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Restaurant Brand Asia Limited

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Brief Introduction

Restaurant Brands Asia Limited (RBA) is a publicly traded company headquartered in Singapore. It is the largest quick-service restaurant operator in Asia, with a focus on the Burger King and Pizza Hut brands. In addition to its franchise operations, RBA also has a strong presence in the food manufacturing and distribution sector, supplying ingredients and products to its restaurants and other customers. RBA is listed on the Singapore Stock Exchange and is majority-owned by private equity firm Affinity Equity Partners. The company’s mission is to be the leading quick-service restaurant operator in the Asia-Pacific region, delivering great food and customer experiences while creating value for all stakeholders

Q4FY24 Updates

Financial Results & Highlights

Detailed Results:

  1. Same-store sales growth was 23.1% for the year ending March 23. And for Q4, it was 8.3%.
  2. The revenues for FY ’23, Rs. 1,439 crores vs Rs 943 crores in FY ’22 a growth of 52.6%.
  3. The revenues for Q4 FY’23 were Rs 365 crores versus Rs 268 crores in Q4 FY’22.
  4. Gross profit continues to be 66.4% since the last three quarters and for FY23.
  5. EBITDA in Q4 FY’23 is Rs 66 crores at 18.3% EBITDA margin against Rs 47 crores at 17.8% EBITDA margin. EBITDA margins have gone up by 50 basis points.
  6. The company opened 88 new restaurants and closed 12 in FY23, taking the total count to 391 restaurants as on 31st March, 2023.
  7. 240 BK Cafes were opened in FY23 taking the total count to 275.
  8. On the Indonesian front, in Q4 FY ’23 the revenue was IDR 276 billion ( Indonesian currency) which is approximately  Rs. 165+ crores. 
  9. The dine-in and delivery mix is such that, delivery is at 43% and dine-in is 57%.
  10. EBITDA moved up from 8.2% to 10.4% on a pre-IndAS 116 basis. 
  11. Company-level EBITDA margin moved from 11.3% to 11.6%.
  12. Employee rate expenses went up by 10.6%.

Investor Conference Call Highlights:

  1. The company currently has 15 restaurants that are now under construction and 38 are in the pipeline as the growth story continues.
  2. BK app revenues grew 327% year over year with 6.2 million apps installed, 107% growth over the last years installed. The company shall continue to spend on the app and continue to work with aggregate partners while servicing consumers both on dine in as well as delivery. 
  3.  Store count is 186 in Indonesia as of March 31, 2023. 
  4. Popeyes in Indonesia has 10 healthy stores which are doing sales at two and a half to three times the volume of the Burger King business. 
  5. The company is going to build additional 25 to 30 stores for Popeyes in Indonesia towards the end of the year.
  6. The management is very excited and positive about Indonesia and wants to lay the foundation for the next 5 to 10 years in the country.
  7. The company has now got two new versions for Chicken in Burger King Indonesia. These are the revamped versions.
  8. The management states that 60% to 70% sales in Indonesia are in the chicken area at an industry level.
  9. The management continues to have focus to improve the dine-in share of the business because that is where they believe the customer experience is at its best. 
  10.  At the company EBITDA level it was at 2.5% with cash generation of Rs.36 Crores. 
  11. The company launched the brand Popeye in Indonesia towards the later part of the year and spends in order to launch the brand stand at almost Rs.6 Crores to Rs.7 Crores.
  12. The management expects that brand should do high teens in terms of store level EBITDA as the performance in FY2024 and start seeing meaningful numbers coming out.
  13. The Indian business with the veg chicken, mutton whopper and indie tikka whopper are three variants which are designed specifically for Indian guests and they continue to be amongst the highest whopper selling markets in the Burger King world. 
  14. The company also launched a 100% veg restaurant that serves no onion and no garlic menu on the Vaishno Devi Pilgrimage
  15. During the year, the company carried out an extensive training program for 100% of operators and 100% of crew members to make sure that they are retrained on products, bills and so on so that they are fully ready to deliver and create customer experience.
  16. The management plans to reach 450 stores by FY2024 and has postponed its 700 stores target from December 2026 to FY2027. 
  17. The management gives a guidance of 10% SSSG growth by end of FY24. After which, a growth of 8% YoY is expected there-on.
  18. The management gives a guidance of 67% Gross profit margins for FY24, after which it is expected to improve by further 2% over the next few years. 
  19. The management gives guidance of getting at cash breakeven in Indonesia by the end of FY24.
  20. The company plans to get Popeye stores in Indonesia upto 25 stores by March, FY24.

Analyst’s View:

Burger King is one of the leading QSR chains around the world. Restaurant Brands Asia is the master franchisee of Burger King in India. The company grew by 29% YoY in revenues while PAT went down by 9% YoY. BK Cafe continues to expand rapidly and was perhaps one of the fastest-growing cafe concepts in the year. The BK app is also seeing good traction and orders coming in while dine-in sales are expected to grow faster going forward. Because of the strategies that the company is planning in Indonesia it is expected that additional traffic coming in, additional sales coming in. It is expected that very, very strong numbers will be delivered by Popeyes in FY ’24. It remains to be seen what challenges will the company face in its expansion in both India and Indonesia, and how will the rising competition in the QSR space in India pan out for it. Nonetheless, given the high potential of the QSR sector, the strong brand of the Burger King franchise and the rapid planned expansion of the company, Restaurant Brands Asia is a pivotal QSR sector stock to watch out for.

Q3FY24 Updates

Financial Results & Highlights

Detailed Results:

  1. Same-store sales growth was 28.1% for the 9 months ending in December. And for Q3, it was 8.6%.
  2. The revenues for 9-month FY ’23, Rs. 1,074 crores Rs 670 crores in FY ’22, So, this is a growth of 59.2%.
  3. The revenues for Q3 FY’23 were Rs 370 crores versus Rs 368 crores in Q2 FY’23.
  4. Gross profit continues to be 66.4% since the last three quarters.
  5. EBITDA in Q3 FY’23 is Rs 71 crores which is 19.2 % against Rs 60 crores which is 16.5 %. So EBITDA has gone up by 270 basis points
  6. In the Burger King upfront there was an increase in  revenues by 16% this quarter.
  7. On the Indonesian front, in Q3 FY ’23 the revenue was IDR 296 billion ( Indonesian currency) which is approximately  Rs. 156 crores. 
  8. The dine-in and delivery mix is such that, delivery is at 42% and dine-in is 58%.
  9. Gross profit continues to remain at 66.4%.
  10. EBITDA moved up from 8.2% to 10.4% on a pre-IndAS 116 basis. 
  11. Company-level EBITDA moved from 3.2% to 4.2%.
  12. Employee rate expenses came down by 1.2%.
  13. The company continues to still remain at an overall ADS in terms of Indian rupee terms of 96,000 to 98,000 INR basis. 
  14. Rs. 23 crores is a steady state run-rate for non cash. Including cash and noncash, Rs. 22.5 crores, Rs. 23 crores is the run rate.

Investor Conference Call Highlights 

  1. The management states that they continue to maintain a decent gross margin despite all the inflationary pressures on their business.
  2. The company had 379 restaurants as of 31st December 2022, opened a net of 45 restaurants in Q3 FY ’23
  3. The management stated that there were 5.5 million app installs which is 17% growth over last quarter in the installs.
  4. The management stated that Indonesia business now has 2 elements. One is the Burger King Indonesia business and the other one is the launch of Popeyes.
  5. The management stated that in Q3 the loss was at IDR 34 billion over the Q2 where the loss was IDR 31 billion. This loss was actually only IDR 22 billion. The other IDR 12 billion that is added on there is the launch of their Popeyes restaurant in Indonesia.
  6. The company is planning to build the Whopper franchise for which the product level work is already completed.
  7. The company wants to double its chicken business that is bone in chicken concept as it is 30% of the burger king sales at present in Indonesia. For this the company aims to offer 2 levels of chicken, a spicy and a base classic level. 
  8. The management also stated the further plans of the company is to build a premium layer by offering premium burgers.
  9. The management believes that Popeyes launch in Indonesia was one of the best Popeyes launches that there has been globally for Popeyes. The 4 stores that they have opened, they are doing IDR 60 million ADS. The management also expects to do a very, very high ADS compared to Burger King.
  10. The management stated that despite the 5% reduction in ADS because of some headwinds they have still been able to maintain overall revenue trajectory because of the growth in cafes as a business as well as the store openings.
  11. For the winter season, the company launched some limited time season specials such as cinnamon flavor drinks, Masala Chai, which now completes their hot beverage portfolio in the Cafe menu.
  12. The company aims to continue to build a brand focused on millennials and Gen Z through a variety of engaging programs on social media.
  13. The management states that their aim is to achieve 25% same-store growth for this year. And next year, they continue to currently maintain a 7% to 10% SSG.
  14. The management stated the reasons for  ADS drop from 127,000 to 120,000. One is that the traffic was softer in the month of December specifically. Another is that mall traffic was also muted.
  15. the company remains confident of delivering a 7% to 10% same-store growth for next year
  16. The management stated that the increase in corporate SG&A is on account of how the ESOP grants that were done during the quarter, it’s a non cash adjustment to the number. The impact of that is anywhere between Rs. 1.5 crores to Rs. 2 crores.
  17. The management stated that the marketing fund goes up by about 40%.
  18. The management stated that the dine-in business takes a little while to build and they did a lot of marketing. This year, they spent a lot of money on local store marketing to introduce these restaurants in the communities.

Analyst’s ViewBurger King is one of the leading QSR chains around the world. Restaurant Brands Asia is the master franchisee of Burger King in India. BK Cafe continues to expand rapidly and was perhaps one of the fastest-growing cafe concepts in the last year. The BK app is also seeing good traction and orders coming in while dine-in sales are expected to revive going forward. Because of the strategies that the company is planning in Indonesia it is expected that additional traffic coming in, additional sales coming in. It is expected that very, very strong numbers will be delivered by Popeyes in FY ’24. It remains to be seen what challenges will the company face in its expansion in both India and Indonesia, and how will the rising competition in the QSR space in India pan out for it. Nonetheless, given the high potential of the QSR sector, the strong brand of the Burger King franchise and the rapid planned expansion of the company, Restaurant Brands Asia is a pivotal QSR sector stock to watch out for.