Institutional investors are betting big on Barbeque Nation.

BBQ Nation: The occupancy rate of Barbeque-Nation Hospitality Limited, the most representative casual dining restaurant, has decreased by 31.5% over the past year. The company was listed amid the COVID-19 crisis around 2021, and has had difficult sailing over the past two years. However, what is interesting is that institutional investors increased their stake in the company from 34% in March 2022 to about 50% in June 2022.

Ace investor Ashish Kacholia also bought 2.53 lakh shares of Barbeque Nation, equivalent to about 1.43% stake in the company. His stock price soared 6% as he bought his shares in April 2022 at an average price of ₹1,163 or around ₹29.5 crore. Kacholia has not sold any of his shares based on BSE data so far.

Now let’s find answers to some important questions. How does barbecue make money? Why are stock prices falling? Despite the not-so-great start, what does the future look like for the company?

Barbecue Nation – Business Overview

Barbeque Nation was founded in 2006 and entered the restaurant sector with the ‘all you can eat’ concept. It is now one of the leading casual dining chains in India. It is also a pioneer of the “table-top barbecue” live grill concept, built into the dining table so guests can grill their barbecue right at the table.

Let us understand the diversification process taken by the company. Six years ago, 97% of sales came from Barbeque Nation India’s dining business. Over time, the company has successfully created various growth avenues for the business.

Today it is more than just a dining business. It has steady international business, a large delivery platform, and four brands: Barbeque Nation, Toscano, UBQ, and Dum Safar. As of FY2023, Barbeque Nation India’s contribution to its dining business has declined to 75%.

Recently, Barbeque Nation Hospitality Limited (BNHL) and Red Apple Kitchen Consultancy Pvt. Ltd. (Toscano) jointly acquired a 53.3% stake in Blue Planet Foods Private Ltd. (Salt).

Blue Planet Foods operates a chain of a la carte Indian restaurants under the brand name ‘Salt’. We currently operate six restaurants and have two restaurants under construction/pipeline. Salt achieved revenue of ₹32.8 crore in FY23 with an EBITDA margin of 19.4% and a PAT margin of 10.0%.

Of all the brands the company operates, UBQ and Dum Safar are its own brands, while Toscano and Salt have been acquired. The company has 212 restaurants in its portfolio as of the second quarter of 2023.

reason for adversity

The company has been in an expansion phase but has been losing money for the past two quarters. It opened 31 restaurants in the past two years but had to close 12 as it incurred losses.

Competition can also be assumed when it comes to the restaurant industry. Competition from quick service restaurants (QSR) is also impacting the business. The average ticket size for QSR is around ₹500 to ₹600, while for BBQN it is around ₹950. So, it is clear that QSR has an edge over BBQN in price sensitive markets.

Rising inflation and a slowdown in the restaurant market are adding to the challenges for the business. The industry is experiencing a slowing demand environment. However, as disposable income increases, casual dining will also increase.

You could argue that the industry as a whole has had a tough year. Yes, that’s right. But BBQN’s lack of performance is more noticeable than anything else.

Net sales and other operating income are from April to September.

In fact, most publicly traded restaurant companies are quick service restaurants (QSRs). The price range is around ₹500-₹600 and BBQN has doubled it, putting pressure on the business operations part.

What’s next for the company?

Although BBQN has been going through difficult times recently, the metropolitan city is shining a ray of hope. Restaurants mostly performed well in tier 1 cities, but less so in tier 2 and 3 cities.

Rahul Agrawal, CEO and Executive Director, Barbeque Nation, in his Q2FY24 earnings call, mentioned that the company has expanded the outlets of its Barbeque Nation India business over the last two quarters and is focusing on increasing capacity utilization of existing outlets. department store. They have also exited unprofitable tier 2 and 3 markets.

The company plans to expand its stores to 220 by 2024. In the long term, the company aims to keep 70% of its stores in Tier I and the remaining 30% in Tier II and Tier III cities.

Explore finance

The company suffered a loss of Rs 9.2 billion and Rs 2.5 billion in fiscal 2021 and 2022, respectively. In fiscal 2023, revenue grew 43% to ₹1,234 crore. As a result, the company earned a revenue of ₹19 crore in the fiscal year.

The company’s debt is $711 million and its debt-to-equity ratio is 1.86. As of 2023, ROE is 3.68% and ROCE is 8.92%.

conclusion

Like most consumer category businesses, the restaurant industry had a difficult 2023. While 2022 was an outlier and can be said to be incomparable, what is important to understand is that BBQN remains a difficult challenge to operate. The prices they have.

Consumers will tighten their wallets until inflation cools. What this means is that the majority of the population will be interested in cheaper options. However, as inflation subsides and the population’s disposable income increases, the dine-in business will likely do well going forward.

But still, it’s worth remembering that investors like Kacholia aren’t just selling and watching things unfold more cautiously. So is Barbeque Nation on your watchlist? Let us know in the comments below.

Written by Narine Surya

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