Barbeque Nation IPO - A Simplified Analysis

"Don't like this plate? Well, we have another for you." -- no, you won't hear this often unless you are in a buffet. We know a buffet excites you. But there is something to thrill you even more. Yes, your favourite buffet venue, Barbeque Nation's IPO, is opening for subscription on March 24, 2021.

But before you eat up this IPO plate, let's evaluate its health quotient. So, read on as we analyze the ingredients that go into deciding whether Barbeque Nation's IPO platter matches your appetite or not.

At the outset, let's begin with a background of the company.

Barbeque Nation Hospitality Ltd. – Company Info

Barbeque Nation, a leading chain casual dining restaurant, is owned by serial entrepreneur Kayum Dhanani and is the brainchild of his brother Sajid Dhanani. The story dates back to 2006 when Sajid, who ran the well-known Sayaji Hotels in Indore, once came across customers complaining of cold appetizers. He thought of experimenting by bringing a 'live grill' to the customer's table. You see, buffets were always there in five-star hotels, but 'live grill' took off as a concept. And since its first outlet came up in Mumbai, there's been no looking back. It's come a long way to establish 138 outlets across India and 7 worldwide. Wotta journey!

'Do it yourself (DIY)' and 'cooked at the table' concepts are its forte. It pioneered the idea of "over the table barbeque", i.e. live grill on the dining table to allow users to grill their barbeque at their own tables. Its unique selling proposition besides the 'live grill' thing is the "all you can eat" 'at a predetermined fixed price' concept.

Barbeque Nation also owns and operates Toscano restaurants, UBQ and Red Apple's Italian restaurants in India.

Promoters: Sayaji Hotels Limited, Sayaji Housekeeping Services Limited, Kayum Dhanani, Raoof Dhanani, and Suchitra Dhanani (pre-IPO promoters' holding ~ 60.21%)

Investors: Jubilant Foodworks Ltd. had bought a 10% stake in Barbeque Nation in Jan 2021. Beside others, Rakesh Jhunjhunwala's Alchemy Capital holds a 2.05% stake in the company.

Financials of Barbeque Nation Hospitality Ltd.

Okay, now that you have some idea of the primary recipe, i.e. the company and its fundamentals, let's have a look at the spices, i.e. details of the IPO.

Key details of Barbeque Nation's IPO

The IPO will remain live for subscription from March 24 to March 26, 2021. The shares will list in the stock exchanges, most probably, on April 7, 2021.

Application range details

Objects of the issue

This IPO of Rs. 452.87 Crores is actually a mix of Fresh Issue and Offer For Sale (OFS). The bifurcation is as follows -

1. Fresh Issue: Fresh Issue is, basically, the issuance of new equity shares that brings in fresh money into the company. Simply put, the company receives the proceeds only from Fresh Issue and not from OFS. This IPO will have a fresh issue of Rs. 180 Crores, which shall be utilized for the following objectives:

• Rs. 55 Crores for funding Capex for expansion and opening of new restaurants
• Rs. 75 Crores for funding prepayment or repayment of all or a portion of debts
• Rs. 50 Crores for general corporate expenses

2. Offer For Sale (OFS): OFS is simply an exit route for existing promoters/investors. The company does not receive this amount. This IPO will have an OFS of Rs. 272.87 Crores by the existing investors, which includes a promoter of the company as well.

Well, now that you have an idea of the complete recipe, let's see whether it makes a balanced diet... should you apply for Barbeque Nation's IPO or not?

Factors that favour the IPO

The food and beverage (F&B) industry is ever-evolving. It is poised to grow at a CAGR of 9% to reach Rs 6,506 Bn by FY25. Whereas the organized food market is expected to capture over half of the total food market size. And if you look at the Casual Dining segment, it is projected to grow at a CAGR of 18% to capture about one-tenth of the organized food market by FY25. To sum it up, growth opportunities are immense.

You can view it like this. There could be pandemics; there could be scarcity. You may stop buying cars, you may stop buying jewelleries, but food.. nahh. Of course, this may not be symmetric industry-wide. That brings us to 'value for money' food outlets like casual dining restaurants. And in a fixed price buffet, when you have certainty over the amount you'll pay irrespective of what you eat, it seems really appealing.

Anyway, what separates Barbeque Nation from its competitors? Well, here's what --

1. Cost efficiency due to:

• Short menu cuts down the inventory cost.
• Bulk preparation of food leads to economies of scale.
• Wastage is reduced by tying up for online delivery with food aggregators like Swiggy.
• Less staff requirement in a buffet.
• Not so premium interiors reduce the capex.

2. 70% of their orders are pre-booked, which prevents empty tables, and thus keeps revenues running while cutting down useless fixed costs.

3. They prefer their outlets to be in convenient locations in commercial and residential areas rather than high streets. This caters to more customers as well as brings down their rental costs (their rent to revenue ratio is about 10% lower than peers).

4. They employ financial and psychological tactics to make you eat less like: heavy starter, more of cheaper dishes like made up of potatoes, serving in smaller quantities, serving expensive ones at last, etc. The company's CEO admits their food cost to be ~ 32%, meaning people eat no more than Rs.250 of food on an average, in spite of paying thrice the amount.

5. Global + local concept with standardized tastes and costs varying across regions, enhanced by regular customer feedback and special promotion events.

However, you have to take it with a pinch of salt.

Risk factors in this IPO

Covid has changed the dynamics. People prefer ordering food through delivery and takeaways rather than dine-in, which could be a major stumbling block for the company. Now you could say that they also provide online delivery through the likes of Swiggy. But these casual dining restaurants are primarily designed for dine-ins, and people won't prefer ordering online from these as such. And in Barbeque Nation, where the excitement lies in eating stuff served hot, will you prefer ordering it home?

Hence, if online delivery becomes the future, Barbeque Nation's progress could be endangered. Moreover, though domestic players have captured over 85% market share in casual dining restaurants, they contribute only 55% in revenues! Meaning, domestic players find it difficult to scale up as against the international peers. Moreover, it's a fragmented market with high competition.

Here are the company-specific factors that may weigh it down going ahead --

• Consistent losses, even before the pandemic (refer to financials).
• Serving fresh produce and the 'live grill' concept limits its scalability.
• Wastage of food (over 50 persons' food daily) can eat into their profits.
• It is more kind of a venue for special occasions and less a casual place to hang out. This may limit its footfall.
• Outlets in Delhi, Mumbai and Bengaluru contribute over a third of its revenue, and any adverse developments in these areas could dent the company's operations and topline.
• The company and its promoters have been involved in a number of litigations and legal proceedings, for example, anti-profiteering notice under the GST act, non-compliance with SEBI guidelines, non-compliance of the Income Tax act, and other criminal and insolvency proceedings.
• There are also pending contingent liabilities worth Rs. 589.58 Mn. Both these litigations and liabilities, if called upon, can severely harm the company's profits, operations and reputation.
• One of the company's promoters has pledged almost his entire 1.54% stake in the company to obtain loans. Any subsequent failure in clearing the dues can severely impact the share price.
• Some of the promoters are also engaged in the same line of business, which may bring in competition for the company.

Time for some final garnishing ;-)

The Bottom Line

No doubt, food quality and customer service at Barbeque Nation is par excellence. And it also gets brownie points for its business model. But as you would have noticed, there are a number of pending litigation cases and other complications, which may severely damage the company's operations and reputation. The company hasn't turned a profit in the recent past, either. And as evident, there are numerous other issues boggling the business.

That's why we would suggest you to be very careful and exercise your rationale before jumping in to feed on this IPO platter. Now, whether the IPO's taste to mouth outweighs the company's inherent health risks, or vice-versa, that's for you to decide.

Anyway, are you joining in for this IPO buffet? Or your health appetite says otherwise? What say? Write to us in the comments below.

Stay informed & invest wisely.