May 16, 2012, 02.14 PM IST | Source: CNBC-TV18

Are investors hungry for Specialty Restaurants' IPO?

The managing director of Specialty Restaurants Anjan Chatterjee tells CNBC-TV18 that they expect their IPO to suceed despite the poor market conditions.

Anjan Chatterjee, MD, Specialty Restaurants

The managing director of Specialty Restaurants Anjan Chatterjee tells CNBC-TV18 that they are going ahead with their IPO despite the poor market conditions. “Within our own sphere I think we have a unique story, and we have been building this over a period of last 20 years, so we are going ahead with the IPO,” he said.

He further adds that he expects their initial public offer to be successful.

Specialty Restaurants is the company that runs eateries like Mainland China and Oh! Calcutta. Their IPO is scheduled to open on May 16, and the company aims to mop up Rs 182 crore via this process.

The company’s topline has been growing historically at 35% compounded annual growth rate while profits have grown 49%. “We ensure that the kind of average ticket size is based on a model which is 5 star food and quality at non-5 star prices. So we have been able to ensure that we keep that gap going and the EBITDA levels have been maintained over a period of time respectably,” commented Chatterjee.

Going forward, he believes there is a huge potential for fine dining restaurants because the industry is still in nascent stage.

Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.

Q: Difficult market conditions to be doing an IPO. Are you sure you want to go ahead with it because the last one got pulled at the last minute because of the global turbulence?

A: As you know, nobody has been able to time the market. Within our own sphere, I think we have a unique story. We have been building this over a period of last 20 years, so we are going ahead with the IPO.

Q: Just walk us through what kind of compounded growth you have been ticking at and what is it that you expect to do both in terms of revenues that you generate and how that flows through to your bottom-line?

A: Historically, we have been growing at a compounded annual growth rate of 35% on the top line and 49% on the profit for the last four years. Going forward, considering the fact that fine dining is in a nascent stage, there is a huge opportunity that we are seeing in both tier 1 and tier 2 cities. The flagship brand Mainland China is now going to be replicated and we are adding 16 plus 16 plus another 12 restaurants in the next three fiscal years. We would be sure that the more number of Mainland Chinas we add we are actually adding to the bottom-line and the profits.

There is one very good trend in the real estate costs for the commercial property. As you know, we always lease because it’s an asset light model. We have been trying to talk and negotiate a better deal with all the mall owners, and since the brand has gained strength and since commercial property rates are stagnating, I think there will be a huge leverage going forward.

We have history of having served millions of people in India and there is a very satisfied guest base we have. So we are very bullish that going forward we will be able to consolidate and leverage this.

Q: How high margin is the business? I understand they are completely different models of working, but how does Jubliant Foodworks, the only listed other entity, compare with the delivery model?

A: I will take an example of Mainland China. The EITDA level is around 35%. Now as you know, we own all our brands and we ensure that the kind of average ticket size is based on a model which is 5 star food and quality at non-5 star prices. So we have been able to ensure that we keep that gap going and the EBITDA levels have been maintained over a period of time respectably.

If the lease rentals come down going forward, which is something we are working very hard on, I think that we will have great operational margins.

We have got a template working for us for at Mainland China or Oh! Calcutta or the Indian brand Sigree. We also plan to grow Mainland China and Sigree together because there is no Indian standalone fine dining chain which can be recognized. So we want to do a Mainland China to a Sigree. We have been operating on a respectable margin and going forward we will be leveraging the economies of scale and consolidate.

Q: Can you just give us some sense of what same store sales growth is like, revenue growth is like? Will most of the growth going forward come from the new restaurants that you are planning to open?

A: No it will be a combination of the two. On a same store basis, we are looking at in and around between 8-12% averaging. Within the city of Bombay, we have one in Andheri West and we thought that one in Malal Infinity at 4 kms is too close. But we did go ahead and I am very happy to say that there is no cannibalization.

We see that with the traffic becoming difficult, people don’t want to move out beyond a radius of 4 kms. So hence, it is important that the growth will come from both the combination of the same store growth as well as the expansion.

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