Sapphire Foods IPO which opened today was subscribed 0.24 times or 24% as of 12 PM, according to Bloomberg report. The portions for non-institutional investors booked 1 percent, while qualified institutional buyers portion have not yet received bids, according to the report.
KFC and Pizza Hut operator Sapphire Foods India Limited (SFL), said it has raised Rs 932.96 crore from 53 anchor investors, ahead of its IPO opening today.
It is planning to raise Rs 2,073 crore through a public issue. The issue is 100 percent offer for sale (OFS) by promoters and investors . The issue price price is fixed at Rs 1,120 – Rs 1,180. At the higher price band of Rs1,180, OFS size is at Rs 2,073 cr.
The offer will open for subscription on November 9 and will close on November 11, 2021.
The promoters are participating in the OFS. Sapphire Food Mauritius is selling 0.56 cr shares through the OFS. Post issue, Sapphire Food Mauritius stake will reduce to 36.8 percent from pre-issue of 45.5 percent. Other promoter QSR management trust is selling 0.08 cr shares and thereby its stake will reduce to 4.5 percent from pre-issue level of 5.8 percent. Post-issue, promoter and promoter group stake will reduce to 50 percent from pre-issue of 60.1 percent.
The average cost of acquisition per equity share for QSR Management is Rs 9.4 and Rs 309 for Sapphire Foods Mauritius. A number of institutional investors are also participating in the OFS, cumulatively selling 1.12 crore shares. Selling institutional investors are WWD Ruby, Amethyst Private Limited, AAJV Investment Trust, Edelweiss Crossover Opportunities Fund and Edelweiss Crossover Opportunities Fund- Series II.
Sapphire Foods
SFL is one of the YUM’s franchisee operators in the Indian subcontinent with operation revenue of Rs 1,020 cr in FY20. The company has operations in India, Sri Lanka and Maldives. As of September 30, 2021, the company owned and operated 482 stores which include 219 KFC restaurants in India, 188 Pizza Hut restaurants in India, 73 Pizza Hut stores in Sri Lanka, and 2 Taco Bell restaurants in Sri Lanka.
The company operates restaurants in high traffic and high visibility locations in key metropolitan areas and cities across India and develop new restaurants in new cities as part of brand and food category expansion. In India, the company has presence in 11 states that covers 56 percent of the country’s GDP. SFL is Sri Lanka largest international QSR player.
Operating revenue de-grew by (-)7.6 percent during FY19-FY21 in line with industry trend due to COVID-19 led business uncertainties. SFL reported sales of Rs 1,020 cr with EBIDTA margin at 12.2 percent in FY21, though company has been remained loss making reported loss of (-)Rs100 cr in FY21 weighed down by high interest cost. EBIDTA margin stood at 12.8 percent and OCF margin at 15 percent during FY19-FY21. The company reported sales of Rs 303 cr during Q1FY22 as compared to Rs 111 cr in the covid hit quarter in year-ago quarter.
With just five years of operational experience, SFL created a strong business presence in India, Sri Lanka and Maldives markets with 482 stores. It reported operating revenue of Rs 1,020 cr in FY21 out of which 80 percent came from India, 19 percent from Sri Lanka and 1 percent from Maldives.
Competitive strengths
Leading QSR brands with a substantial market presence and scale
Strong relationship with YUM
Continuous focus on delivering great customer experience
Operational excellence
Scalable new restaurant economic model for expansion
Risk and concerns
SFL operate stores on non-exclusive basis.
Termination of licences, if happens, can impact business severely
Business uncertainty due to COVID 19 pandemic
Loss-making business. If such losses continue to occur in the future shall affect business
Choice Broking says, "At the higher price band of Rs1,180, the issue is valued at P/S of 7.4x which is discount to peers (Devyani international at P/S of 14.8x and peer average P/S of 12.8x. While valuation seems reasonable compared to peers, we are concerned about business profitability due to higher likelihood of continuing incurring losses in the coming fiscals. Additionally, the company has short operating history as it started franchise operations with YUM brands in 2015.
"Considering all these parameters, we assign ‘Subscribe with Caution’ rating to the issue," the brokerage said.
