Sapphire Foods, the company which runs popular fast food chains KFC, Pizza Hut and Taco Bell in India, Sri Lanka and Maldives, is set to open its maiden Initial Public Offer (IPO) on Tuesday, November 9. As of now, experts are all positive about the issue, mainly due to the substantial market presence, reasonable values as compared to the operator’s peers as well as its improving performance in operation. The company aims to raise Rs 2,073 crore through the offer and already raised Rs 933 crore from anchor investors a day before opening the issue. On this note, let us take a look at the deets of the Sapphire Foods IPO.
1) Sapphire Foods IPO Dates
The sapphire Foods IPO will be open from November 9 to November 11, that is from Tuesday to Thursday. The issue will close after that.
2) Sapphire Foods IPO Price Band
The operator has fixed the price band for the initial public offer (IPO) at Rs 1,120 to Rs 1,180 per equity share.
3) Sapphire Foods IPO Offer Details
Sapphire foods is planning to mobilise Rs 2,073 crore though its IPO that opens Tuesday. 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.
According to reports, QSR Management Trust will sell 8.50 lakh shares, while Sapphire Foods Mauritius will sell 55.69 lakh shares. On the other hand, WWD Ruby will put up 48.46 lakh shares and Amethyst 39.62 lakh shares.
4) Anchor Investors
The Government of Singapore, Fidelity Funds, Abu Dhabi Investment Authority, Ashoka India Opportunities Fund, Sundaram Mutual Funds, ICICI Prudential Life Insurance, Bajaj Allianz Life Insurance Company and HDFC Mutual Funds were among the 53 anchor investors who participated in the issue. The company said on Monday that it had raised a sum on Rs 933 crore from the anchor investors on the day, ahead of opening its offer for the public.
5) Objectives of Issue
Sapphire Foods plans to use the proceeds of its IPO for the creation of a public market for its shares. It also plans to avail the perks of its listing and promote its brands, according to reports.
6) 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.
7) Portions Reserved
Up to 75 per cent shares of the Sapphire Foods IPO issue is reserved for Qualified Institutional Buyers (QIBs), while 15 per cent is reserved for non-institutional buyers. The remaining 10 per cent has been left out for retail investors.
8) Company Details
As per a note by Axis Financial, Sapphire Foods India Limited (“Sapphire Foods”) was incorporated on November 10, 2009. Sapphire Foods is YUM’s largest franchisee operator in the Indian subcontinent with revenue from operations of Rs 1,340.41 crore and Rs 1,019.62 crore for the financial years 2020 and 2021, respectively. The company’s association with YUM started in 2015 and it presently has the non-exclusive rights to operate restaurants under three of YUM’s leading brands, namely KFC, Pizza Hut and Taco Bell in the territories.
“As of March 31,2021, the company owned and operated 204 KFC restaurants in India and the Maldives, 231 Pizza Hut restaurants in India, Sri Lanka and the Maldives, and 2 Taco Bell restaurants in Sri Lanka. SFIL’s total number of restaurants in the subcontinent region grew from 376 in 2019 to 437 in 2021,” said Reliance Securities in a note.
9) 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.
10) 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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