Sapphire Foods, which operates KFC and Pizza Hut restaurants, initial public offering (IPO) has received muted response from the investors as of now.
Sapphire Foods IPO was subscribed 1.5 times so far on the final day of the bidding. Sapphire Foods IPO received bids for 1.18 crore equity shares against an IPO size of 96.63 lakh equity shares till now, according to the data available at NSE. The portion reserved for them has been booked 6.16 times. Qualified institutional investors have, so far, bid for only 3 per cent of their quota of shares. The non-institutional investors bought 34 per cent shares of their portion. Sapphire Foods IPO was booked 1.07 times on the second day of subscription, largely by the support of the retail investors.
Sapphire Foods IPO Price, Valuation
Sapphire Foods aimed to raise Rs 2,073 crore through IPO. The maiden issue was entire an offer-for-sale by promoters and investors. Sapphire Foods IPO price band was fixed at Rs 1,120-1,180 a share. The company raised Rs 933 crore from the anchor investors, at the upper price band. On Sapphire Foods IPO valuation, Angel One said, “In terms of valuations, the post-issue FY21 EV/Sales works out 7.4x to (at the upper end of the issue price band), which is low compared to its peers Devyani International (FY21 EV/Sales -16.3x).”
Sapphire Foods IPO Key Strengths
Started in 2015, Sapphire Foods India Limited has been the largest franchise operator of YUM Brand in the Indian subcontinent. Sapphire Foods has the non-exclusive rights to operate restaurants under three leading brands — KFC, Pizza Hut and Taco Bell brands in the territories. All of them are well-recognised fast food brands not only in India but across the globe. This competitive portfolio can make Sapphire Foods attractive for investors. The scalable QSR business model that Sapphire Foods follows, usually enjoys a strong cash generation ability. The experienced board and senior management team are some of the key strengths of Sapphire Foods.
Sapphire Foods IPO Key Risks:
The brokerage companies pointed out company’s continuous losses on bottom-line front as one of the major risks for investors planning to subscribe Sapphire Foods IPO. The losses could affect business in future if it continues, analysts said. The Covid-19 pandemic has severely affected the hotel, restaurants and hospitality business in India. Though the economy had started opening gradually, the uncertainty still remained. Furthermore, Sapphire Foods operates stores on non-exclusive basis and it has always a healthy relationship with YUM brand. So if the licences get terminated, the business will be be severely impacted, the brokerages said.
Sapphire Foods IPO GMP Today
Sapphire Foods unlisted shares has been trading at Rs 1,280 in the grey market, according to IPO watch. Hence, Sapphire Foods IPO grey market premium was Rs 80 on Thursday, November 10.
Should you subscribe to Sapphire Foods IPO?
Saphhire Food’s financial performance has not been encouraging and was adversely impacted by the pandemic in FY21. While the company’s consistent increase in store counts (from 376 in FY19 to 450 as of 1QFY22) enabled it to register a sizeable growth in revenue over the years, except for FY21, which was impacted by the Covid-19 lockdown, higher depreciation (due to store additions) and higher opex (due to low occupancy), which resulted in a net loss for the company over the last three years.
“Fast food culture under QSR is expected to flourish in India due to an
increase in the working class population and continued urbanization. We note
that the QSR business model is quite impressive, as each restaurant franchise
starts generating significant RoE at the restaurant level, once it reaches an
utilization level of ove 90 per cent, which bodes well for the long-term investors. Also, the superior cash flow generation ability of the business offers comfort. Hence, we recommend SUBSCRIBE to the issue for the long-term perspective,” said Reliance Securities.
“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,” said Choice Broking.
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