Restaurant Brands Asia - Poised For Growth: Motilal Oswal

Motilal Oswal Report

With an aggressive store addition outlook (17% compound annual growth rate over FY23-26), Restaurant Brands Asia Ltd. is well placed to deliver a strong domestic growth. Burger King Café is likely to be a key growth driver going ahead. With rapid revenue growth, Restaurant Brands Asia is geared up to deliver Ebitda margin expansion, driven by dine-in recovery, addition of BK Café, and cost saving initiatives.

As more and more stores mature, declining contribution of new stores in the network would also help to reduce the margin drag.

The Indonesia business should also witness a healthy revenue growth and margin expansion going ahead. We model a CAGR of 26%/45% in revenue /Ebitda over FY23-26E for India business. On FY25E/FY26E, Restaurant Brands Asia consolidated is trading at 28 times/18 times pre India-accounting standard enterprise value/Ebitda and 2 times/1.6 times EV/sales.

Since Restaurant Brands Asia is still in an early investment phase with lower profitability, we value India business at 22 times pre India AS EV/Ebitda, at a discount of ~10% to Westlife Foodworld Ltd.’s target multiple, and Indonesia business at 11 times EV/Ebitda, at a discount of 50% to India business target multiple, to arrive at a target price of Rs 135.

Even assuming zero value for the Indonesia business, the India business looks compelling at Rs 130, which provides 17% upside potential.

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