RBA managed to shrink its losses in recent years, but investors remained unimpressed. Until this fiscal year. Since March, new life has been breathed into the counter. The RBA stock has rallied by more than 35% in just about 4 months. Is this a sucker’s rally or a much-awaited turnaround?
Breakeven around the corner?
Restaurant Brands Asia sets up and operates Burger King restaurants in India, which drive almost 80% of the company’s revenue. The rest comes from its subsidiary in Indonesia.
As pent-up demand released following the pandemic, RBA saw revenue growth accelerate by almost 50% in FY22. But growth moderated over the next few years as a K-shaped recovery and high inflation muted demand. In FY25, RBA clocked less than 5% growth in revenue.
But the company’s margin trajectory continued to improve. Ebitda margin improved from merely 2.5% in FY21 to almost 11% by FY25, and its loss margin shrunk from -27% to -10%.
Store expansion driving India business
India’s quick service restaurant (QSR) space is perceived as a goldmine. Almost 75% of India’s dining market comprises QSR and casual dining restaurants. As India’s middle class expands and disposable incomes rise, the QSR industry attracted several local and global players, including Burger King and McDonald’s.
RBA, which has exclusive rights in India to Burger King, the second-largest global burger brand, is well-placed to capitalize on these industry tailwinds. The company’s store footprint in India expanded from just about 200 in FY19 to more than 500 in FY25, with its menu customized to appeal to Indian consumers’ tastebuds.
While intensifying competition amid patchy demand has kept same-store sales growth (SSSG) in check, store expansion has supported revenue growth.
In FY25, dine-in traffic expanded 9% year-on-year thanks to RBA’s attractive in-store offers and menu innovations. Still, SSSG grew at only 1%. But thanks to store-expansion at 13%, revenue expanded by 12%. Sequentially, SSSG and revenue-growth have been looking up.
Margins paint a promising picture as well. Typically, when store expansion rather than SSSG drives revenue expansion, margins tend to suffer. But in the case of RBA, despite raw-material inflation, supply-chain efficiencies and operating leverage have picked up the slack. Ebitda margin expanded from 13.5% in FY24 to 14.7% in FY25, resulting in 22% ebitda growth in FY25.
RBA is working on further improving its delivery profitability by optimizing pricing, cutting back on utility costs, and improving its delivery offerings.
Indonesia business a drag
RBA has the exclusive master franchisee for Burger King and Popeyes restaurants in Indonesia. But with consumer preferences shifting away from US-based brands, its Indonesia business has been struggling.
RBA had to shut seven Indonesian stores in FY25. Revenue declined 10% year-on-year in the fourth quarter of FY25, continuing the cash-guzzling trend witnessed in the region since FY24. The company’s -8.4% ebitda margin and -24.5% net profit margin dragged its consolidated profit after tax (PAT) margin to -9.6%.
While the full fiscal year saw revenue shrink by 14% owing to a 6% decline in SSSG, the fourth quarter of FY25 saw green shoots emerging. Same-store sales growth increased 2% and average daily sales 5% over the same period last year.
Coupled with store rationalization and rent renegotiation, restaurant operating margin for the region improved sequentially. Loss shrank from ₹7 crore in Q3 to ₹2.7 crore in Q4.
RBA has been cutting costs by shutting non-performing stores in the region. It has no plans to expand in Indonesia as the management prioritises profitability. While there’s still quite some way to go before the business turns profitable, two consecutive quarters of sequential improvement raise hopes.
Falling behind peers
To be sure, competition amid muted demand has eroded margins across the Indian quick-service restaurant space.
Jubilant FoodWorks Ltd, which is the master franchisee for Domino’s Pizza, Popeyes, and Dunkin Donuts in India and a few neighboring countries, has the highest PAT margin in the industry. But even that is less than 3%.
Other QSR operators have near-zero or negative PAT margins. Thanks to the struggling Indonesia business, however, RBA has the worst PAT margin—at almost -10%.
RBA’s sub-5% revenue growth is also at the lower end of the industry. Jubilant sports the highest revenue-growth, followed by Devyani International Ltd (known for Pizza Hut, KFC, and Costa Coffee) and Sapphire Foods India Ltd (a franchisee for Yum! Brands).
That said, all players except Jubilant reported a contraction in SSSG during FY25.
Their valuations are largely in line with their growth, with faster-growing businesses valued higher. The only exception is Westlife Foodworld Ltd (master franchisee for McDonalds in West and South India), which appears overvalued. It trades at almost 5 times its sales despite growing at less than 6% per year with a meagre 0.4% PAT margin. RBA trades at less than 2 times its sales.
Long way to go
Store expansion and unit profitability are key factors to monitor. RBA plans to take its store footprint to 800 by FY29, expanding through new café-style stores in fast-growing tier 2 and tier 3 cities. As stores mature and cost efficiencies take effect, the management expects a recovery in margins. It has to be seen whether this plays out despite a focus on value products catering to price-sensitive customers. Intensifying competition can further complicate matters.
Also, given that each new store opened in India takes up ₹2.7 crore, RBA’s expansion plans can add on debt. With debt-funded expansion and persistent losses, the company’s cash balance dwindled from ₹277 crore in FY22 to ₹33 crore in FY24, and its debt-to-equity expanded from 0.8x to 2.3x during the period. RBA had raised ₹500 crore through a qualified institutional placement of shares in March, which helped fill up its coffers and enthuse investors.
But with promoter’s stake in the business dropping to 11.3% over the years, further scope for equity dilution is limited. A lot hinges on whether growth comes at the cost of lower margins, or if volumes manage to make up for rising interest costs.
A turnaround in the Indonesia business will be key. RBA’s management indicated that profitability continued to improve in the first couple of months in Q1 FY26. It expects to save ₹45 crore in general and administrative expenses in its Indonesia business in FY26. If the company manages to keep its topline at current levels, its loss margin would shrink from -25% to -17%.
If these pieces fall into place, there is scope for a rerating. RBA’s Q1 FY26 numbers are due to be announced on 8 August. Brokers had pegged the stock’s target price at ₹135 per share, reflecting an upside of 65% over current levels. RBA shares were trading at ₹81.23 apiece on Tuesday morning (28 July) on NSE, 0.58% down.
Ananya Roy is the founder of Credibull Capital, a Sebi-registered investment adviser. X: @ananyaroycfa
Disclosure: The author holds shares of some of the companies discussed. The views expressed are for informational purposes only and should not be considered investment advice. Readers are encouraged to conduct their own research and consult a financial professional before making any investment decisions.
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