March 24, 2021UPDATED: March 24, 2021 1:32 PM IST
The Barbeque Nation Hospitality initial public offering (IPO) opened for subscription on Wednesday. The company’s public offering will close on March 26.
The leading casual dining restaurant chain plans to raise Rs 452.87 crore from the public offering. The price band for the IPO has been fixed at Rs 498-500 per share. It may be noted that the company has already raised Rs 202.89 crore from 15 anchor investors.
The Barbeque Nation Hospitality public issue comprises fresh issuance of Rs 180 crore and an offer-for-sale (OFS) of Rs 272.87 crore, comprising over 54 lakh shares. The dining chain plans to use the proceeds from the IPO towards ongoing restaurant expansion and for repaying existing debts.
Additionally, shares up to Rs 2 crore will be reserved for eligible employees. According to reports, the response received by the BBQ IPO on the grey market has been weak.
The reason behind the nervousness is due to the crisis faced by the restaurant sector during the peak of the Covid-19 pandemic.
What experts say about BBQ IPO
A number of brokerages have advised against subscribing to the issue or have maintained a neutral stance. While Barbeque Nation is one of India’s fastest-growing restaurant brands, there are some concerns that have been listed by brokerages.
According to a note prepared by Jyoti Roy, DVP Equity Strategist, Angel Broking Ltd, the outbreak of the Covid-19 pandemic is one concern for the restaurant chain at the moment.
“The outbreak of COVID-19 pandemic, as well as GoI measures to reduce the spread of, have had a substantial impact on restaurant operations,” Roy mentioned in the note.
Roy also said that there has been a deterioration in the performance of the company and business may be adversely impacted due to it. He also said that the failure to implement a growth strategy could impact the dining chain’s business going forward.
“Deterioration in the performance of, or relationships with, third-party delivery aggregators, may adversely affect business. Failure in implementing growth strategy including in relation to selecting cities and locations for new restaurants etc,” he added.
Commenting on the valuation, he said, “While the company has posted revenue growth of 20 per cent CAGR between FY18-FY20, it has been continuously incurring losses at PAT level despite topline growth. The Covid-19 pandemic too has had an adverse impact on the operations of the company hence we expect profits will remain under pressure over the medium term. At the higher end of the price band, the company is asking for a valuation of 2.4x FY20 EV/Sales which we believe is expensive given the current environment.”
“Hence we recommend a ‘Neutral’ rating to the IPO,” he added.
Meanwhile, Yes Securities mentioned some concerns regarding the IPO’s high pricing. It has asked investors to not subscribe to the IPO and wait till the listing is done.
“Given the recent pre-IPO allotment in December and January was done at a price 50 per cent less than the IPO price and the fact that Covid concerns would be a near-term headwind for the space, the pricing looks on the higher side,” Yes Securities said.
Reliance Securities and Prabhudas Lilladhar are two brokerage firms that have given the Barbeque Nation Hospitality IPO a ‘subscribe’ rating but have cited performance concerns due to the impact of the Covid-19 pandemic. Both the brokerages broadly indicated that the company needs to improve its performance for better valuation in future.
It is worth mentioning that as of 2020, Barbeque Nation Hospitality operated 147 restaurants across 77 cities in India and six international restaurants across three countries namely UAE, Oman and Malaysia.