Burger King more than doubles in stellar market debut. Should you stay put?

The company intends to utilise the issue proceeds to finance the roll-out of new company-owned Burger King Restaurants and to meet the general corporate purposes

Shares of Burger King India (BKIL) made a strong market debut at the bourses on Monday as the stock of the quick-service restaurant (QSR) more-than-doubled against its issue price. The stock ended at its 20 per cent upper circuit limit of Rs 138.40, a 131 per cent premium over its issue price of Rs 60 on the BSE. On the NSE, the stock ended at Rs 135, up 125 per cent against its issue price.

The stock got listed at Rs 115.35, a 92 per cent premium over its issue price on the BSE. On the NSE, it debuted at Rs 112.50, a premium of 87.5 per cent. The counter witnessed huge trading activities with a combined 205.89 million equity shares of BKIL changing hands on the NSE and BSE.

The QSR chain's Rs 810 crore initial public offer (IPO) received an overwhelming response from investors, with the public offer being subscribed 156.65 times. The issue generated bids for 11.7 billion shares, worth Rs 70,000 crore, as against only 75 million on offer—making it one of the most-subscribed IPOs ever.

The company intends to utilise the fresh proceeds to finance the roll-out of new company-owned Burger King Restaurants and to meet the general corporate purposes.

BKIL, analysts say, is a play on organised QSR space, which is pegged to grow at annualized rate 19 per cent to Rs 82,500 crore over the next five years. Some peg the growth rate to be even higher for organised players as the unorganized sector has been badly hit by the pandemic.

"The sustained improvement in the gross margins which stood at around 64 per cent in FY2020 and negative working capital aiding operating cash flows to improve over FY2018-20. FY2021 will be the year of disruption for the QSR industry as Q1FY2021 performance was disrupted by shut down of stores during the lockdown period in India. Strong franchisee model, negative working capital, market share gains from standalone players, and strong store expansion plans would help in improving growth prospects in the coming years," analysts at Sharekhan said in IPO note.

Should you book profit?

After the stock's stellar debut, analysts suggest investors to take profits off the table as the company is a loss-incurring unit and may continue to remain in the red over the next few years.

"An over 90 per cent premium is an impressive listing gain. However, the company holds only 5 per cent market share and has been incurring losses for a while. And even though they have huge expansion plans to open 700 restaurants by Dec'2026, one would need profits to execute it. Moreover, if they do expand, they are likely to widen their losses... Therefore, we believe, the company is unlikely to make profits over the next two years.. Therefore, one should book their listing gains and exit," says AK Prabhakar, head of research at IDBI Capital.

Burger King India reported losses in FY18, FY19, FY20 and H1FY21 leading to negative retained earnings of Rs 462 in H1FY21. This has resulted in erosion of substantial portion of its other equity.

S Ranganathan, head of research at LKP Securities, too, opines that investors can book profits on half of their initial investment and hold the balance half for long term gains as the company may reap benefits of a fast-growing QSR space.

That said, Gaurang Shah, head investment strategist at Geojit Financial Services, says that while those investors who had invested in the IPO via borrowing should book profit and pay off their obligation, others could stay invested for long-term gains.