Sapphire Foods India Limited incorporated in November 10, 2009, is one of significant YUM’s franchisee operators in the Indian subcontinent and it is also Sri Lanka’s largest international QSR (quick service restaurant) chain, in terms of revenue. The company’s association with Yum started in 2015 and they presently have the non-exclusive rights to operate restaurants under 3 of YUM’s leading brands, namely, the KFC, Pizza Hut and Taco Bell brands in the Territories.
As of June 31, 2021, it owned and operated 209 KFC restaurants in India and the Maldives, 239 Pizza Hut restaurants in India, Sri Lanka and the Maldives, and 2 Taco Bell restaurants in Sri Lanka. In 2020, KFC, Pizza Hut and Taco Bell recorded system sales worldwide of $26.2 billion, $11.9 billion and $11.7 billion, respectively. The company’s total number of restaurants in the Territories grew from 376 restaurants as of March 31, 2019 to 450 restaurants as of June 30, 2021. It operates warehouses across 5 cities in India to service their restaurants in India
Promoters & Shareholding:
QSR Management Trust and Sapphire Foods Mauritius Limited are the company promoters.
| Pre Issue Share Holding | 60.08 % |
| Post Issue SHare Holding | 49.97 % |
Public Issue Details:
Offer for sale: OFS of approx. 17,569,941 equity shares of Rs. 10, aggregating up to Rs. 2,073.25 Cr.
Total IPO Size: Rs. 2,073.25 Cr.
Price band: Rs. 1120 – Rs. 1180.
Objective: To enhance the company brand name, to carry out OFS for selling shareholders.
Bid qty: minimum of 12 shares (1 lot) for Rs. 14,160 and maximum of 14 lots.
Offer period: 9th Nov 2021 – 11th Nov 2021.
Date of listing: 22nd Nov 2021.
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Pros:
- One of YUM’s franchisee operators in the Indian subcontinent with revenue from operations.
- Sri Lanka’s largest international QSR chain, in terms of revenue for the financial year 2021.
- Leading QSR brands with a substantial market presence and scale.
- Professional and experienced management team.
- The company monitors the quality of their customer experience through a sophisticated Guest Experience Survey (“GES”) system; this has helped continuously focus on delivering great customer experience.
- Scalable new restaurant economic model for expansion.
Cons:
- The company has suffered losses in the last 3 years.
- The revenue of the company has been unstable in the last 3 years.
- It has experienced negative cash flows in the past.
- Covid-19 pandemic has substantially affected and may continue to affect its business in future too
- Increased competition in the QSR chain sub-segment may adversely affect its business.
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Sectorial outlook – Food services is a key segment in the Indian economy, which accounted for approximately $56.5 billion (approximately Rs. 4.24 trillion) in financial year 2020, of which approximately $22.8 billion (approximately Rs. 1.7 trillion) came from the organized market (chain and organized standalone outlets). Changing consumer dynamics and increasing market proliferation of brands in India are expected to continue to boost the food services sector’s growth and the food services market in India is projected to grow at a CAGR of 8.0% from financial year 2020 to financial year 2025, and is expected to reach Rs. 6,211 billion by financial year 2025. Indian food services market gained strong momentum in the last decade due to changing consumer consumption patterns that have seen an increase in tendency to eat out that had not traditionally been a feature of the Indian lifestyle. This has ensured constant growth of the Indian food services market is expected have positive impact on the company and its business.
The financials (revenue and net profit) are shown in graph below:
Valuation – Since the company has suffered losses in the last 3 years, it’s not possible to determine the P/E. Jubilant FoodWorks (P/E 31.72), Westlife Development, Burger King and Devyani Intl. are its listed peers. Even though it is one of India’s largest restaurant franchisee operators we have to keep in mind that the company has been incurring losses and the revenue has been unstable since the past 3 years and hence the listing seems to be expensive.
Recommendation – The IPO market is on a full swing this month and based on the hysteria for IPOs in the current market, this IPO might get oversubscribed. After considering all the factors we would recommend investors with High risk profile may “SUBSCRIBE” to this IPO for the possibility of listing gains. Investors with medium to long term perspective can skip this IPO, wait and watch the performance in future to take decision to invest.
Disclaimer:
This article should not be construed as investment advise, please consult your Investment Adviser before making any sound investment decision. If you do not have one visit mymoneysage.in now.
Also read: https://www.mymoneysage.in/blog/analysing-the-reits-in-india/