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Wednesday, Nov 30, 2022
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Sapphire Foods India IPO: Should You Take a Bite?

KFC and Pizza Hut operator Sapphire Foods kicks off Rs 2,073 crore IPO; gets fully subscribed within a few hours of opening

Sapphire Foods India IPO: Should You Take a Bite?
Sapphire Foods India IPO: Should You Take a Bite?
outlookindia.com
2021-11-09T17:03:15+05:30

The Rs 2,073 crore initial public offering (IPO) of Sapphire Foods India Ltd (SFIL), which has a wide presence in India through KFC, Pizza Hut and Taco Bell stores in India, Sri Lanka and Maldives, opened today. Within a few hours of opening, the retail category of the IPO was fully subscribed.

The issue will remain open till November 11. The price band of the IPO is Rs 1,120-1,180.

SFIL is one of Yum! Brands’ franchisee operators in India. Yum! Brands is a Kentucky-based food brand, which has over 52,000 restaurants in more than 150 countries. As of June 30, 2021, SFIL owned and operated 209 KFC restaurants in India and the Maldives, 239 Pizza Hut restaurants in India, Sri Lanka and the Maldives, and two Taco Bell restaurants in Sri Lanka. It is also Sri Lanka’s largest international Quick Service Restaurant (QSR) chain, in terms of revenue for the financial year 2020-21 with a revenue of Rs 1.90 billion, representing 35 per cent of the total market revenue.

The IPO is entirely an offer for sale (OFS) of 1,75,69,941 equity shares by promoters and existing shareholders. As per the draft red herring prospectus (DRHP), Sapphire Foods Mauritius Ltd plans to disinvest 55.69 lakh equity shares, Amethyst will sell 39.62 lakh equity shares, and QSR Management Trust plans to offload 8.50 lakh equity shares.

 

Should You Buy?

As per a research report by broking company Angelone, strong financial and global presence bodes well for the company. “Its strong financial standing and diversified global presence continue to add value to its moat. Additionally, the experienced management team coupled with the execution of smart business strategies offers Sapphire Foods an edge over its competitors. In general, Sapphire Foods is among the market leaders when it comes to the restaurant operator space. Investors willing to speculate on the growth and prospect of the food and restaurant business may consider Sapphire Foods a lucrative bet,” says the report.

Angelone recommends subscribe, citing that “Sapphire Foods India has a better revenue per store compared to Devyani International. On the EBITDA front, the company is continuously showing improvement. Considering all the positive factors, we believe this valuation is at reasonable levels”. Devyani International is also a franchisee of Yum! Brands.

Brokerage firm KR Choksey, in its IPO note, said, “Sapphire Foods IPO is decently priced, it’s offered at market cap to sales ratio of 6.78x to its FY21 sales.” 

Other brokerage firms also believe that low penetration of QSR chain in India gives an added advantage to the company to exploit market share and revenue. “The density of chain QSRs in India is low, at just 18 outlets per million of urban population as compared to 765, 270 and 318 in USA, UK and Malaysia, respectively. The density is even lower compared to certain developing economies such as Brazil (126) and Indonesia (88),” says an HDFC Securities report.

Higher growth opportunities coupled with lower valuation could be a factor for full subscriptions within just a few hours of its opening.

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