Analysts advise investors to wait till stability returns before taking a call
Investors who invested in the initial public offering (IPO) of the recently concluded primary market issue of Barbeque-Nation Hospitality were a worried lot on Wednesday when its shares made a tepid debut on the bourses. However, the same lot of people were a lot happier when the stock was locked in 20 per cent upper circuit at the end of trading. The stock with a face value of Rs 5 per share and issued at Rs 500 per share, listed at 2 per cent discount to its issue price at Rs 489.85, on NSE and ended 20 per cent up at Rs 587.90.
The stock was trading lower in the early session in-line with the overall market. However, Reserve Bank of India (RBI)’s Monetary Policy Committee (MPC), which met in Mumbai over previous two days decided to keep the Repo rates unchanged at 4 per cent, the broader market witnessed uptrend and with that the newly listed stock of Barbeque Nation too joined the up-move and was locked in 20 per cent upper circuit. The counter clocked a trading volume of 8.98 lakh shares on the BSE while on the NSE 54.27 lakh shares changed hands.
Though the stock made a comeback from the tepid listing, Analysts are sceptical with respect to the near-term performance of the stock in the wake of emergence of second wave of covid-19 pandemic.
The company’s operations were impacted last year due to pandemic led lockdowns. The company has reported net loss in three out of the four previous fiscals. That apart the second wave of pandemic has raised the risk of further slower growth in the near term.
At current price the stock trades at 3.4x EV/Sales which is at a discount to other peers like Jubilant Foodworks (Domino’s) and Westlife Development (McDonalds).
Siddhartha Khemka, Head – Retail Research, Broking & Distribution, Motilal Oswal Financial Services, said, “While valuations appear cheap, investors only with a long-term horizon may look at the stock.”
Analysts at Angel Broking had said in an IPO note that though the company has posted revenue growth of 20 per cent CAGR between FY18-FY20, it has been continuously incurring losses at PAT (profit after tax) level. “Hence, we expect profits will remain under pressure over the medium-term”, the note said.
Besides, the company is also facing challenges from bigger size restaurants and limitation in scaling up delivery sales can impact the growth of the company. Moreover, analysts are of the view that one should wait for the clarity to emerge on a full recovery from Covid-19 before assigning any recommendation.
The Rs 453-crore initial public offering (IPO) was well received and the retail investors' portion of the issue was subscribed 13 times, while QIB (qualified institutional buyers) category was subscribed by 5 times and of non-institutional investors' 3 times, data showed.
Proceeds of the fresh issue will be utilised to fund the company's capital expenditure for expansion, besides prepayment or repayment of certain borrowings and expenses related to general corporate purposes. As of December 2020, Barbeque Nation Hospitality operated 147 outlets across India and six outlets across three countries -- UAE, Oman and Malaysia.
The promoters hold a 60.24 per cent stake, CX Partners owns 33.79 per cent and Rakesh Jhunjhunwala's investment firm Alchemy Capital has a 2.05 per cent holding in the company.