I stand corrected. It looks like it is denting American companies.
There are arguments against too.
For:
Against:
However, BK Indonesia is in trouble since around 2021. Israel conflict is just a year old. If BK Indonesia quote Israel boycott as reason - that’s unacceptable.
So there were COVID related disruptions during 2021, they were coming out of it during 2021-2022. And geopolitical tensions started 2022 onwards.
Ofcourse, when the related party Indonesian business was being done, we can question the valuation at which the Indonesian business was purchased.
But current investment thesis should be whether the business as a whole at 4000cr valuation is attractive or not.
The ₹4100 Cr M-Cap optically looks very attractive given the brand & its network in India, especially on a M-Cap / Revenue basis. Even though the market potential & growth opportunities are significant, I am unsure if RBA can capitalise on the QSR potential & growth.
I disagree with RBA management’s view on subdued demand. The segments and price points where RBA operate are witnessing steady demand growth. Burger King primarily targets students and aspiring middle-income individuals / families/ groups. There is intense competition from standalone domestic players offering similar products at even lower prices, despite RBA’s already competitive pricing & value offerings.
Although SSSG is steady, the shift of both existing and new customers toward domestic alternatives are impacting RBA India’s revenue growth. Even with a growing QSR market, I’m uncertain about RBA’s ability to capitalize on the QSR opportunity.
Other Red flags in my view are:
Disc: Holding a minor position in RBA from higher levels.
completely agree to all the points mentioned. to add on to this - the dilution will also lead to markup in valuation per store by atleast 10-15%. Also, till indonesia comes out of woods, it looks like a plagued company where cash drain will lead to higher debt levels and frequent equity raises.
diclosure - was 20% allocated for 2 years and recently exited completely after the news of loans being given to indonesia subsidiery.
The demand is subdued not only for RBA, we are sort of seeing it across the QSR and FMCG sector, even other sectors. I agree with the competition from domestic players, but there is enough scope for everyone to co exist.
Indonesian operations need to improve, but the boycotts are out of the managements hands and is faced by all peers and not only BK / Popeyes.
BK India already has 464 stores as of Q2FY25, which I believe would be 500+ as of Q3FY25. They need 200 more stores, at 2.6cr per store, it comes to 520cr. So I don’t believe further QIP after this one should be required for target completion.
RBA also has 149 BK and 25 Popeyes stores. You are assigning 0 value to them for coming at 8.8cr valuation per store.
@Vineet_Bhatia
valuation per store would increase, but the 500cr (or whatever the fund raise), will be with the company. I believe Indonesia business won’t be the main focus of the fund raise. They are focussed on stabilising the operations there first rather than expansion.
Disc: Holding a small position purchased recently. Adding more gradually.
You are assuming that post 700 target the Master franchisee agreement doesnt include higher targets for future. Its very much possible they will need to continue expanding stores (not really a negative here but just highlighting that expansion may continue beyond 700 stores)
I was replying to pskrishnan who mentioned “The latest QIP is likely to be followed by more if RBA wants to achieve their target of 700 outlets”.
Cash burn ( operating cash flow - lease payment - capex) for Indian business has reduced from 250 cr in Fy22-23 to 80 cr in fy23-24. Similarly cash burn in Indonesia business has reduced from 160 cr to 110 cr. At similar level of capex, it would take the company atleast 2 yrs to start generating FCF. However, with real estate prices increasing over last 2 yrs, won’t be surprised if it takes longer.
P.S. — Invested. Might exit post result if cash burn value doesn’t come down significantly.
The issue is not cyclical but here to stay…
Unilever is facing the pro Gaza backlash and I feel so is every other international brand across category…on top of that the economy isn’t that great
At these levels, valuation seem very reasonable and risk to reward seems skewed in favour of a buy. In a year’s time the revenues should reach 700cr on a quarterly basis which should mean a Price to revenue valuation of 1.5. Operating leverage will eventually kick in (when probably is the key 
). But if it does happen in a year’s time then the price to sales valuation should be close to 4-5 times (industry avg) which would mean a 3x possibility.
Any counter arguments to this thesis ?
Hopefully we’ll see better times for those in the war zone as well as the boycott movement slowing down now. This should augur well for the Indonesia business.
