Restaurant Brands Asia Limited (RBA), formerly known as Burger King India Limited, has seen a slow recovery post-Covid. As a result, the stock is down 25.6% calendar year on the BSE. The sentiment towards other quick-service restaurant operators is also muted. For example, shares of Westlife Development Ltd., which owns and operates McDonald’s restaurants, are down 18.3% in 2022.
But in the case of RBA, the sense of decline is more pronounced.
see full image
This is due to the company’s 55% mall-centric portfolio and dine-in centric model, which contributed nearly 70% to revenue pre-Covid, note analysts at Nirmal Bang Equities Pvt. Ltd. in a report on June 1. Simply put, higher exposure to these segments has had an impact on the overall recovery of the company.
However, with Covid cases and lifting of restrictions, RBA is seeing an improvement in average daily dine-in sales (ADS), which stood at 96% of pre-Covid levels in May. Delivery ADS, on the other hand, crossed the pre-Covid levels.
The company plans to expand its presence by adding stores. The number of stores stood at 315 at the end of FY 2012. In fiscal 2013, management aims to reach 390 stores and has guided for 25% same-store sales growth (SSSG). It has seen an SSSG of 7-10% from FY24. The guidance for FY24 has been revised upwards due to the increased momentum seen for BK Cafe.
RBA plans to reach 200 BK cafes by FY 2013 and 300 by FY 24. This number was 35 at the end of FY 2012. Note that BK Cafe is a high-margin business.
Apart from recovery at cafe and dine-in, cost control measures will help RBAs to expand EBITDA (earnings before interest, taxes, depreciation and amortization) margins.
While this commentary bodes well for the near-term outlook of the stock, the re-emergence of coronavirus in key states like Maharashtra poses risks to operations.
In addition, with respect to operations in Indonesia, although the Covid-led restrictions are being lifted, margin recovery will remain a key monitorable.
Against this backdrop, investors would do well to closely track the execution of store openings as any disappointment on that front would be disappointing.
Meanwhile, following the recent fall in the share price, analysts say that the stock is trading at a discount to its peers. However, the risks mentioned above need to be monitored.