PL Stock Report: Restaurant Brands Asia (RBA IN) - Q1FY24 Result Update - India on course; Indonesia shows green shoots - Accumulate

Restaurant Brands Asia (RBA IN) - Amnish Aggarwal - Head of Research, Prabhudas Lilladher Pvt Ltd

Rating: ACCUMULATE | CMP: Rs117 | TP: Rs142

Q1FY24 Result Update - India on course; Indonesia shows green shoots

Quick Pointers:

§ Mature store ADS at Rs126k, BK café neutralizes impact of value offering (100bps) on GM, FY24 GM guidance at 67%

§ Indonesia expected to be cash breakeven in FY24, supported by rising traction in Burger menu and focus on desserts

Restaurant Brands Asia (RBA) remains on a path to profitability in India with domestic business parameters improving in ADS, gross margins & profitability, while business restructuring in Indonesia is showing initial gains with expected cash breakeven by FY24. BK India saw revamp of value range with Rs99 meal, which led to higher transaction growth (10%+) and an increase in ADS to Rs126k (reported ADS – Rs120k). RBA reported stable EBITDA margins despite increase in marketing spends to support value meal offering and innovations. Indonesia operations is on a turnaround path with strategic focus to improve ADS with 1) relaunch/innovation in Whopper range 2) new range of chicken offerings 3) launch of desserts with global/local players and 4) focus on FSDT format & store rationalization.

We believe RBA India operations are on track and should report low single digit pre IND AS EBITDA in FY24 with meagre profits in FY26. We believe Indonesia business will take time to turnaround with corrective measures implemented in BK across menu architecture & improved operations. We value the company at Rs 142 (Rs146 earlier) on SOTP basis. Accumulate.

1Q24 SSSG of 3.6%: India revenues grew 25.3% YoY to Rs4.2bn (PLe: Rs4.3bn). Gross margins expanded 12bps YoY to 66.5% (PLe: 66.7%). EBITDA grew 45.9% YoY to Rs484.7mn (PLe: Rs539mn); Margins expanded 162bps YoY to 11.5% (PLe:12.5%). Loss stood at Rs221.5mn in 1Q24 vs 227mn in 1Q23 (PLe: Rs-166mn). SSSG stood at 8.3%; ADS at Rs120kin 1Q24. Added 5 stores in 1Q24, total store count at 396. Added 11 BK Café in 1Q24, total BK Café count at 286. Indonesia revenues grew 23.9% YoY to Rs1.9bn. Gross margins contracted 128bps YoY to 58.6%. EBITDA loss stood at Rs1.6mn vs Rs40mn in 1Q23, Margins expanded 254bps YoY to -0.1%. Loss stood at Rs319mn vs Rs282mn in 1Q23.

Concall Takeaways: 1) SSSG was led by focus on dine-in (SSTG – 10%+) & value offerings 2) BK Café adds Rs8k to overall ADS; ex-cannibalization ADS at Rs15k 3) India mature store ADS at Rs126k vs reported Rs120k. 4) India GM’s stable despite no price hikes in 1Q with 100bps impact of value meal offering due to higher GM in café business. Expect GM to be at 67% for FY24 5) BK India FY24/FY25 SSSG expected at 10%/8% 6) Indonesia QSR chain market to grow at 16% CAGR over the next 5 years 7) Indonesia store count at 325 (200 BK/125 Popeyes) by FY27. Popeyes to open 15 new stores in FY24 8) Indonesia store rationalization for FY24 maybe in single-digits 9) Popeyes ADS expected to stabilize at IDR 40mn 10) BK chicken offering contribution at 30%; working towards 50% mix 11) BK Indonesia expects to breakeven in FY24 as a result of improved menu architecture, new chicken and dessert offerings

(Click on the Link for Detailed Report)