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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

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.

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

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 (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 27th 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 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.</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

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>
Burger King India (BKI) aims to raise around US$110m via a mix of selling primary and secondary shares in India. 
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. 
BKI’s no. of restaurants have increased by 2.95x over FY17-20, while its revenue has grown even faster at 54% CAGR over FY17-20. Although BKI hasn’t managed to break-even, with the COVID induced lockdown pushing it back into losses.
As compared to its two main listed peers, BKI appears to lie in between on most measures, although its cost structure leaves much to be desired, as of now.
I’ve covered various aspects of the deal in my earlier notes:
<ul>
<li dir="ltr"><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></li>
<li dir="ltr"><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></li>
</ul>
In this note, I’ll cover the updates in the company’s latest filings and run the deal through our ECM framework
</div>


Burger King India (BKI) aims to raise around US$110m via a mix of selling primary and secondary shares in India. 
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. 
BKI’s no. of restaurants have increased by 2.95x over FY17-20, while its revenue has grown even faster at 54% CAGR over FY17-20. Although BKI hasn’t managed to break-even, with the COVID induced lockdown pushing it back into losses.
As compared to its two main listed peers, BKI appears to lie in between on most measures, although its cost structure leaves much to be desired, as of now.
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

In this note, I’ll cover the updates in the company’s latest filings and run the deal through our ECM framework


Burger King India IPO - Can Still Grow Fast

Consumer Analyst / Channel Surveillance Specialist, Trudence Capital Advisors

Pranav Bhavsar

Consumer Analyst / Channel Surveillance Specialist

ASA Capital Management

ASA Capital Management is a boutique Research and Investment Advisory firm focusing on primary research in India. ASA provides bespoke research services to Institutional Clients with a focus on due diligence backed with primary research, Field Trips & Channel Checks.

Equity Bottom-Up

This monthly insight aims to provide the narrative behind the monthly data points we have previously published. The monthly data points published are described in the following insights:
<ul>
<li>
<a href="https://www.smartkarma.com/insights/alternative-data-india-consumer-tracker-recovery-continues" target="_blank" data-smartkarma-citation="insights:42245" rel="noopener">Alternative Data | India Consumer Tracker - Recovery Continues</a> </li>
<li>
<a href="https://www.smartkarma.com/insights/alternative-data-india-consumer-tracker-rural-india-is-firing-recovery" target="_blank" data-smartkarma-citation="insights:41423" rel="noopener">Alternative Data | India Consumer Tracker - Rural India Is Firing Recovery</a> </li>
</ul>
Other postcards written by us include the following:
<ul>
<li>
<a href="https://www.smartkarma.com/insights/postcard-from-lucknow-india-the-road-to-usd-5-trillion" target="_blank" data-smartkarma-citation="insights:34882" rel="noopener">Postcard from Lucknow (India) | The Road to USD 5 Trillion</a> </li>
<li>
<a href="https://www.smartkarma.com/insights/postcard-from-surat-india-studded-jewellery-unlikely-to-aid-in-margin-expansion-for-titan" target="_blank" data-smartkarma-citation="insights:28437" rel="noopener">Postcard from Surat (India) | Studded Jewellery Unlikely to Aid in Margin Expansion for Titan</a> </li>
</ul>

This monthly insight aims to provide the narrative behind the monthly data points we have previously published. The monthly data points published are described in the following insights:


Alternative Data | India Consumer Tracker - Recovery Continues 

Alternative Data | India Consumer Tracker - Rural India Is Firing Recovery 

Other postcards written by us include the following:


Postcard from Lucknow (India) | The Road to USD 5 Trillion 

Postcard from Surat (India) | Studded Jewellery Unlikely to Aid in Margin Expansion for Titan 


Postcard from the North East | Savings Now Running Out; Market Share Gains for Organised Players

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

The MSCI ACWI index (USD) is breaking out to all-time highs while the MSCI EM index (local) is breaking above its prior highs from January. This is bullish and will continue to be as long as there is an absence of breakdowns. On the other hand, Europe’s EURO STOXX 50 and Japan’s TOPIX have struggled to break above resistance and their RS remains near the lows -- be selective. In addition to covering important technical levels across all markets, we highlight additional ideas in the following Sectors: Services, Communications, Industrials, and Transportation.

The MSCI ACWI index (USD) is breaking out to all-time highs while the MSCI EM index (local) is breaking above its prior highs from January. This is bullish and will continue to be as long as there is an absence of breakdowns. On the other hand, Europe’s EURO STOXX 50 and Japan’s TOPIX have struggled to break above resistance and their RS remains near the lows -- be selective. In addition to covering important technical levels across all markets, we highlight additional ideas in the following Sectors: Services, Communications, Industrials, and Transportation.

Global Equity Strategy: Bullish Outlook Intact

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.

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Jubilant Foodworks (JUBI IN)

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

Burger King India IPO - Can Still Grow Fast

Burger King India (BKI) aims to raise around US$110m via a mix of selling primary and secondary shares in India. BKI is the national master...

Sumeet Singh

Global Equity Strategy: Bullish Outlook Intact

The MSCI ACWI index (USD) is breaking out to all-time highs while the MSCI EM index (local) is breaking above its prior highs from January. This is...

Vermilion Research

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

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

Burger King India IPO - Can Still Grow Fast

Burger King India (BKI) aims to raise around US$110m via a mix of selling primary and secondary shares in India. BKI is the national master...

Sumeet Singh

Postcard from the North East | Savings Now Running Out; Market Share Gains for Organised Players

Thie Monthly Insight ai

Pranav Bhavsar

Global Equity Strategy: Bullish Outlook Intact

The MSCI ACWI index (USD) is breaking out to all-time highs while the MSCI EM index (local) is breaking above its prior highs from January. This is...

Vermilion Research