Barbeque Nation Hospitality IPO to open today; should you subscribe?

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Casual dining chain Barbeque Nation Hospitality Rs 452.87 crore initial public offering (IPO) is set to hit primary market on Wednesday. Barbeque Nation Hospitality is backed by private equity investor CX Partners and renowned stock market investor Rakesh Jhunjhunwala’s investment firm Alchemy Capital. The public offer comprises a fresh issue of equity shares worth Rs 180 crore and offer-for-sale (OFS) worth Rs 272.87 crore by promoters and shareholders.

The price band for the IPO has been fixed at Rs 498-500 per share of the face value of Rs 5 each. Investors can bid for a minimum of 30 equity shares and in multiples, thereafter, translating to a minimum bidding amount of Rs 15,000 at the higher end of the price band. A retail investor can at max apply for 13 lots or 390 shares for 1,95,000.

Ahead of the IPO, the company has raised Rs. 202 crore from 15 anchor investors.

The company has already raised Rs 150 crore through a pre-IPO placement from Xponentia Capital and Jubilant Foodworks. According to the red herring prospectus the placement was done at an issue price of Rs 252.

Returns delivered by peers: Here are the returns delivered by peers of Barbeque Nation Hospitality on the exchanges.

Brokerage View:

YES Securities – Avoid Despite relatively high EBITDA margins, the company has not yet turned profitable given the high depreciation and interest costs which have ballooned on account of aggressive store expansion. Margins have also been coming down due to losses in international stores in FY19 and COVID impact in FY20 and 8MFY21. Post the pre-IPO fundraise and IPO, debt should come down which can take the company close to profitability if the pace of expansion is controlled. In the last 3 years, store expansion CAGR has been higher than revenue CAGR indicating the weak performance of new stores. Therefore, strong SSSG rates for stores opened in the last 3 years is crucial for the company to reach its target of becoming profitable. Some concerns on valuations in light of near-term headwinds.

Angel Broking – Neutral “While the company has posted revenue growth of 20% CAGR between FY18-FY20 it has been continuously incurring losses at PAT level despite topline growth. The Covid-19 pandemic too has had an adverse impact on the operations of the company hence we expect profits will remain under pressure over the medium term. At the higher end of the price band the company is asking for a valuation of 2.4x FY20 EV/Sales which we believe is expensive given the current environment and hence we recommend a “NEUTRAL” rating to the IPO,” noted the report by Angel Broking.

Marwardi Shares and Finance – Not Rated “The company is going to list at EV/Sales of 2.41 times based on its FY20 sales with a market cap of Rs.18,771 million. Despite an increase in the number of the Barbeque Nation Restaurants and growth in consolidated revenues, the company have incurred losses in some of the recent fiscals. There can be no assurance that the consolidated or standalone net profit will not decline in future. We have a ‘Not Rated’ rating on the Barbeque Nation IPO,” stated the report.

AUM Capital – Not Rated “Barbeque Nation Hospitality is very decisively placed and positioned in the casual dining restaurant chain market in India which has been flourishing really well and it also represents the 2nd largest share in the chain food services market. Considering the risk of rising Corona Cases, lockdowns and restrictions in some parts of the country, negative bottom line & book value. We are not rating the issue,” noted the report.

(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)