Burger King India shares advanced 4 per cent to Rs 132.6 apiece on the BSE in the intra-day trade on Tuesday after rating agency ICRA upgraded the firm's long-term ratings. Besides, the agency also revised the outlook from 'negative' to 'stable'. ICRA, on Monday, revised Burger King India's Long-term/Short-term unallocated amount's rating to ICRA A-/ICRA A2+, ICRA BBB+/ICRA A2.
"The ratings upgrade takes into account significant improvement credit metrics of Burger King India Limited’s due to prepayment of entire debt on its balance sheet following successful completion of IPO in Dec 2020," the agency said in its rating rationale.
The company raised fresh equity of Rs 600 crore (including Rs 150 crore through private placement) during the year which, in ICRA's opinion, will allow BKIL to fund its planned capex in the near to medium term with minimal reliance on borrowings, if any. Hence, it has provided notable boost to the capitalisation profile over the medium term, it said.
Quick restaurant chain Burger King India had raised Rs 810 crore through public issue which was subscribed 156.65 times. The company had said it planned to utilise issue proceeds for debt repayment and expansion.
The ratings continue to take into account the strong recognition of the Burger King brand worldwide as well as in the domestic market, the company’s demonstrated ability to raise funds from investors and market and its experienced management team. In addition, ICRA draws comfort from the diversified product portfolio designed as per Indian consumer taste and BKIL’s geographical presence across India.
That said, the rating is constrained by the company's exposure to execution risk owing to aggressive expansion plans over the medium term and its muted return on capital employed (RoCE) given the under absorption of fixed costs on account of stabilisation of new stores still a work in process. The agency notes that the judicious funding plan for the aggressive expansion plan and compliance with the terms and conditions laid out in the master franchise development agreement (MFDA) for ongoing operations, remains critical from credit perspective.
"The business also remains vulnerable to external shocks such as outbreak of Covid-19 which the industry faced, as well as general demand scenario issues which are linked to performance of the economy," it said.
At 11:09 am, the stock was up 2.8 per cent on the BSE at Rs 131, as against a 0.57 per cent rise in the benchmark S&P BSE Sensex. Since its listing on December 14, the stock has declined 8 per cent on the BSE, relative to a 6 per cenr gain in the Sensex.