Jubilant Foodworks, Advent Int'l in race to buy Burger King franchise

M&As pick up pace in Indian QSR industry amid sharp recovery in revenues

Dev Chatterjee Mumbai
Stake sale

RBA shares closed 13 per cent up at Rs 121 apiece on Thursday

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Private equity (PE) firm Everstone Capital is said to be in talks to sell its 41 per cent stake in Restaurant Brands Asia (RBA), which operates the Burger King franchise in India, to Jubilant Foodworks or a consortium led by American PE firm Advent International.
Based on its share price on Thursday, Everstone’s stake in RBA is valued at Rs 2,453 crore ($297 million). If the deal is signed at the current valuation, this would be the largest acquisition in the quick-service restaurant (QSR) industry, per Bloomberg data (see chart).

Foreign investors are rushing to invest in the Indian QSR industry by acquiring local companies as a sharp recovery in revenues, supported by growth drivers such as favourable demographics, and improving purchasing power is boosting the firms’ valuations.
Rebel Foods Private, a cloud kitchen firm, received $175 million from a slew of investors in a round led by the sovereign wealth fund Qatar Investment Authority, per Bloomberg data. In August 2021, Creador Capital Group, TR Advisors, and NewQuest Capital Partners invested in Pizza Hut operator Sapphire Foods, just before its initial public offering.

Bankers said Jubilant operates Domino’s Pizza franchise in India and if it buys a stake in BSE-listed RBA, it would lead to consolidation in the Indian restaurant industry. Advent is likely to make an offer in association with another private equity firm, General Atlantic.
RBA shares closed 13 per cent up at Rs 121 apiece on Thursday. The company was listed in December 2020 and an open offer for minority shareholders will follow as per the Securities and Exchange Board of India’s takeover code.

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Advent declined to comment. When contacted, a spokesperson for Jubilant Foodworks said the information was incorrect. Everstone did not reply to emailed queries.
Bankers said the RBA acquisition makes sense for Jubilant, which is leading the race, as it is facing pressure on the margin front. Jubilant’s gross margin was down 160 basis points (bps) year-on-year, mainly due to raw material cost pressure, said analysts. Acquiring RBA would strengthen Jubilant, which operates 1,816 Domino’s stores in 393 cities. Dunkin’ Donuts, another franchise, operates 21 stores in India.

After the Covid-19 restrictions were lifted, the QSR industry’s revenue is estimated to grow by 20-25 per cent in financial year 2023-24 (FY24) compared with FY23, driven by improving average daily sales and store additions, per rating firm ICRA. The top five players in the QSR industry are likely to add 2,300 stores in the next two years with an estimated capex of around Rs 5,800 crore – almost double the levels seen during the pre-Covid era.
As demand picks up, the domestic QSR industry is looking at opening several new stores in the coming months and, hence, the search for funds. “A majority of the capex is expected to be funded through internal accruals and cash on the books, having raised money through the pre-IPO /IPO route in the last two fiscals to support the planned capex in the near to medium term,” says ICRA. But the operating margin in the industry is expected to remain flat in the range of 20-22 per cent in the current financial year as rising prices of ingredients impact profitability.



First Published: May 18 2023 | 4:55 PM IST

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