Days after the blockbuster market debut of Burger King which has whipped up a frenzy in the QSR (quick-service restaurant) segment, one of the subcontinent’s leading restaurant operators, which is backed by marquee private equity funds, is also looking to grab a bite of the sizzling IPO market.
Sapphire Foods India Private Ltd, which backs top brands like KFC, Pizza Hut and Taco Bell and is one of the largest franchisees of Yum! Brands Inc, has initiated preliminary discussions with investment bankers for a potential listing in 2021, sources with knowledge of the matter told Moneycontrol.
The Mumbai-based firm counts Samara Capital, Goldman Sachs, CX Partners, IDI Emerging Markets and Edelweiss Private Equity as its investors.
“JM Financial has been roped in as the left lead for the IPO. The other investment bankers have made their pitches recently to the firm and should be shortlisted soon. Without a doubt, the Burger King wave should work well for Sapphire Foods in terms of valuations, market appetite and demand,” said one of the individuals cited above.
“The firm is bigger than Burger King, which had an Rs 810 crore issue. No final call has been taken as yet on the issue size and private equity funds may look at a full or partial exit. Growth capital will also be required for further store expansion,” added a second person.
“Depending on the amount of secondary sale, Sapphire Foods may look at raising at least Rs 1,500 crores, but this figure may change at a later stage,” the second person said. A third person confirmed the IPO plans.
“As of now, the plan of Sapphire Foods is to file the DRHP ( draft red herring prospectus) with Sebi post-March in Q1FY22,” added a fourth person.
All four individuals spoke to Moneycontrol on condition of anonymity.
Moneycontrol is awaiting an email response from Sapphire Foods, Samara Capital, CX Partners, IDI Emerging markets and Edelweiss Private Equity and has sent reminders. This story will be updated once we hear from them. Goldman Sachs declined to comment.
When compared to its IPO price of December 14, 2020, Burger King India clocked gains of 192 percent at the end of day’s trade on December 17. In fact, Burger King India’s current market-cap of Rs 6,844 crores has already exceeded that of listed peer WestLife Development, which is valued at Rs 6,802 crores. Shares of WestLife Development and Jubilant Foods have risen by 15 percent and 11 percent respectively in the last month.
According to reports, the QSR market in India is projected to grow at a CAGR of over 18 percent during 2021-2025 due to a sharp spike in urbanization and food delivery services, the expanding young and working population, and rising disposable income.
“FII inflows have been exceedingly strong in the past two months and it’s a liquidity-driven market. In such a scenario, good quality issues in sectors like consumer, healthcare, financials and IT will see strong participation and post-listing performance,” said an investment banker on condition of anonymity.
A CLOSER LOOK AT SAPPHIRE FOODS AND ITS FOOTPRINT
Sapphire Foods, which was set up in September 2015, operates more than 400 KFC, Pizza Hut and Taco Bell restaurants across India, Sri Lanka and the Maldives.
In terms of segment and region-wise split, it operated 190 KFC stores in West, North, South and Central India and 168 Pizza Hut outlets in West, South and Central India as on March 31, 2020. The company also operates seven Pizza Hut stores in Gurugram (Haryana, India), 64 Pizza Hut and three Taco Bell outlets in Sri Lanka and two outlets in the Maldives through its subsidiaries and investment companies.
Sapphire Foods is managed by a team of professionals led by Group CEO Sanjay Purohit, who has earlier had stints at Levi Strauss & Co, Cadbury India & Asia Paints.
According to an ICRA report dated July 30, 2020, the company is promoted by QSR Management Trust, which is owned by Samara Capital. Sapphire Foods Mauritius Limited (owned by Samara and IDE Emerging Markets), Goldman Sachs, CX Partners and the Edelweiss Group are the other investors in the company. The investors have infused Rs 681.93 crore as equity and Rs 224.99 crore as compulsorily convertible preference shares (CCPS) during the past five financial years.
In FY2020, on a provisional basis, Sapphire Foods (consolidated) reported a net loss of Rs 48.52 crore on an operating income of Rs 1,349.19 crore compared to a net loss of Rs 44.66 crore on an operating income of Rs 1,193.82 crore in the previous year.
“Sapphire Foods faces intense competition from unorganised as well as organised QSR players like Dominos, McDonald’s and Burger King. The company’s ability to sustain its growth and improve its profit margin amid intense competition will remain critical,” the ICRA report said.