Why is the Burger King IPO being oversubscribed despite the bad financials of the company? (Compiled from quora for reference)
Yes, the company was able to pull in investors to fund its IPO, which will give them cash to repay some debt, some money for operation and start a lot of outlets (as per their declaration with SEBI)
I know the business for Burger King will be very difficult in the coming years, as I myself have already shut 2 outlets and another 2 are running at 50% pre-covid. But that also means an opportunity for Burger King,
When most of the standalone outlets are out of business, Maybe Burger King will be able to get more business, Maybe Indians will like Burger’s more than Biryani (Ok, That’s not going to happen!) or maybe they will market it and make it into a big brand in India.
A lot of American QSR brands have tried to settle in India as per their expansion plan, but only a few have actually been able to make a mark on profits. Even Wendy’s is coming soon in the form of cloud Kitchen!
As you rightly said, Financials are bad for this stock and that will be a major risk.
Why is the oversubscribed then?
The stock price is cheap – 50 to 60Rs
It has been highly covered by all financial channel, youtube channels and even your own broker is telling you to buy (Indirectly)
The Brand Name, It is big in the US, It will be big in India (Maybe)
Some are investing for listing gains, Most will sell this stock on the first day, experienced traders know how to take advantage of FOMO.
Markets and Investors don’t just work on logic, sometimes even emotions and future opportunities for the stock can also be a driver for this particular IPO.
I am staying away from this stock, as it’s not my style of investing, But that doesn’t mean I won’t invest next, I might if the price and risk are right for me.
Anyways only 10% is allotted to the public, So chances of getting this stock are purely now based on Luck (This stock will make listing profits)
Hope this helps
Regards Surya Someshwara
, Executive (1993-present)
Answered December 3
It is because of valuation . The balance sheet and financial are not rosy for this company. There is loss for the company in the preceding three years and debt to equity ratio is not comfortable and it is more than 0.7 as per balance sheet of the company.
Valuation :- The EPS is negative for the company considering the balance sheet of preceding three years ,so we can not work out P/E to assess whether upper price band Rs.60 is reasonable price or not.
Let see the P/E of Jubilant food work P/E =260.09 against industry P/E =70(as per money control website)
Lets EPS for FY 20 for Burger king is 0.5 ( it is assumed ,actually it is negative)
So P/E would be 120 which is still below the P/E of Jubilant .
The Price to book value of Jubilant Food work is 28.30(considering upper band) where as for Burger King it is 5.81 . So it seems the IPO is reasonably price and therefore we see a huge demand for this IPO. Retail category is already subscribed by 35 times on close of 2nd day. So IPO would be a huge success and overall subscription would around 80X. So good listing is expected
, Founder & CEO at fundfolio
Answered December 3
It’s easy. Everyone knows Burger King. Someone who isn’t an active stock market participant might apply for the IPO because of the popularity. So without looking into the fundamentals of the company, people may invest. And because most retail investors are interested in the IPO, it might get oversubscribed and most probably list with decent % gains. The issue is being sold in the price band of Rs 59-60 apiece. Isn’t 59–60 an attractive price range? The company competes with international QSR chains such as McDonald’s, KFC, Domino’s Pizza, Subway, and Pizza Hut. Burger King currently operates about 270 outlets. It aims to scale it up to 700 outlets by 2026. The IPO closes on Friday. The Rs 810-crore maiden public offer of Burger King India has received a strong response from retail investors. So far, the issue has been subscribed 9.4 times on December 3, the second day of bidding. As of now, Burger King trading in Grey Market at a premium of Rs 33-34 / share, Nearly 55 % premium. So it might be worth applying for the listing gains. ??
Because over enthusiastic participation by retail investors. Retail investors always will have fear of missing out, so their participation in Burger King IPO is more. Usually QIB & HNI will subscribe on last date of IPO application based on their internal insights.
Also currently retail investors feel they economic is recovering since nifty is hitting daily high.