The most-awaited Burger King India Ltd IPO

Though Burger King made a late entry in the Indian Quick Service Restaurant (QSR) market, its success has been commendable. So much so that, within just 5 years of entering the market, the Miami-based burger joint has announced its plan of going public in 2020. To seek approval for issuing IPO worth Rs400cr, Burger King India Ltd submitted the Draft Red Herring Prospectus with SEBI on 4^th Nov 2019.

Before getting into how Burger King India plans to utilise the IPO proceeds, let us look at the history of the burger giant in the country.

Burger King in India: the journey so far

5 years ago, on 9th Nov 2014, Burger King India launched its first restaurant in South Delhi’s upscale neighbourhood Saket. This move made it a direct competitor of McDonald’s , the market leader, who along with others such as Starbucks and Fatburger had already penetrated well into the Indian market.

A stellar entry

Nevertheless, Burger King India planned a remarkable strategy, which marked its iconic entry in the Indian shores. Even before the launch of its first restaurant, the burger joint created a hype of its super-sized ‘Whopper burger’ by allowing potential customers to pre-order the snack online at a promotional price in partnership with eBay India. In addition, it also gave out Burger King merchandise that customers could redeem on a Sunday that followed. These moves garnered the new player lakhs of fans all over social media.

Challenges that followed

However, the parent company was gripped with several challenges at the global front for reasons such as controversial advertisements, high pricing, and losing differentiations. And although, Burger King justified the high prices by claiming that it offered crunchier and quality patty compared to McDonald’s, this strategy wouldn’t have worked well in India, for mainly two reasons.

First, Indians perceived burger joints as a snacking destination rather than a meal joint. Second, at the time, the Indian food market was largely unorganized and mostly comprised street food stalls and roadside sellers, which accounted for 70% ($33.7 billion) of the sector. This meant the average Indian customer wouldn’t bother spending beyond their current limit on a relatively new offering.

The various solutions

Burger King India did what it had to do to survive: reduced prices  which was a smart way to attract Indian consumers from local joints that offered plenty of eating options at pocket-friendly prices. But Burger King India didn’t stop at that; it took a step forward and offered prices more or less at par with McDonald’s. Here’s a chart that shows Burger King India’s pricing strategy to compete with McDonald’s.https://live.amcharts.com/lmODE/embed/

Compared to its biggest competitor’s famed McChicken-fries-beverage combo, Burger King priced its signature flame-grilled chicken combo and chicken chilli at 11% and 5% low. On the Asian market front, the Whopper Burger maker had reduced prices by 89% in India. The competitive marketing strategy of Burger King India also helped it gain customer loyalty.

But slashing its prices to suit the Indian customer’s wallet wasn’t enough. In order to succeed, Burger King India had to also tailor its menu to suit the Indian palate, and local food culture and preference, which was mostly spicy and healthy  As the next establishment and expansion strategy, Burger King India capitalised on the fact that the majority of Indians were vegetarians and designed its menu accordingly. The burger giant offered three vegetarian variants of the Whopper Burger, while giving non-vegetarian consumers the options of chicken and mutton.

Financial performance of Burger King in India

Thanks to its high number of outlets, the burger giant has earned handsome revenues  in the last 3 years. Though the company is still not green in profitability, it is quite close when you look at its performance in the last 3 years.

Fast forward: Burger King India Ltd IPO 

Since Burger King India looks to be listed in early 2020, it filed the IPO documents with SEBI in November 2019,  keeping in mind that SEBI takes 4 to 6 weeks to screen and approve. As per the Burger King India IPO DRHP filed with SEBI, the burger giant plans to offer an IPO of Rs 1,000cr, which will comprise of:https://live.amcharts.com/c3MWZ/embed/

1. Fresh equity shares worth Rs 400cr
2. Secondary shares worth Rs 600cr sold by the major promoter Evernote Capital

all of which will be listed on BSE and NSE.

What does Burger King India Ltd IPO mean to its stakeholders?

Previously, notable players and competitors of Burger King India namely, Jubilant FoodWorks  (operator of Dominos in India) and Westlife Development  (runs McDonald’s in the southern and western India) went public. These QSR players are currently trading at high price-to-earnings multiples . Similarly, industry experts believe:

1. Burger King India IPO would attract high valuations due to the investor’s preference for consumer-oriented brands and offer a high premium to existing shareholders (that is precisely why Evernote is liquidating its shares).
2. Burger King India could revive the sluggish market for IPOs in India. Notably, only 13 companies had filed for IPO this calendar year, which saw a 45% dip year-on-year and the value had reduced by 188% to Rs 10,717cr.

Plans for utilising IPO funds

Thanks to the number of restaurants that Burger King India has established since its launch 5 years ago, the burger giant is known to be one of the fastest-growing international QSR in India. To fuel its growth further, Burger King India plans to utilise the fresh funds (to the tune of Rs 400cr) raised from IPO.

With this capital, it plans to establish new company-owned Burger King restaurants and also to use it for general corporate purposes. In addition to opening new restaurants, the burger joint also plans on banking upon opportunities offered by the online delivery market. So far, Burger King  has opened 202 restaurants across 47 cities across India (16 states and UTs).

Capitalising on the fact that India is becoming more acceptable towards consuming food offered by the international fast-food chains, the Whopper-maker plans to open new Burger King-owned restaurants using the net proceeds of the fresh funding of the IPO. By the end of 2020, Burger King looks to launch 325 stores as part of its aggressive growth strategy to outdo the stores run by McD. According to the Burger King India IPO DRHP, the burger giant looks to use as much as Rs 2.9bn of the IPO raised for this purpose.

Challenges to the Burger King in India Ltd IPO: National Master Franchise and Development Agreement

But the way to growth for Burger King India is not as easy as it seems. To enjoy greater control over operations, corporate affairs, and better growth opportunities, the QSR player had chosen to go with the national franchise instead of a regional one, which is valid until 31st December 2039. Though the master franchise and development agreement give Burger King India various opportunities, it also puts down certain obligations.

For instance, the agreement requires Burger King India to develop and open a minimum of 700 restaurants by 21^st Dec 2025. Failing to do this will terminate the master franchise and development agreement along with the development rights. Considering that Burger King India could only develop 202 restaurants in the last 5 years, establishing 498 more in the next 5 years is challenging.