Sapphire Foods IPO, which has already kicked off for subscription, was subscribed 49 per cent at the end of Day 1 of the initial sale of sales. This was largely due to an increased amount of interest among retail investors to to subscribe to the maiden public offer of the company, which runs popular fast food chains like KFC, Pizza Hut and Taco Bell in India, Sri Lanka and Maldives among other countries. On the day, the Sapphire Foods India Ltd’s IPO received bids for 47,11,212 equity shares or 49 per cent pm against a total issue size of 96,63,468 equity shares, according to reports.
The quota set aside for retail investors was subscribed 2.56 times, while the portion reserved for non-institutional buyers was subscribed only 5 per cent. As of Monday noon, qualified institutional buyers have booked just 2 per cent of the issue. Investors can book the Sapphire Foods IPO till Thursday, November 11.
Sapphire Foods IPO Details
Sapphire foods is planning to mobilise Rs 2,073 crore though its IPO that opened Tuesday. The operator has fixed the price band for the initial public offer (IPO) at Rs 1,120 to Rs 1,180 per equity share.
The issue is an entirely offer-for-sale one by promoters QSR Management Trust and Sapphire Foods Mauritius. The investors in the OFS include WWD Ruby, Amethyst, AAJV Investment Trust and Edelweiss Crossover Opportunities Fund. The company will issue an OFS 17,569,941 shares though the Initial Public Offer. The offer will constitute 27.7 per cent of the post-offer paid up equity share capital of the company, said ICICI Securities in a note.
Sapphire Foods IPO GMP Today
On November 10, Monday, the grey market premium or GMP of Sapphire Foods IPO was trading at Rs 1,305, up Rs 125 or 10.6 per cent over the company’s issue price. The high GMP indicated strong listing for Sapphire Foods India Ltd shares on NSE and BSE later this month.
Objectives of Issue
Sapphire Foods India Ltd plans to achieve the benefits of listing the equity shares on the stock exchanges. The company will use the proceeds for the enhancement of its brand name amongst its existing and potential customers and creation of a public market for its equity shares in India. It aims to avail the perks of its listing and promote its brands, according to reports.
Lot Size of Sapphire Foods IPO
Investors who want to buy shares from the Sapphire Foods IPO will be able to do so in multiples of 12 under the initial share sale, and go on thereof. This means that at the upper end of the price band, one lot of the shares of the KFC and Pizza Hut operator will cost Rs 14,160.
Valuation of Company
“Sapphire Foods stands to benefit from positive industry growth trends given its substantial market presence and scale. Moreover, its strong relationship with YUM and continuous focus on delivering a great consumer experience bodes well for the company. Going forward, it aims to accelerate the conversion from unorganized food services and also look for inorganic growth opportunities. The financial performance has not been good as the revenue growth has declined and the company has incurred losses in each of the last three fiscal year. While the long term growth prospects look promising, but a turnaround in the company’s financial performance would be a key monitorable,” Religare Broking said in a note about the company operating KFC and Pizza Hut in India.
Company Financials
Sapphire Food India Limited’s performance in FY 21 has been underwhelming, mainly due to the impact of the Covid-19 pandemic. 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 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, said Reliance Securities.
However, on a positive note, the QSR business model enjoys a strong cash generation ability, due to negative working capital cycle.
Should You Subscribe?
Reliance Securities: The IPO is valued at 60.2x FY21 EV/EBITDA and 7.3x FY21 EV/sales, which looks to be at a modest discount compared to the recently-listed Devyani International, which appears reasonable due to the better margins profile of Devyani. 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 >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.
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