Q3FY24 Review: Barbeque Nation: Margin improvement led to beat on estimates

6 Feb 2024 , 12:11 PM

Barbeque Nation (BBQ) reported flattish YoY revenue in Q3FY24 (in –line with IIFLe), as SSSG continues to be weak at -4.9%. However management mentioned Oct’23 was affected by higher veg. days, adjusted for this SSSG would be ~-2.2%. Surprisingly, adj Ebitda margins came in at 11%, ~250 bps above analysts of IIFL Capital Services estimates due to Gross margin improvement, portfolio rationalization and cost containment. However, analysts of IIFL Capital Services believe going back to 13-14% Ebitda margin would be difficult as SSSG recovery would be more gradual. Analysts of IIFL Capital Services upgrade their adj Ebitda estimates by 25%/9%/4% for FY24-26 factoring in better margins in Q3 and “Salt acquisition”. Maintain ADD, PT of ₹725 

Beat on Ebitda estimates: 

Revenue for the quarter was flat YoY, inline with analysts of IIFL Capital Services estimates, however Pre-Ind as Ebitda mar gins came in ~250bps above their estimates. The improvement in margins was driven by ~120 bps improvement in gross mar gins and lower other expenses aided by cost containment measures. SSSG was negative 4.9% which lead to 1.8% YoY decline in revenue per store. The company added 8 new restaurants (including 6 salt) and closed 4 restaurants in Q3FY24. 

Improvement in SSSG to be gradual: 

While Q3FY24 SSSG came in at -4.9%, management has indicated better SSSG going forward. Management has guided for 25-30 new restaurants in FY26. The demand sentiment continues to be soft and competition from casual dining players have also increased in the recent years. Hence, analysts of IIFL Capital Services believe between new restaurants taking time to ramp up and SSSG recovery being more gradual, overall growth would be moderate. 

Upgrade Adj Ebitda estimates: 

Analysts of IIFL Capital Services upgrade their adj Ebitda estimates by 25%/9%/4% for FY24-26 to factor in the improved margins in Q3 and also consolidate acquisition of Salt restaurants. While near term performance is expected to be weak in-line with current trends in the QSR sector, analysts of IIFL Capital Services build in 14%/45% revenue and adj Ebitda Cagr over FY24-26 considering pick up in the demand sentiment. Maintain ADD with a PT of Rs of 725.