Rationale

 The reaffirmation of the long-term ratings of Restaurant Brand Asia Limited (RBAL) (erstwhile Burger King India Limited) reflects ICRA’s expectation of continued steady performance of RBAL in the near to medium term, supported by resilient India operations and expectations of its Indonesian subsidiary turning profitable at the operating level. Despite the inflationary pressures, which resulted in soft customer sentiments, the company reported healthy YoY growth of ~19% in 9M FY2024, at a consolidated level, driven by Same Store Sales growth for its India operations coupled with contributions from aggressive new store additions. The ratings continue to draw comfort from the improving product portfolio curated to meet the Indian consumer taste and its entry into the café business in FY2022, leading to better product offerings. The ratings also continue to draw comfort from its well-experienced management team and healthy capitalisation levels supported by regular infusion of funds by the promoter, QSR Asia Pte. Ltd., prior to its initial public offering (IPO), primary infusion of funds during the IPO and Qualified Institutional Placement (QIP) in February 2022. The rating also factors in the adequate liquidity levels in the form of healthy cash and liquid balances, and the company’s stated intent to maintain adequate liquidity in the system on an ongoing basis. The ratings, however, remain constrained by the company’s aggressive expansion plans over the medium term and its low return on capital employed (RoCE) levels, along with continued losses at the net level attributed to sizeable depreciation charge. Further, the performance of the Indonesian subsidiaries was subdued with operating losses in FY2023, attributed to challenges in scaling up the newly acquired business. However, it curtailed its losses in 9M FY2024 by revamping its menu, more customer friendly offerings, several cost reduction measures and closing down select, underperforming stores. ICRA expects the Indonesian operations to post positive operating profits in the ongoing fiscal year through these cost optimisation and customer centric initiatives. The same will remain a key rating monitorable, since the Indonesian business has been a drag on the overall consolidated profile, and a concrete and a fast-track execution plan towards its turnaround remains the key challenge for the entity. ICRA also notes that the company has aggressive expansion plans in terms of store additions in India as well as in Indonesia (especially for brand Popeyes) as per compliance with the terms and conditions laid out in the master franchise development agreement (MFDA). The company may reconsideritsstore opening strategy for each of the markets as per demand and funding availability and will finalise its plans after looking at all perspectives. ICRA, hence, will continue to monitor the store expansion plan closely for each of its markets, both from a funding as well as a scaling perspective, which will remain key rating sensitivities. The ratings also consider RBAL’s vulnerability of earnings to competitive pressures, given other established brands and local, unorganised players.