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Burger King India Limited: Ratings upgraded to [ICRA]A- /[ICRA]A2+, outlook on longterm rating revised to Stable

Posted On: 2021-04-05 09:45:39 (Time Zone: Arizona, USA)

ICRA Limited, the rating agency has upgraded Burger King India Limited's long-term / short-term ratings to [ICRA]A- / [ICRA]A2+ from [ICRA]BBB+ /[ICRA]A2, outlook on longterm rating has been revised to Stable from Negative.

The ratings upgrade takes into account significant improvement credit metrics of Burger King India Limited's (BKIL or the company) due to prepayment of entire debt on its balance sheet following successful completion of IPO in Dec 2020. The company raised fresh equity of Rs.600.0 crore {including Rs.150.0 crore through private placement) during the year, which in ICRA's opinion will allow BKIL to fund its planned capex in the near to medium term with minimal reliance on borrowings, if any. and hence has provided notable boost to the capitalisation profile over the medium term. The ratings upgrade also considers the recovery witnessed in sales with break-even achieved for the quarter Q3FY2021. The company reported an operating profit of Rs.0.3 crore on an operating income of Rs. 163.2 crore in Q3FY2021 compared to an operating loss of Rs. 52.4 crore and Rs. 10.2 crore on an operating income of Rs.38.3 crore and 96.7 crore in QIFY2021 and Q2FY2021, respectively. Nevertheless, the company's ability to sustain the revenue growth trajectory and thereby the profit margin will remain a key monitorable. The ratings continue to take into account the strong recognition of the Burger King brand worldwide as well as in the domestic market, the company's demonstrated ability to raise funds from investors and market and its experienced management team. In addition, ICRA draws comfort from the diversified product portfolio designed as per Indian consumer taste and BKIL's geographical presence across India.

The ratings however, is constrained by the company's exposure to execution risk owing to aggressive expansion plans over the medium term and its muted return on capital employed (RoCE) given the under absorption of fixed costs on account of stabilisation of new stores still a work in process. The business also remains vulnerable to external shocks such as outbreak of Covid-19 which the industry faced, as well as general demand scenario issues which are linked to performance of the economy. ICRA also notes that the judicious funding plan for the aggressive expansion plan and compliance with the terms and conditions laid out in the master franchise development agreement (MFDA) for ongoing operations, remains critical from credit perspective. The rating is further constrained by BKIL's dependence on a single third-party distributor, ColdEx Logistic Private Limited (ColdEx), for its supply chain management and increasing competition from players in Indian organised and unorganised market.

The Stable outlook on the [ICRA]A- rating reflects ICRA's opinion that BKIL will continue to benefit from healthy growth prospects of the QSR industry and acceptability as a well-recognised burger brand with wide range of offerings in India.

Source: Equity Bulls

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