Barbeque-Nation's strategic moves position it for growth: Report

In the face of challenging macroeconomic conditions over the past year, the casual dining chain operator Barbeque-Nation has demonstrated resilience and strategic acumen, positioning itself as one of the few scalable casual dining players with robust store economics and a healthy net cash balance sheet, analysts at brokerage firm Motilal Oswal said.

Despite facing headwinds in Same Store Sales Growth (SSSG) earnings, the management has proactively responded by rationalising stores positioning the company for a comfortable 15-20 per cent growth through internal funding once market conditions improve.

Barbeque-Nation’s strategic moves

Barbeque-Nation faced the adverse impact of weak macroeconomic conditions on its SSSG, averaging at -6 per cent over the last few quarters. However, in response to the challenging environment, the company took decisive steps, including pausing new store additions in FY24 and optimising store economics by closing down unprofitable stores, totalling 19 closures in the last 12 months.

The management's rational approach reflects a commitment to adapt to market dynamics and prioritize efficiency.

“The company is well-positioned to resume its growth trajectory, with plans to add 25-30 stores across formats starting from FY25, driven by the expected recovery in the demand environment. Despite the current hurdles, Barbeque-Nation's scalable casual dining model, marked by healthy store economics and a robust brand, positions it favourably for future expansion,” the Mumbai-based brokerage firm said.

Barbeque-Nation's store economics stand out in the casual dining space, with an average daily sales (ADS) and revenue per store contributing to a store-level EBITDA margin of 20-22 per cent. The company's prudent product-pricing strategy, optimal store size, and standardised product offerings have contributed to a payback period of three years. The focus on right-sizing stores to 3,500-4,000 square feet further enhances efficiency.

“With a strong cash flow and a debt-free balance sheet, Barbeque-Nation is poised for growth without external capital. The company is expected to generate robust cash flow of Rs 76 crore in FY24 and Rs 150 crore in FY25, providing ample internal funding for approximately 15 per cent store additions, equivalent to 30-40 new stores. The diversified formats, including Barbeque, Toscano, Salt, and Fiesta, offer avenues for growth, supported by a delivery channel representing 15 per cent of sales,” Motilal Oswal said.

Despite the current challenging environment, characterised by factors such as Navratri/Shraad in October and the World Cup in November affecting performance, Barbeque-Nation's strategic measures, including store rationalisation and cost optimisation, are expected to support growth through internal accruals. The company anticipates a bottoming out of earnings in the next couple of quarters, with improving market conditions, Motilal Oswal added.

Attractive Valuations

Valuation-wise, Barbeque-Nation presents an attractive opportunity, trading at an enterprise value to sales ratio (EV/Sales) of 1.4 times, the lowest in the retail space, and an enterprise value to EBITDA (EV/EBITDA) of 14 times on FY26 earnings estimates. The stock's resilience is reflected in its strong cash flow, net cash balance sheet, and well-funded growth engine. Despite a recent downtrend in stock price, down 35 per cent in the last year, the recovery in SSSG and the company's internally funded growth strategy are seen as key positive catalysts.

The brokerage has neutral rating on the stock.