Q4FY23 Review: Barbeque Nation: Going through a difficult phase

30 May 2023 , 10:54 AM

In Q4FY23, Barbeque Nation posted Ebitda margin decline of 350bps YoY to ~4%; missing IIFL Capital Services estimate by ~400bps. Weak sales growth (SSSG of -3%) and higher drag from new stores (28% of total stores) continued to weigh on margins. Recovery to target the margin band of 13% will be slow in a tough demand environment. Analysts of IIFL Capital Services cut their FY24/25 Ebitda by 13-14% to factor lower SSSG and trimmed new store guidance. At ~14x FY25 EV/adj. Ebitda, valuations are undemanding. Maintain ADD, TP of Rs680.

Significant miss: 

Sales growth of 11.6% YoY was weak on account of weak demand, particularly in Feb and March. SSSG was negative 2.6% leading to 6.4% YoY decline in revenue per store of Rs52.4mn. Pre-IndAS Ebitda margin of 3.8% contracted by ~350bps YoY and missed their estimate of 8%. Margins were impacted by negative operating leverage and drag from new stores. The company opened 4 stores on net basis in the quarter and now has 216 stores in operation.

Gradual recovery to target revenue/margin band: 

FY23 was a challenging year for Barbeque Nation as mature stores underperformed vs expectations; higher number of new stores opening in the last 2 years resulted in a larger drag on performance. Mature stores’ revenue per store missed the target of Rs70mn by 5%, and 19% margin was below the guidance of 21%. Now, the focus will be on driving higher throughput from existing stores, which will drive margin recovery to the target of 13%. However, analysts of IIFL Capital Services think that recovery will be very slow and factor 10.3%/11.3% margin in FY24/25. Additionally, the company nearly halved its store opening guidance in FY24 to 20 new restaurants.

Ebitda cut by 13-14%:

Analysts of IIFL Capital Services cut their estimates on negative operating leverage coming from lower sales estimate, factoring lower SSSG and trimmed new store guidance. Near-term performance is expected to be weak and recovery will be delayed, in-line with trends seen in the QSR sector previously. However, valuations are undemanding at ~14x FY25 EV/adj. Ebitda. Analysts of IIFL Capital Services forecast FY23-25 sales/Ebitda Cagr of 14%/24%. Maintain ADD, TP of Rs680.