Equity L/S Analyst | Forensic Accounting | India, Yellowstone Equity

Ankit Agrawal, CFA

Equity L/S Analyst | Forensic Accounting | India

Forensic Accounting

Jubilant Pharmova Limited / Forensic Accounting

<p>Jubilant group is a multi-billion-dollar conglomerate in India with a wide array of businesses across retail franchise (Domino's in India and some neighboring countries), pharma and life sciences, agrochemicals and performance polymers, retail dealership (Audi cars) as well as aviation consulting and oil &amp; gas offshore EPC services.</p>
<p>Its largest business, Domino's franchise, is listed through <a href="https://www.smartkarma.com/entities/jubilant-foodworks-ltd" target="_blank" data-smartkarma-citation="entities:986:1" rel="noopener">Jubilant Foodworks (JUBI IN)</a>. The pharma and life sciences business is conducted through listed entity <a href="https://www.smartkarma.com/entities/jubilant-life-sciences-ltd" target="_blank" data-smartkarma-citation="entities:6853:1" rel="noopener">Jubilant Life Sciences (JUBILANT IN)</a>. It also has another small listed entity, <a href="https://www.smartkarma.com/entities/jubilant-industries-ltd" target="_blank" data-smartkarma-citation="entities:2766:1" rel="noopener">Jubilant Industries (JIND IN)</a>, which is mainly into agrochemicals, IMFL (Indian made foreign liquor) and performance polymer business. Rest of the businesses like the Audi dealership, aviation consulting and offshore EPC services are conducted through private entities such as Jubilant MotorWorks, Jubilant Enpro, etc. that are owned by the promoters of Jubilant Group - Shyam Bhartia and Hari Bhartia.</p>
<p>Below we closely analyze the annual reports of Jubilant Life Sciences ("JLL") and Jubilant Industries and discuss certain related party transactions and accounting flags that are worth noting and probing further. </p>

Jubilant group is a multi-billion-dollar conglomerate in India with a wide array of businesses across retail franchise (Domino's in India and some neighboring countries), pharma and life sciences, agrochemicals and performance polymers, retail dealership (Audi cars) as well as aviation consulting and oil &amp; gas offshore EPC services.
Its largest business, Domino's franchise, is listed through Jubilant Foodworks (JUBI IN). The pharma and life sciences business is conducted through listed entity Jubilant Life Sciences (JUBILANT IN). It also has another small listed entity, Jubilant Industries (JIND IN), which is mainly into agrochemicals, IMFL (Indian made foreign liquor) and performance polymer business. Rest of the businesses like the Audi dealership, aviation consulting and offshore EPC services are conducted through private entities such as Jubilant MotorWorks, Jubilant Enpro, etc. that are owned by the promoters of Jubilant Group - Shyam Bhartia and Hari Bhartia.
Below we closely analyze the annual reports of Jubilant Life Sciences ("JLL") and Jubilant Industries and discuss certain related party transactions and accounting flags that are worth noting and probing further. 

Jubilant Group: Related Party Transactions and Accounting Flags

Equity Analyst, LightStream Research

Oshadhi Kumarasiri

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Capital Markets

Restaurant Brands Asia / Equity Capital Markets

<ul>
<li>India’s fastest growing quick-service restaurant chain <a href="https://www.smartkarma.com/entities/burger-king-india" target="_blank" data-smartkarma-citation="entities:28445:1" rel="noopener">Burger King India (BKI IN)</a> started trading on 14<sup>th</sup> December 2020. The shares opened trading at INR 112.5 per share, up 88% from the offer price and closed the opening day at INR 138.4 per share, up 131% from the IPO price. The momentum is till strong and Burger King India shares are currently trading near INR 200.0 per share.</li>
<li>Burger King entered the Indian market in 2015, almost two decades after Domino’s, which currently leads the Indian QSR market with about 1,250 restaurants compared to the 261 Burger King restaurants. Subway, McDonald’s and KFC, entered the Indian QSR market in 2001,1996 and 2004 respectively and has 2.5x, 1.8x and 1.5x the number of Burger King restaurants in India currently.</li>
<li>We liked the company’s growth potential, but we were worried about its lower profitability compared to peers. Therefore, we were skeptical about Burger King India as a long-term investment, even though the IPO was priced at a significant discount to peer multiples.</li>
<li>In this insight, we explore what could be a good exit point for IPO investors and also suggests an entry point for short sellers.</li>
</ul>


India’s fastest growing quick-service restaurant chain Burger King India (BKI IN) started trading on 14th December 2020. The shares opened trading at INR 112.5 per share, up 88% from the offer price and closed the opening day at INR 138.4 per share, up 131% from the IPO price. The momentum is till strong and Burger King India shares are currently trading near INR 200.0 per share.
Burger King entered the Indian market in 2015, almost two decades after Domino’s, which currently leads the Indian QSR market with about 1,250 restaurants compared to the 261 Burger King restaurants. Subway, McDonald’s and KFC, entered the Indian QSR market in 2001,1996 and 2004 respectively and has 2.5x, 1.8x and 1.5x the number of Burger King restaurants in India currently.
We liked the company’s growth potential, but we were worried about its lower profitability compared to peers. Therefore, we were skeptical about Burger King India as a long-term investment, even though the IPO was priced at a significant discount to peer multiples.
In this insight, we explore what could be a good exit point for IPO investors and also suggests an entry point for short sellers.


Burger King India IPO Trading Update: More Speculation Than Investment

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

<div><p>Burger King India (BKI) raised around US$110m via a mix of selling primary and secondary shares in its India IPO. </p></div><div><p>BKI is the national master franchisee of the Burger King brand in India. As of Sep 2020, it operated 261 restaurants, including 8 sub-franchised restaurants, across 57 cities in India. </p></div><div><p>I’ve covered various aspects of the deal in my earlier notes:</p></div><div><ul style="list-style-type: disc;">
<li dir="ltr"><p><a href="https://www.smartkarma.com/insights/burger-king-india-pre-ipo-has-been-growing-fast-and-plans-to-grow-even-faster" target="_blank" rel="noopener">Burger King India Pre-IPO - Has been growing fast and plans to grow even faster</a></p></li>
<li dir="ltr"><p><a href="https://www.smartkarma.com/insights/burger-king-india-pre-ipo-peer-comparison-yields-interesting-nuggets-on-profitability-and-capex" target="_blank" rel="noopener">Burger King India Pre-IPO - Peer comparison yields interesting nuggets on profitability and capex</a></p></li>
</ul></div><ul><li><a href="https://www.smartkarma.com/insights/burger-king-india-ipo-can-still-grow-fast" target="_blank" rel="noopener">Burger King India IPO - Can Still Grow Fast</a></li></ul><div><p>In this note, I’ll talk about the updates for the deal and provide a table with implied valuations at different share price levels.</p></div>

Burger King India (BKI) raised around US$110m via a mix of selling primary and secondary shares in its India IPO. BKI is the national master franchisee of the Burger King brand in India. As of Sep 2020, it operated 261 restaurants, including 8 sub-franchised restaurants, across 57 cities in India. I’ve covered various aspects of the deal in my earlier notes:
Burger King India Pre-IPO - Has been growing fast and plans to grow even faster
Burger King India Pre-IPO - Peer comparison yields interesting nuggets on profitability and capex
Burger King India IPO - Can Still Grow FastIn this note, I’ll talk about the updates for the deal and provide a table with implied valuations at different share price levels.

Burger King India IPO Trading - Can Probably Double from IPO Price

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

<p>The Indian mutual fund industry has assets of almost INR 5 trillion across Multi cap, Large Cap, Large and Mid Cap, Mid Cap and Small Cap equity schemes. Equity schemes classified as large cap need to have at least 80% of their assets invested in large cap stocks, large and mid cap schemes need to have at least 35% of their assets in large cap stocks and at least 35% in mid cap stocks, mid cap funds need to hold at least 65% of their assets in mid cap stocks, and small cap funds need to hold at least 65% of their assets in small cap stocks.</p><p>The Association of Mutual Funds in India (AMFI) publishes the list of the stocks in each market cap segment in January and July each year and mutual funds have one month to rebalance their portfolios to adhere to the new categorization.</p><p>In the upcoming recategorization in January 2021, we see 6 stocks moved from the mid cap segment to the large cap segment with an equal number of stocks moving the other way, and 12 stocks are expected to move from the small cap segment to the mid cap segment with the same number moving the other way. There are quite a few IPOs that will join the small cap list, with just 1 joining the large cap list and 1 joining the mid cap list.</p><p>Historically, the stocks migrating upward to a higher market cap segment have outperformed stocks that migrate to a lower market cap segment over the 1 month and 2 month period post the publishing of the AMFI list. This can be attributed to fund managers realigning their portfolios to meet the new categorization. This provides opportunities to pre-position for the move and unwind post the announcement of the reclassification.</p>

The Indian mutual fund industry has assets of almost INR 5 trillion across Multi cap, Large Cap, Large and Mid Cap, Mid Cap and Small Cap equity schemes. Equity schemes classified as large cap need to have at least 80% of their assets invested in large cap stocks, large and mid cap schemes need to have at least 35% of their assets in large cap stocks and at least 35% in mid cap stocks, mid cap funds need to hold at least 65% of their assets in mid cap stocks, and small cap funds need to hold at least 65% of their assets in small cap stocks.The Association of Mutual Funds in India (AMFI) publishes the list of the stocks in each market cap segment in January and July each year and mutual funds have one month to rebalance their portfolios to adhere to the new categorization.In the upcoming recategorization in January 2021, we see 6 stocks moved from the mid cap segment to the large cap segment with an equal number of stocks moving the other way, and 12 stocks are expected to move from the small cap segment to the mid cap segment with the same number moving the other way. There are quite a few IPOs that will join the small cap list, with just 1 joining the large cap list and 1 joining the mid cap list.Historically, the stocks migrating upward to a higher market cap segment have outperformed stocks that migrate to a lower market cap segment over the 1 month and 2 month period post the publishing of the AMFI list. This can be attributed to fund managers realigning their portfolios to meet the new categorization. This provides opportunities to pre-position for the move and unwind post the announcement of the reclassification.

India: AMFI Stock Categorization Changes to Drive Active Portfolio Churn

<ul>
<li>India’s fastest growing quick-service restaurant (QSR) chain, <a href="https://www.smartkarma.com/entities/burger-king-india" target="_blank" data-smartkarma-citation="entities:28445:1" rel="noopener">Burger King India (BKI IN)</a> filed an updated prospectus with the Securities and Exchange Board on 27<sup>th</sup> of November 2020, offering 135 million shares (75 million new shares) at a price range of INR 59.0-60.0 per share.</li>
<li>Applications open on 2<sup>nd</sup> December and close on 4<sup>th</sup> December and shares are expected to start trading on 14<sup>th</sup> December. According to news articles, Burger King India shares are available at a 34%-42% premium to the offer price in the grey market.</li>
<li>Burger King India will utilise INR 1.65 billion of the net proceeds from the IPO to repay outstanding borrowings related to the opening of new company-owned restaurants, and another INR 1.77 billion, of which 63% on FY22 and 30% in FY23, to open new company-owned Burger King restaurants. The remaining amount will be used for general corporate purposes.</li>
<li>Shares are offered at a significant discount to peers. However, it does not necessarily mean that the shares are undervalued or has long term upside potential. Indian QSR players are currently trading at lofty forward multiples. We believe the market has significantly overvalued QSR players, considering only the rapid growth potential and ignoring the extreme competition and its impact on profitability. Therefore, we believe Burger King India is overvalued on absolute value.</li>
</ul>


India’s fastest growing quick-service restaurant (QSR) chain, Burger King India (BKI IN) filed an updated prospectus with the Securities and Exchange Board on 27th of November 2020, offering 135 million shares (75 million new shares) at a price range of INR 59.0-60.0 per share.
Applications open on 2nd December and close on 4th December and shares are expected to start trading on 14th December. According to news articles, Burger King India shares are available at a 34%-42% premium to the offer price in the grey market.
Burger King India will utilise INR 1.65 billion of the net proceeds from the IPO to repay outstanding borrowings related to the opening of new company-owned restaurants, and another INR 1.77 billion, of which 63% on FY22 and 30% in FY23, to open new company-owned Burger King restaurants. The remaining amount will be used for general corporate purposes.
Shares are offered at a significant discount to peers. However, it does not necessarily mean that the shares are undervalued or has long term upside potential. Indian QSR players are currently trading at lofty forward multiples. We believe the market has significantly overvalued QSR players, considering only the rapid growth potential and ignoring the extreme competition and its impact on profitability. Therefore, we believe Burger King India is overvalued on absolute value.


Burger King India IPO Valuation: Offered at a Discount to Peers, But Not Cheap on Absolute Value

India

Jubilant Foodworks Ltd. owns and operates fast food chains. The Company offers donuts, baked goods, coffee, bagels, muffin, fruit milkshakes, smoothies, tea, sandwiches, pizza, and beverages. Jubilant Foodworks serves its products to customers throughout India.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Jubilant Foodworks (JUBI IN)

Burger King India IPO Trading Update: More Speculation Than Investment

Burger King shares are up over 2.3x from the IPO price, mostly driven by speculation. we explore what could be a good exit point for IPO investors...

Oshadhi Kumarasiri

Burger King India IPO Trading - Can Probably Double from IPO Price

Burger King India (BKI) raised around US$110m in its India IPO. BKI is the national master franchisee of the Burger King brand in India.

Sumeet Singh

India: AMFI Stock Categorization Changes to Drive Active Portfolio Churn

The reclassification of stocks to large, mid and small cap will set off a churn in mutual fund portfolios where historically stocks migrating...

Brian Freitas

Burger King India IPO Valuation: Offered at a Discount to Peers, But Not Cheap on Absolute Value

Burger King India’s share price could rise following the IPO, as there is already a 34-42% grey market premium. We would void this IPO due to the...

Oshadhi Kumarasiri

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Jubilant Group: Related Party Transactions and Accounting Flags

A forensic analysis of Jubilant Group (Promoter Group of Jubilant Foodworks & Jubilant Lifesciences) leads us to certain related party transactions...

Ankit Agrawal, CFA

Burger King India IPO Trading Update: More Speculation Than Investment

Burger King shares are up over 2.3x from the IPO price, mostly driven by speculation. we explore what could be a good exit point for IPO investors...

Oshadhi Kumarasiri

Burger King India IPO Trading - Can Probably Double from IPO Price

Burger King India (BKI) raised around US$110m in its India IPO. BKI is the national master franchisee of the Burger King brand in India.

Sumeet Singh

India: AMFI Stock Categorization Changes to Drive Active Portfolio Churn

The reclassification of stocks to large, mid and small cap will set off a churn in mutual fund portfolios where historically stocks migrating...

Brian Freitas

Burger King India IPO Valuation: Offered at a Discount to Peers, But Not Cheap on Absolute Value

Burger King India’s share price could rise following the IPO, as there is already a 34-42% grey market premium. We would void this IPO due to the...

Oshadhi Kumarasiri