO: Why Facebook Should Worry About TikTok 



ByteDance

ByteDance (字节跳动) Pre-IPO - Globally the Most Downloaded App for Jan 2020 Driven by India 



ByteDance

ByteDance (字节跳动) Pre-IPO: Global Ambition Meets Regulatory Challenges 



Dida

Dida Pre-IPO - Making Hay While Big Brother Retreats 



E-Star Comm

E-Star Commercial Management Pre-IPO - Better Disclosure in New Prospectus 



E-Star Comm

E-Star Commercial Management Pre-IPO - Still Largely Reliant on Galaxy, Poor Disclosure Doesn’t Help 



Kilcoy

Kilcoy Global Foods Pre-IPO - Rapid Earnings Growth on the Back of Margin Improvement 



Kilcoy

Kilcoy Global Foods Pre-IPO - A Lot of Things Still Remain Unexplained 



Kuaishou

Kuaishou Technology Pre-IPO - The Positives - Hot Segment, Fast Growth 



Kuaishou

Kuaishou Technology Pre-IPO - The Negatives - Ample Doubts Remain 



Megvii

Megvii (旷视) Pre-IPO - Remarkable Growth (Part 1) 


Megvii

Megvii (旷视) Pre-IPO - A Bet on the Future - Segments, Revenue Drivers and Growth Potential 


Megvii

Megvii (旷视) Pre-IPO - The Real Race Is in Research - Founders' Profile and Talent 


Megvii

Megvii (旷视) Pre-IPO - Competitive Landscape and Peer Analysis 


Megvii

Megvii (旷视) Pre-IPO -  Initial Thoughts on Valuation 


Ocumension

Ocumension (欧康维视) Pre-IPO: All Ready for a Great Listing Except a Block Buster 


Pop Mart

Pop Mart Pre-IPO - The Negatives - Is It a Brand Owner or Just a Retailer? 


Pop Mart

Pop Mart Pre-IPO - The Positives - Expanding Portfolio+Wider Distribution= Explosive Earnings Growth 


Pop Mart

Pop Mart Pre-IPO - Peer Set and Valuation 


Pop Mart

Pop Mart Pre-IPO Quick Note - On the Ground - Pop-Up Stores Are Effective 


RemeGen

RemeGen (荣昌生物) Pre-IPO: Thoughts on Valuation of RC18 and RC48 


Toplist

Toplist China Pre-IPO - Overwhelmingly More Negatives than Positives 


Tasly

Tasly Biopharm (天士力生物) IPO: Visible Growth from Approved Drug but Lacks Blockbusters 


WeDoctor

WeDoctor (微医) Pre-IPO -App Walk Through - The Online Medical Directory and More 


WeDoctor

WeDoctor (微医) Pre-IPO - A More Focused Online Medical Svc Provider than Ping An Good Doctor 


India


ASK

ASK Investment Managers Pre-IPO - Riding on a Wave of Wealth 


Anmol Ind
Anmol Industries Pre-IPO Quick Take - No Growth, Generous Payments to Founders


Bharat Hotel

Bharat Hotels Pre-IPO - Catching up with Peers 



Burger King

Burger King India Pre-IPO - Has Been Growing Fast and Plans to Grow Even Faster 



Burger King

Burger King India Pre-IPO - Peer Comparison Yields Interesting Nuggets on Profitability and Capex 



Brookfields REIT

Brookfields India Real Estate Trust Pre-IPO - The Positives- Provides Different Geographic Exposure 



Brookfields REIT

Brookfields India Real Estate Trust Pre-IPO- The Negatives- Asset Details Leave Questions Unanswered 



Bajaj En

Bajaj Energy Pre-IPO - Supposed to Deliver Steady Performance if Only Its Sole Client Would Let It 



CMS Info
CMS Info Systems Pre-IPO - When a PE Sells to Another PE... Only One Gets the Timing Right


Crystal Crop
Crystal Crop Protection Pre-IPO - DRHP Raises More Questions than in Answers


ESAF SFB

ESAF Small Finance Bank Pre-IPO - Growing Fast but Remains Highly Dependant on a Related Party 


Flemingo 
Flemingo Travel Retail Pre-IPO - Its a Different Business in Every Country


Emami Cem

Emami Cement Pre-IPO - Still in Ramp Up Phase but Shares Pledge Might Lead to an Early IPO 


IRFC

Indian Railway Finance Pre-IPO - Low Risk, Low Margin Business 


NSE
NSE IPO Preview- Not Only Fast..its Risky and Expensive


NSE
National Stock Exchange Pre-IPO Review - Bigger, Better, Stronger but a Little Too Fast for Some


Mrs. Bector
Mrs. Bectors Food Specialities Pre-IPO Quick Take - Sales for Its Main Segment Have Been Sta



LIC


Life Insurance Corporation of India Pre-IPO - Early Take on India's Largest IPO 



Lodha

Lodha Developers Pre-IPO - Second Time Lucky but Not Really that Much Affordable


Lodha
Lodha Developers IPO: Presence in Affordable Segment Saves Lodha the Blushes in a Sluggish Mkt


Penna Cem

Penna Cement - Aggressive Expansion Plans Even Though Past Performance Has Been Tepid 


PNB Met
PNB Metlife Pre-IPO Quick Take - Doesn't Stack up Well Versus Its Larger Peers


Samhi Hotels

Samhi Hotels Pre-IPO - Assets and Borrowings Are Growing, but Earnings Haven’t Kept Pace 


Malaysia


QSR
QSR Brands Pre-IPO - As Healthy as Fast Food


Thailand


PTTOR

PTT Oil and Retail IPO - F&amp;B Business Is the Profit Driver 


The U.S


CDP

CDP Holdings Pre-IPO Review - Highly Reliant on Best Inc. 


CloudMinds
CloudMinds Inc Early Thoughts - Still Nascent





ECM Weekly (29 November 2020) - JD Health, Evergrande Svcs, CR Svcs, Pop Mart, Nuix and More

Based on the number of restaurants, <a href="https://www.smartkarma.com/entities/beta-kappa-investments-ltd" target="_blank" data-smartkarma-citation="entities:28445:1" rel="noopener">Burger King India (BKI IN)</a> was the fastest-growing QSR chain in the country during its past five years of operation. In our previous <a href="https://www.smartkarma.com/insights/burger-king-india-ipo-whopping-revenue-growth" target="_blank" rel="noopener">insight</a>, we discussed the QSR industry and Burger King India’s growth potential. In this insight, we will analyse the company’s historical performance, along with our expectations of future growth.

Based on the number of restaurants, Burger King India (BKI IN) was the fastest-growing QSR chain in the country during its past five years of operation. In our previous insight, we discussed the QSR industry and Burger King India’s growth potential. In this insight, we will analyse the company’s historical performance, along with our expectations of future growth.

Burger King India IPO: Revenue Growth Offsets The Lack of Profitability

<a href="https://www.smartkarma.com/entities/beta-kappa-investments-ltd" target="_blank" data-smartkarma-citation="entities:28445:1" rel="noopener">Burger King India (BKI IN)</a> has filed for an IPO with the Securities and Exchange Board of India (SEBI). The initial filing in November 2019 was expected to raise INR 4bn through a fresh issue of up to 60m equity shares, along with a private placement of up to INR1.5bn.
However, on 22nd October 2020, the company filed an addendum to DRHP under which the size of the fresh issue has been increased to INR 6bn. The company has already undertaken a pre-IPO placement through a rights issue of 13.2mn equity shares to the Promoter at INR 44.00 per share, which aggregates to INR 580.8m, reducing the fresh issue size to INR 5,419.2m. Burger King India has mentioned that it may consider undertaking another pre-IPO placement of the remaining amount of up to INR 919.2m.
QSR Asia is the promoter entity and has F&amp;B Singapore, BK AsiaPac, RV Services Pte Ltd and Ajay Kaul (Senior director at F&amp;B Asia Ventures) as its shareholders. Investment banks Kotak Mahindra Capital, CLSA India, Edelweiss Financial Services and JM Financial have been appointed to advise the company on the IPO.
The company plans to use the proceeds from the IPO as follows.
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 374.0pt;">
Particulars
</td>
<td style="width: 79.0pt;">
Amount (INRm)
</td>
</tr>
<tr>
<td style="width: 374.0pt;">
Funding roll out of new Company-owned Burger King Restaurants
</td>
<td style="width: 79.0pt;">
4,322.42
</td>
</tr>
<tr>
<td style="width: 374.0pt;">
Repayment or prepayment of outstanding borrowings of the Company obtained for setting up of new Company-owned Burger King Restaurants
</td>
<td style="width: 79.0pt;">
1,622.42
</td>
</tr>
<tr>
<td style="width: 374.0pt;">
Capital expenditure incurred for setting up new Company-owned Burger   King Restaurants
</td>
<td style="width: 79.0pt;">
2,700.00
</td>
</tr>
<tr>
<td style="width: 374.0pt;">
General corporate purposes
</td>
<td style="width: 79.0pt;">
*
</td>
</tr>
</tbody>
</table>
<div class="content-remarks">
Source: Company disclosures, *to be determined on finalisation of the Offer Price and updated in the Prospectus. The amount utilised for general corporate purposes shall not exceed 25% of the Net Proceeds.
</div>

Burger King India (BKI IN) has filed for an IPO with the Securities and Exchange Board of India (SEBI). The initial filing in November 2019 was expected to raise INR 4bn through a fresh issue of up to 60m equity shares, along with a private placement of up to INR1.5bn.
However, on 22nd October 2020, the company filed an addendum to DRHP under which the size of the fresh issue has been increased to INR 6bn. The company has already undertaken a pre-IPO placement through a rights issue of 13.2mn equity shares to the Promoter at INR 44.00 per share, which aggregates to INR 580.8m, reducing the fresh issue size to INR 5,419.2m. Burger King India has mentioned that it may consider undertaking another pre-IPO placement of the remaining amount of up to INR 919.2m.
QSR Asia is the promoter entity and has F&amp;B Singapore, BK AsiaPac, RV Services Pte Ltd and Ajay Kaul (Senior director at F&amp;B Asia Ventures) as its shareholders. Investment banks Kotak Mahindra Capital, CLSA India, Edelweiss Financial Services and JM Financial have been appointed to advise the company on the IPO.
The company plans to use the proceeds from the IPO as follows.




Particulars


Amount (INRm)




Funding roll out of new Company-owned Burger King Restaurants


4,322.42




Repayment or prepayment of outstanding borrowings of the Company obtained for setting up of new Company-owned Burger King Restaurants


1,622.42




Capital expenditure incurred for setting up new Company-owned Burger   King Restaurants


2,700.00




General corporate purposes


*





Source: Company disclosures, *to be determined on finalisation of the Offer Price and updated in the Prospectus. The amount utilised for general corporate purposes shall not exceed 25% of the Net Proceeds.


Burger King India IPO: Whopping Revenue Growth

India

Restaurant Brands Asia is a quick-service restaurant company and the exclusive national master franchisee for the Burger King brand in India. Through its subsidiaries in Indonesia, it also holds exclusive master franchisee rights for Burger King and Popeyes brands. The company focuses on developing, establishing, operating, and franchising these fast-food restaurants. Its headquarters are in Mumbai, India, and it was incorporated on November 11, 2013.

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Restaurant Brands Asia (RBA IN)

Burger King India IPO Valuation: Offered at a Discount to Peers, But Not Cheap on Absolute Value

Burger King India’s share price could rise following the IPO, as there is already a 34-42% grey market premium. We would void this IPO due to the...

Oshadhi Kumarasiri

Burger King India IPO - Can Still Grow Fast

Burger King India (BKI) aims to raise around US$110m via a mix of selling primary and secondary shares in India. BKI is the national master...

Sumeet Singh

ECM Weekly (29 November 2020) - JD Health, Evergrande Svcs, CR Svcs, Pop Mart, Nuix and More

A few big IPOs launched in Hong Kong this week, namely, JD Health, Evergrande Services, and CR Mixc Services. Interestingly, the trio drew strong...

Zhen Zhou, Toh

Burger King India IPO: Revenue Growth Offsets The Lack of Profitability

Burger King India (BKI IN) was the fastest-growing QSR chain in the country during its past five years of operation. The company’s revenue grew at...

Oshadhi Kumarasiri

Burger King India IPO: Whopping Revenue Growth

Burger King India was the fastest-growing QSR chain in the country during its past five years of operation and had a total of 261 restaurants by...

Oshadhi Kumarasiri

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52-week Range

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