KFC and Pizza Hut operator Sapphire Foods started off a first day trade with a decent premium of 15 percent on November 18, which is largely on expected lines. The stock listed at Rs 1360.75 on the BSE and the opening tick on the National Stock Exchange was Rs 1,368, against issue price of Rs 1,180.
The initial public offering of Sapphire Foods, one of YUM's franchisee operators in the Indian subcontinent and Sri Lanka's largest international quick service restaurant (QSR) chain, had received good response from investors as it was subscribed 6.62 times during November 9-11, 2021. The portion set aside for qualified institutional buyers was booked 7.5 times and that of non-institutional investors saw 3.46 times subscription. Retail investors had bought shares 8.7 times the reserved portion.
The company has mopped up Rs 2,073 crore through its public issue that was entirely an offer for sale by selling shareholders including promoters, which was largely one of reasons for lower subscription to the IPO as the company did not get growth capital. All the money, after reduction of issue expenses, was received by selling shareholders.
Sapphire Foods 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 as of June 2021.
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The KFC operator had posted losses in all three previous financial years mentioned in the prospectus. The consolidated loss in the financial year FY21 was Rs 99.89 crore, against loss of Rs 159.24 crore in FY20. Consolidated revenue during FY21 dropped to Rs 1,019.62 crore from Rs 1,340.41 crore due to Covid-led lockdown pressure.
The company managed to narrow its consolidated loss to Rs 26.4 crore in the quarter ended June 2021, from loss of Rs 75.17 crore in the corresponding period last fiscal. On the other side, revenue increased significantly to Rs 303.05 crore from Rs 110.99 crore YoY in the same period.
Most of analysts have given a subscribe rating to the issue given the expected growth in QSR chain with the recovery in economy, though it is a loss making entity.
"QSR companies are currently trading at market cap to sales ratio ranging from 8.9x for Westlife Development to 15.5x for Devyani International, the average sector multiple is 13.1x. Sapphire Foods IPO is decently priced, its offered at market cap to sales ratio of 6.78x to its FY21 sales. Pricing becomes more lucrative considering the fact that during FY21 sales got impacted due to Covid related lockdown and protocols. We recommend subscribe to the issue for both listing gains as well as long term wealth creation," said KRChoksey Research.
Angel One had said 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. Thus, we recommend a subscribe rating on the issue."
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