BBQ Nation: Serving Crispy Kebabs Topped with an IPO
Food joint BBQ Nation is famous for its mouth-watering kebabs, perfectly grilled appetizers and luscious, tender meat. Instead of food, however, it has recently dished out an Initial Public Offering (IPO). Bengaluru-based Barbeque Nation Hospitality (BHNL) - the company that owns BBQ Nation - has filed IPO papers with the Securities and Exchange Board of India (SEBI) for the second time. BHNL had filed for the IPO issue in 2017 but the process took time due to pending regulatory action for previous violations. Nevertheless, in 2020, BHNL received approval from SEBI to raise about Rs 1,000-1,200 crore through the IPO. The IPO comprises a fresh issue of shares worth INR 275 crores and an offer-for-sale of up to 98,22,947 equity shares.
BHNL, founded by Sajid Dhanani, was originally incorporated as Sanchi Hotels Private Limited on October 13, 2006, at Indore as a private limited company under the Companies Act, 1956. Today, the restaurant chain has opened up 59 new outlets and is operating 138 outlets across 78 cities. It also has 7 outlets in the UAE, Oman and Malaysia. BHNL also owns and operates Toscano Restaurants and UBQ - restaurants specialising in Indian and Italian cuisines respectively.
According to BHNL, the proceeds of the issue of the IPO will be utilised to repay an outstanding borrowing of Rs 205 crore and for general corporate purposes (which may include capital expenditures, acquisitions, stock repurchases, et cetera). Meanwhile, each of the shareholders shall be entitled to his or her portion of the proceeds of the offer for sale after deducting their portion of the offer-related expenses and relevant taxes.
BBQ Nation may gain several benefits apart from paying off existing loans and acquiring an alternate means of payment by the issue of this IPO. The key advantage to the company would be publicity and credibility. If BBQ Nation desires to maintain its growth, it will need increased exposure to potential customers; an IPO could provide this exposure as it pushes a company into the public spotlight. Analysts and news agencies report on every IPO and bring the newly-public companies into the attention of the people at large. BBQ Nation would not only receive significant attention once it goes public but it would also receive credibility. To complete the offering, it must go through intense scrutiny to ensure what it is reporting about itself is correct. This scrutiny, combined with many individuals’ tendencies to trust public companies more, can lead to the increased credibility of BBQ Nation. Furthermore, a major obstacle for any company is its cost of capital. Before an IPO, companies usually must pay higher interest rates to receive loans from banks and thus gain access to capital. But before a company can even begin its application for an IPO, it must be audited; this audit is generally more rigorous than prior audits and instils greater confidence in the accuracy of the financials of the company. This increased assurance will likely result in lower interest rates on loans received from banks as the company is perceived as being less risky, that is, less likely to default.
However, there are certain drawbacks for BBQ Nation concerning this IPO as well. It must not be forgotten that the novel coronavirus is still spreading across India and the world; its socioeconomic impacts are growing and deepening. The IPO is coming at a time when the COVID-19 pandemic has made outdoor eating unsafe, and often impossible, in countries around the world (including India). As a result, the encouraging growth of the company has been impeded. There is considerable uncertainty in the market regarding the growth prospects of, for that matter, any restaurant chain. The overall gloom in the restaurant industry, thus, may cap the potential value of this IPO. Furthermore, BHNL, like any other public company, would be required to file its financial statements with the SEBI every year, which could be both tedious and expensive. Reporting its financial position publicly would require BHNL to establish more stringent financial controls, staff a financial reporting team and audit committee, implement quarterly and yearly financial close processes, hire an audit firm, and complete several related tasks, all of which take significant portions of revenues and profits. Moreover, once a company is public, it is scrutinized by investors and analysts around the world, who are generally interested in only whether or not a company meets its quarterly targets and fulfils its public promises. Even if the BHNL leadership does what is best for the company in the long run, failing to meet the public’s short-term goals may cause the company to lose value and the leadership to be replaced. These factors must be taken into account and evaluated carefully before the decision to float an IPO is made by a company. Nonetheless, with regard to BBQ Nation Hospitality in specific, the IPO has potential and could be effective in both the short and the long run.
Definitions
Initial Public Offering (noun): An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance.
Audit (noun): Audit is the inspection of various books of accounts followed by physical checking of inventory to make sure that all departments are following a documented system of recording transactions.
