PL Stock Report: Restaurant Brands Asia (RBA IN) - Q2FY24 Result Update – India – strong 2H guidance, Indonesia shows initial recovery - Accumulate

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

Rating: ACCUMULATE | CMP: Rs114 | TP: Rs145

Q2FY24 Result Update – India – strong 2H guidance, Indonesia shows initial recovery

Quick Pointers:

♦ BK India ADS at Rs126k, SSG at 3.5%, 2H SSG expected at 8-9%

♦ Indonesia expected to be cash breakeven in FY24, Popeyes ADS 30% higher than BK ADS, 50% growth in chicken and 35% in Burgers

Restaurant Brands Asia (RBA) had shown broad based recovery in 2Q24 led by 3.5% SSG in India and margin beat lead by steady GM and lower increase in overheads. Indonesia business has reported strong 50% growth in chicken and 35% in burgers in a seasonally weak quarter. 2H24 outlook in India better with 1) seasonal uptick in 3Q resulting in improved store traffic 2) higher stores openings (46 in 2H) 3) sustained benefits from value meal and innovations and 4) strong growth in smaller towns. We believe margin expansion in India business will be slightly curtailed in 2H due to overheads associated with accelerated store openings. Indonesia operations is showing initial signs of recovery led by 1) relaunch/innovation in Whopper range 2) new range of chicken offerings 3) desserts scalability and 4) sustained traction with 30% higher ADS in Popeyes then BK.

Given strong SSG guidance beyond FY24, we now expect India business to report FY26 PBT from operations of Rs276mn versus Rs165mn earlier. We value the company at Rs 145 (Rs142 earlier) on SOTP basis. Accumulate.

2Q24 SSSG of 3.5%: India Business Revenues grew by 23.2% YoY to Rs4.5bn (PLe: Rs4.6bn). Gross margins expanded by 44bps YoY to 66.8% (Ple: 67%). EBITDA grew by 50.7% YoY to Rs634.2mn (PLe: Rs574.5mn); Margins expanded by 255bps YoY to 14% (PLe:12.6%). Loss stood at Rs-93.4mn (PLe: Rs-164mn). SSSG stood at 3.5%; ADS at Rs126k in 2Q24. Added 8 stores in 2Q24, total store count at 404. Added 11 BK Café in 2Q24, total BK Café count at 297.Indonesia Business Revenues grew by 9.4% YoY to Rs1.7bn. Gross margins contracted by -318bps YoY to 57.3%. EBITDA loss stood at Rs-71.8mn (PLe: Rs-323mn); Margins expanded by 662bps YoY to -4.2% (PLe:-47.2%). Loss stood at Rs 413.1m

Concall Takeaways: 1) SSSG of 3.6% in Q2 was led by high single digit traffic growth in dine-in channel 2) BK Café adds Rs7k-R8k to overall ADS; ex-cannibalization ADS at Rs16k 3) Tier-2 & Tier-3 cities are doing well led by incremental volume growth 4) Newer store are taking relatively lower time to mature 5) India GM’s stable despite no price hikes & value meal offering led by internal efficiencies and high SSTG. Expect GM to be at 67% for FY24 5) BK India FY24/FY25 SSSG expected at 6%/8% with 2HFY24 SSSG expected to be high single digit 6) Indonesia Business is recovering with 6% SSSG and 17% dine in growth in Q2 and expects to be cash break even by FY24 7) Popeyes continues to gain traction, as of now 10 stores are under construction and total store count to reach 25 by Dec’23 8) Indonesia store count at 325 (200 BK/125 Popeyes by FY27. 9) Capex for opening Popeyes store is ~$400000.

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