Thread by @TheCaptain182

#burgerkingIndia - A company worth keeping an eye on over the next few years.

It is part of the high growth QSR industry which has secular tailwinds.

Sharing some notes:

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First the industry -

QSR (Quick Service Restaurants) space is expected to grow at around 20% and is expected to be 75-80,000 cr in 2025. In FY'20, it was at 35,000 cr.

Young demographics & a growing middle class is a big tailwind for the industry.

Its peer #jubilantfoodworks has been on a tear since its IPO. It's a cool 30 bagger since 2010. They have about 1350 stores in the country presently - the highest.

Coming to the company -

@burgerkingindia has about 270 stores presently & management wants to take that to 700

by Dec'26.

They expect SSSG (same store sales growth) to be 5-7% from FY'22 onwards. Combine that with about 20% growth in stores over the next 5 years (270 to 700 in 5 yrs ~ 20%), we can expect topline growth to be about 25% (if management walks the talk, of course).

On the margins front, gross profits are about 65% which is expected to improve by 200bps to about 67%. But on the operating costs, I expect a lot of operating leverage to kick in once the store count starts increasing.

Restaurant EBITDA is just 10% & company EBITDA is at a

meagre 4%. I expect substantial improvement in these metrics.

If that happens, we can expect bottom line to grow 25-30% minimum over the next few years.

I like the fact that the company has a negative working capital business model, and its CFO is almost equal to EBITDA.

Lot of cash is getting generated from operations which will aid the capex for the new stores.

The company has 5% market share in the Indian QSR industry & I expect that to rise in the next few years.

They have the highest sales/ per square feet of Rs. 31,000 in the industry.

The anti-thesis for this story is that they are not generating any profits for now as their occupancy & other expenses is very high (~40% of revenues).

This is something to watch out for over the next few quarters & ideally I would like to see some cash dripping down to the

bottom line before I put my money in the company's stock.

Valuation wise, the stock appears expensive at 7 x FY'20 sales & 55 x EV/EBITDA. P/E ratio not applicable here as the company has no earnings.

I don't mind paying 5 x sales as the private QSR companies are valued at

around that multiple.

Technically, the chart is making a typical IPO base after profit booking when the stock doubled in 3-4 days. I expect the stock to base for a few more weeks/ months & for now, it appears that the left side of the base is complete as the stock is being

slowly accumulated.

I say that because if you watch the volume bars closely, up days are on higher volumes than the down days, but this may not be correct.

Like I mentioned, this company is on my watchlist & I'll be monitoring its quarterly results closely, before I pick up

shares. I'll tweet about it when I buy. But first, I want to see the management deliver its promise of opening more stores rapidly & improving the margins.

This is not a recommendation & pls do your own DD. I might be wrong.

Pls RT if you found this thread useful.

Thank you.🙏