Q3 FY24-
Slow growth bcz of mix of both which is decline in consumer demand, discretionary spends and also increased supply which is for restaurants.(many organised and unorganised Restaurant opened up, but to see how many survive)
And there has been better realization on our beverages. There are some offers that used to run on beverages, which once we removed, we haven’t seen any impact on those beverage sales and has positively contributed to our gross margin.(Beverage is a higher margin product)
We plan to add 25-30 new restaurants in FY25 and broadly 50% of this will be for Barbeque Nation brand and the balance 50% would be for both Toscano and Salt
So, barring the reclassification adjustment there is approximately 2%-2.5% improvement in gross margin between quarter one and quarter three
Like I said there are four attributes of margin improvement. First one is improvement in gross margin. Second is the impact of portfolio rationalization, which means that some of the closed store margins are obviously dragging. And the new store that now added to the matured portfolio they are performing better than what the closed stores were performing. So, overall percentages have improved. Third is obviously cost initiative, the multiple initiatives taken some of the examples that I gave recently, and fourth is operating leverage.
So, if the revenues dip in quarter four, then to some extent margins will dip only to the factor of operating leverage, but the other three initial factors will continue to play
So, basically if I were to just say it in a nutshell supposing if you deliver, let’s say 4% to 5% positive SSSG in FY25, then the full year margins would be possible in that 13.5% to 14% region
We can do two to three international stores. International business is delivering around 20% EBITDA margin. So, there is cash accumulation there and we may open new stores based on the availability of good sites, we will utilize that same cash to expand.
Barbeque nation was incubated in Sayaji Hotels (its listed parent), but it came up with IPO as partial subsidiary sale, with no benefits accumulating to Sayaji minority shareholders.
This creates doubt in my mind, if promoters have any intention of sharing wealth with minority shareholders, even if Barbeque nation is successful.
Even if one is bullish on Barbeque, despite promoter issues, why not invest in the parent that trades at considerable discount?
Disclosure - No Position.
4 Likes
The float is completely cornered in Sayaji Hotels. Very tough to build a meaningful position. All family members are in the public category and have around 20% or so, with a total of only 3000 shareholders.
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Barbeque-Nation Q1 FY25 Analysis: Key takeaways!!
Barbeque-Nation faced a challenging operating environment in Q1 FY25, with negative same-store sales growth (SSSG) of 7.4%. However, the company is seeing gradual month-on-month improvement in SSSG numbers over the last 4 months. Management expects things to improve further during the rest of the year, particularly from Q3 onwards. The company remains focused on maintaining best-in-category guest experience to drive dine-in footfalls.
Strategic Initiatives:
- Focus on existing network and pausing restaurant additions to protect margins and cash flows.
- Implementing cost and efficiency initiatives to improve operating margins.
- Investing in restaurant culinary experience and asset upgradations to drive core dine-in business.
- Targeting to add 100+ restaurants over the next 3 years to achieve a network of 325 restaurants by FY27.
- Building a portfolio of scaled F&B brands across different segments.
Trends and Themes:
- Gradual improvement in SSSG numbers over recent months.
- Premium dining segments (Toscano and Salt) performing better than value segments.
- Regional variations in performance, with North and East markets showing positive SSSG.
- Shift towards premium dining experiences.
Industry Tailwinds:
- Potential consolidation in the industry as smaller, unorganized players face challenges.
- Growing demand for premium dining experiences.
- Delivery segment creating new demand and expanding the overall market.
Industry Headwinds:
- Subdued discretionary spending affecting the casual dining segment.
- Increased competition and new supply in the market.
- Inflationary pressures impacting consumer spending, especially in value segments.
Analyst Concerns and Management Response:
Concern: Negative SSSG and its impact on profitability.
Response: Management highlighted improving trends in recent months and expects further improvement from Q3. They are focusing on cost control measures to mitigate the impact of negative operating leverage.
Concern: Impact of rising vegetable prices on margins.
Response: Management clarified that vegetables form a small part of their overall purchase basket, and the impact on gross margins is minimal. The meat basket (chicken, prawn, mutton, fish) has a more significant impact on margins.
Competitive Landscape:
The company faces increased competition in the casual dining segment. However, Barbeque-Nation believes its strong tech-driven backend processes give it an advantage in scaling brands efficiently.
Guidance and Outlook:
- Targeting 25-30 new store additions in FY25.
- Expecting to reach 240-245 stores by the end of FY25.
- Aiming for 100+ new restaurant additions over the next 3 years.
- Anticipating further margin improvements with gradual demand recovery.
Capital Allocation Strategy:
The company is focusing on maintaining robust EBITDA to cash conversion. They delivered around INR 20 crores of cash profit in Q1, an increase of 17.4% compared to the same period last year.
Opportunities & Risks:
Opportunities:
- Expansion into new cities with premium brands (Toscano and Salt).
- Potential for market share gains as the industry consolidates.
- Growing demand for premium dining experiences.
Risks:
- Continued weakness in discretionary spending.
- Seasonal fluctuations affecting demand, particularly for non-vegetarian offerings.
- Increased competition in the casual dining segment.
Customer Sentiment:
Management noted a shift towards premium dining experiences, while value segments face pressure due to inflationary impacts on consumer spending.
Top 3 Takeaways:
- Despite negative SSSG, Barbeque-Nation improved its operating margins through cost control measures and efficiency initiatives.
- The company is seeing gradual improvement in SSSG trends and expects further recovery from Q3 FY25.
- Barbeque-Nation is focusing on network expansion and brand diversification, targeting 100+ new restaurant additions over the next 3 years across its portfolio of brands.
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Barbeque Nation Hospitality has completed the acquisition of an additional stake in its subsidiary, Red Apple Kitchen Consultancy Private Limited . This acquisition brings the company’s total ownership in Red Apple to 86.57%.
