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Press Releases
19-Feb-20
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Barbeque Nation Hospitality Limited: Long-term rating reaffirmed; short-term rating downgraded to [ICRA]A1; outlook revised to Negative
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Rationale
The revision in the rating reflects the deterioration in
Barbeque Nation Hospitality Limited's (BNHL) financial profile with a contraction
in the operating margins, write off of inorganic investments, and the
debt-funded buyout of Red Apple Kitchen Consultancy Private Limited (Toscano
Restaurant). The company's standalone operating margins contracted to 13.9% in
FY2019 from 15.0% in FY2018 owing to the loss of the GST input tax credit (ITC)
availed by the company earlier as well as its inability to raise the prices of
its offerings adequately due to intense competition and the general slowdown in
the economy. BNHL's profitability in FY2019 was impacted on account of GST
payments made by the company on its consumables and services availed whereas it
was unable to claim the ITC on the same following the change in the GST regime
for restaurants. The company is taking certain steps to counter the impact like
renegotiating with landowners to reduce the rentals and by conducting some of
the activities inhouse. On a consolidated basis, the operating margins fell to
10.0% in FY2019 from 13.4% in FY2018 due to weaker operations in India and losses
from the international operations. The disposal of BNHL's investment in Prime
Gourmet Private Limited (PGPL), which owned and operated the fast food
franchisees of Johnny Rockets, resulted in a net loss of Rs.18.9 crore for the
company in FY2019, significantly impacting the company's net margins. BNHL
expanded its store count to seven in the international market (one in Malaysia
and six in the UAE) as of December 2019 from five as of March 2019. While the
international operations incurred an EBITDA loss of ~Rs. 23.3 crore in FY2019,
ICRA understands that the company has been able to turn around the operations
in H1 FY2020 and expects the same to post an EBITDA profit in FY2020. Going
forward, BNHL is likely to go slow on expansion and focus on profitability in
the international market. The ratings continue to favourably factor in BNHL's
strong brand image in the restaurant segment along with its healthy revenue
growth of 26% in FY2019. While the company witnessed healthy same store sales
growth (India operations) in FY2019, the increase in the number of outlets to
126 in FY2019 from 102 in FY2018 also supported the higher footfall. The
company's strong brand image facilitates its entry in new markets at
competitive rentals, supporting its revenues and operating margins. BNHL is in
the process of filing documents for its initial public offering (IPO) and is
expected to go public in H1 FY2021. The company is planning to repay its entire
debt with the funds raised from the IPO and use the remaining amount as growth
capital.
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