Burger King Shares More Than Doubled On The Listing: Should You Buy, Hold Or Sell?

Analysts had expected the IPO to list at around 75% premium over issue price as it was already trading at a 75% premium in the grey market.

(File Photo/ Getty)

New Delhi: Quick service restaurant (QSR) chain Burger King India shares made a strong debut upon listing with a premium of 92.25% on Monday over its issue price of Rs 60 and soon more than doubled to 138.4 in a firm Mumbai, registering an intra-day gain of 130.7%. The listing gains were better-than-expected given the stellar subscription and consistent strong revenue growth as well as store additions over the past more than five years of operations. Analysts had expected the IPO to list at around 75% premium over issue price as it was already trading at a 75% premium in the grey market. Even as Burger King shares more than doubled to Rs 138.4 on Monday, valuing the company at Rs 5282.1 crore, analysts recommend the short term investors to exit and long term investors to hold on to the stock. Abhimanyu Sofat, Head of Research, IIFL Securities, told ABP Network, "Considering the bumper listing gains, Burger King has entered into higher valuation territory. If an investor has a short-term, they may exit above Rs 116 levels. However, considering the strength and earnings visibility of the company helped by a consumption economy like India, one could see this as a long-term investment," Echoing similar feelings, Keshav Lahoti, Associate Equity Analyst, Angel Broking Ltd, said, "Short term investors can book profit. We advise long term investors to stay invested in the company as there is ample scope available for the company to increase its business in India." The Rs 810 crore initial public offer (IPO), which closed on December 4, was subscribed 156 times, making Burger King India the fourth mainboard IPO this year, which saw bidding of 100 times and more. The other three were Mazagon Dock Shipbuilders (157.41 times), Happiest Minds (156.65 times), and Chemcon Speciality (149.3 times). Mazagaon Dock, Chemcon Speciality, and Happiest Minds got listed at a premium of 50%, 115%, and 111% premium to their offer price. According to Mr. Lahoti, the stellar listing was in line with expectations as the company issue was priced at a significant discount compared to listed peers such as Jubilant FoodWorks (Domino's Pizza) and Westlife Development (McDonald). Among the QSRs, Domino's Pizza had the highest market share in terms of sales at 21% in FY20, followed by McDonald' 11%, KFC 10%, and Subway 6%, while Burger King commanded a 5% market share in the QSR sub-segment at the end of FY20. Burger King saw a sales growth of 56.3% between FY16-20 compared McDonald's 17% and Domino's 12% during the same period. Even after such bumper listing, there is no issue with the company's valuation, according to Angel Broking, as it expects the company to gain market share by opening more stores than the competitors from now on. "As the store count will increase, operating leverage will kick in, and the company will be able to report a profit, and it will lead re-rating of the multiple for the stock," said Mr. Lahoti. As the national master franchisee of the Burger King brand in India, Burger King India has exclusive rights to develop, establish, operate, and franchise Burger King branded restaurants in India. As of September 2020, the company had 261 restaurants, including eight sub-franchised Burger King Restaurants across 17 states and union territories and 57 cities across India, as per the offer document. Burger King has a target to increase its number of restaurants to 700 by the end of December 2026. Paras Bothra, president of equity research at Ashika Stock Broking, told ABP Network, "The short term investors should sell while the long term investors should stay invested in the stock as it has lots of potentials to grow in the Indian market." While Burger King's shares were trading at a 130.7% premium, shares of its listed peers Westlife Development and Jubilant FoodWorks shares were trading in the red. Shares of Westlife Development was trading down 2.4% at Rs 427 while Jubilant FoodWorks shares marginally down at Rs 0.5% at Rs 2635 in a firm Mumbai market on Monday. When asked for comments, Utkarsh Sinha, managing director Bexley Advisors, a boutique investment bank firm, told ABP Network, that the F&B sector is likely to see a rebound, and prevailing sentiment about the advent of a vaccine and life returning to normal is likely buoying the sector. The other key operator in the space, Specialty Restaurants, has also seen a bounce back in its value - rising nearly doubling from its post-pandemic low. As long as the pathway to full re-opening remains clear, the sector will see an expression of pent-up demand that will likely keep multiples strong in the space."