Barbeque Nation Hospitality Ltd which operates casual dining restaurant chain in the name of Barbeque Nation is set to open its IPO in which it is planning to raise close to Rs.453 Cr via a combination of Fresh issue of Rs.180 cr and Offer for sale of Rs.273 cr. The IPO will remain open from 24th to 26th of March for which the price band is fixed at Rs.498 – Rs.500 per share for a lot size of 30 shares per lot bid.
Barbeque Nation Hospitality Limited owns and operates Barbeque Nation Restaurants, one of India’s leading casual dining restaurant chains and International Barbeque Nation Restaurants. They also own and operate Toscano Restaurants and UBQ by Barbeque Nation. The company has steadily grown their owned and operated Barbeque Nation Restaurant network from a single restaurant in Fiscal 2008 to 147 Barbeque Nation Restaurants across 77 cities in India and 6 International Barbeque Nation Restaurants in 3 countries outside India as of December 31, 2020. Through their Barbeque Nation Restaurants, they pioneered the format of ‘over the table barbeque’ concept in Indian restaurants. Live grills embedded in dining tables allow their guests to grill their own barbeques. But as the demand for dining continuously deteriorates especially due to COVID-19
Barbeque nation is set to face fierce competition from QSR chains and other casual dining and unorganised players amid no significant moat. Its average billing size stood at Rs.3,249 for a customer size of 4-5 people as of FY20. It highly depends on weekday and lunch covers which stood at 46-48% of their total revenues in FY20 mainly due to high demand from corporate lunches. In June 2020 it launched its delivery product under “BBQ in a box” to capture the fast growing online delivery market through their own “BBQ App” which currently contributes 15% of their revenues.
The company has rapidly grown its online presence due to which in FY20 and the 8 months ended November 30, 2020, over 46.7% and 60.8% of total reservations at Barbeque Nation Restaurants were made online. Also, as of December 31, 2020, their BBQ App had registered over 2.2 million downloads.
Barbeque Nation operates into a highly competitive CDR market and a growing significance of online deliveries via delivery channels and QSR chains is likely to further impact growth in dining business which forms 85% of BBQ’s revenues. Due to high debt, continuous losses since last 3 years & a number of other red flags, We have recommend investors to skip this IPO for now.
Red Flags & Concerns:
•High Contingent Liabilities worth Rs.59 cr in terms of direct & indirect taxes
•National Anti-Profiteering Authority (GST) has issued a notice against alleged GST lapses worth Rs.33 cr.
•The company and its promoters are engaged in 14 criminal cases and in most of the cases the amount involved was not mentioned/ cannot be ascertained which is highly suspicious.
•Fierce Competition from QSR,CDR and other unorganized players
•Extension of COVID-19 impact on Dining business
Barbeque Nation has been reporting continuous losses since past 3 years despite increasing restaurant counts and revenues this was mainly due to its high debt levels resulting to high interest cost, losses in International markets, losses in operations of Johny Rockets restaurants, Although, the company has maintained decent EBITDA margin levels and shown good growth in EBITDA levels but failed to translate into profits. Further expansion plans and continued impact of COVID-19 coupled with changing consumer behaviour trends will keep hurting Barbeque Nation’s bottom-line.
The company has consistently since last 3 years clocked negative return on equity due to incurring losses, as of FY20 its ROE stood at -557%. Even though its cash flows has shown an increasing trend the company during the year FY20 recorded alarmingly high Debt to equity of 41 times this shows that it has inefficiently managed its cash flows. As of FY20 it had total liabilities of Rs.944 Cr as against Total Assets of Rs.955 cr and a Net Debt of Rs.148 cr. Huge debt levels in a loss making company with customers shifting from dining to delivery can be a major threat for the company’s growth going forward.
Since Barbeque nation is making losses and clocking negative equity we cannot comment on the company’s valuations.BBQ has been continuously raising capital to expand its presence into Tier-1 and Metro cities which shows that it requires continuous funding to clock growth and stay afloat. Also it has shown a declining trend in its SSSG (-2.8% as of FY20) Therefore, Due to high debt, continuous losses since last 3 years & a number of other red flags, We recommend investors to skip this IPO. Market sentiment can dictate first day listing gains, however it is an extremely risky bet.