Hey, on the market numbers it does look like they have exceeded EPS expectation by 6 off %. Market was asking for 25.9 vs they delivered 27.6%. There should be potential upgrades for FY25/F26EPS too given the better base now.

Guys are you tracking?
Good topline, but bottom-line was burnt.
stock is down 20 percent in two days

Excellent numbers posted by the company again. Here are a few key points to focus on:

• 40% YoY Revenue Growth
• 69% YoY EBITDA Growth
• 48% YoY PAT Growth
• 60.7% of the revenue is subscrption based
• Strong CFO and Net Cash position
• Net Revenue Retention (% of incremental revenue from same clients compared to previous fiscal) – 113.2%
• 337 new customers added in FY24 (now at 3279 customers in total)
• 11.2% Attrition (down from 21.1% in FY23)
• 285Cr of Order wins (2.2x of FY23)
• 486Cr of Order Pipeline
• 22.3% increase in Revenue per employee
• Contribution from top 10 customers: 28.3% of total revenue in FY24, down from 32.2% in the previous year
• Margins have expanded further (EBITDA margin for Q4FY24 at 21.2% and at 19.8% for FY24)
• Sustainable LTV to CAC range is 12-16
• Long-term cash generation is expected to be 70-80% of EBITDA
• Exits of travel tech players in the hospitality industry globally have benefitted RateGain
• Expect organic revenue growth of 20%
• Growth could be higher if there are any acquisitions
• Adara has a seasonally weak Q4, but Q1 is generally very strong
• Q1FY25 is expected to be higher than Q4FY24
• Working on a new hotel pricing product called navigator

Segmental Revenue:

• 94% YoY Growth in DaaS
• 106.1% YoY Growth in Martech
• Distribution grew at 9%
• Similar trend expected with DaaS and Martech leading the growth

Disc: Invested

maybe or maybe not. But we have to watch on company’s results and make decision

Over the last 2-3 quarters, even while all domestic QSR brands have shown de-growth at the unit level, RBA has shown improvement in kpi such as SSSG, while continuing with their store expansion plans.
And thus I have recently done a deeper analysis of the business…

It seems business is at a good pivot point after 10 years of domestic operations, having built 455 restaurants over this short period. The McDonald’s franchise Westlife entered the market in 1996, almost 14 years before RBA, and has 397 restaurants in West and South India.

Improving traffic through a value strategy… The value strategy has resulted in lower AOV (Average order value) but increased SSSG (Same store sales growth) and ADS (Average daily sales).

While simultaneously increasing their gross margins… achieving through supply chain efficiency. Gross margin reached 67.7% in Q4FY24 from 66.4% the previous year, with guidance to reach 69% by FY 27. Westlife has gross margins of 70%.

EBITDA level profitability was achieved in India, but geo-politics delayed profitability in Indonesia.

Operating leverage plays out in such businesses… as marketing costs although remain stable at 5%, other fixed costs get distributed over a much larger base with scale.

Continued expansion through FY27 to meet 700 store target… to reach this, 80-85 stores per year will be opened for the next 3 years, a 16% CAGR through store addition. If SSSG recovers, top-line growth of 20-25% is achievable.

Debt… mainly for the Indonesian business, the India business has been grown by raising capital through equity. The outstanding borrowings in the books of PT Sari Burger Indonesia as of March 31, 2023 is Rs 165 cr.

Equity dilution… is present

Negative cash conversion cycle… has led to a 10x growth in cash from operating activity from March 21 to March 24, benefiting growth through internal accruals. The company also showed positive FCF in the current year (both at consolidated and standalone basis).

Indonesia business… has been the reason why the business has been given lower multiples. The company has guided that no new capital allocation will be done in the business in FY25. This should help weather the current slowdown in the country while improving unit economics, thus reducing drag at the consolidated level.

Closest competitor, Westlife… has shown operating leverage play out in the last 5 years, along with FCF generation while focusing on growth. The return matrix has also significantly improved. When compared to Westlife, while RBA was much behind in the business lifecycle, the improvement in returns appears sharper.

Beyond FY27… When store addition slows down, it could be fair to say that the company can achieve unit growth and profitability at least in line with Westlife, i.e., ADS of Rs. 155,640 (currently at Rs. 117,000) and Restaurant operating margins and Company operating margin of 22-24% and 15-17% respectively (currently at 19% and 14%).

Valuation – Available at P/S of 3x, while Jubilant, even after the de-rating trades at 5.8x, and Westlife is given a 5.5x multiple.
As the business cannot be evaluated on earnings I am taking CFO as a comparison matrix. The OCF generation of RBA and Westlife have been similar in FY24; thus the P/OCF of RBA and Westlife are coming to 16x and 38x resp. Even if West life deserve a higher multiple due to stronger brand recognition of Mc Donald’s there could be some scope for re-rating for RBA if it continues on this growth trajectory.

Branded business… have proven to be high ROE and ROCE businesses over the long term; like FMCG, branded pharma, branded hospitals, Titan, Trent, etc. by taking market share from local players. These businesses have longer gestation but led to a deep brand moat, resulting in higher returns and FCF generation.
Jubilant was the first entrant within the Indian QSR segment (1995) and we have seen that play out.

Based on the above theory and the improving financials, I believe that the business is becoming a good candidate for stock re-rating and earnings led growth if the slowdown in QSR segment eases out…