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Sapphire Foods Makes Decent Debut on NSE, BSE; Lists at 15% Premium Over Issue Price

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Pizza Hut, KFC and Taco Bell operator Sapphire Foods stock got listed at the Dalal Street on November 18, Thursday. The Sapphire Foods listing started off in a decent manner at the stock markets, with a premium of 15 per cent. This was largely expected as the Sapphire Foods IPO had fetched a decent subscription rate as well as grey market premium. Sapphire Foods stock listed at Rs 1360.75 on the BSE (Bombay Stock Exchange) against the final issue price of Rs 1,180. The stock opened at Rs 1,368 at NSE (National Stock Exchange), slightly higher than its peer, as of 10 am on the day.

The offer by 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 decent response from investors. On the final day of bidding, the Sapphire Foods public offer was subscribed only 6.62 times, which was lesser than how IPOs have been performing recently.

Sapphire Foods has raised Rs 2,073 crore through the public offer. The maiden issue was totally an offer-for-sale (OFS) by promoters and investors. Sapphire Foods IPO price band was fixed at Rs 1,120-1,180 a share. The company raised Rs 933 crore from the anchor investors, at the upper price band.

The portion reserved for retail buyers had been booked 8.7 times. Qualified institutional investors had bid for only 7.5 times over their quota of shares. The non-institutional investors bought 3.46 times the shares of their portion. Sapphire Foods IPO was booked 1.07 times on the second day of subscription, largely by the support of the retail investors.

Started in 2015, Sapphire Foods India Limited has been the largest franchise operator of YUM Brand in the Indian subcontinent. Sapphire Foods has the non-exclusive rights to operate restaurants under three leading brands — KFC, Pizza Hut and Taco Bell brands in the territories. All of them are well-recognised fast food brands not only in India but across the globe. This competitive portfolio made Sapphire Foods attractive for investors. The scalable QSR business model that Sapphire Foods follows, usually enjoys a strong cash generation ability. The experienced board and senior management team were some of the key strengths of Sapphire Foods.

The Operating revenue of Sapphire Foods de-grew by 7.6 per cent during FY19-FY21 in line with industry trend due to Covid-19 led business uncertainties.

The company reported sales of Rs 1,020 crore with EBIDTA margin at 12.2 per in FY21, though it has reported loss of Rs 100 crore in FY21 weighed down by high interest cost. The company reported sales of Rs 303 crore during Q1FY22 as compared to Rs 111 crore in the Covid-hit quarter in year ago quarter.

Most analysts, despite the reports of loss, gave a subscribe rating to the issue.

“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 ove 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,” said Reliance Securities.

“While valuation seems reasonable compared to peers, we are concerned about business profitability due to higher likelihood of continuing incurring losses in the coming fiscals. Additionally, the company has short operating history as it started franchise operations with YUM brands in 2015. Considering all these parameters, we assign ‘Subscribe with Caution’ rating to the issue,” said Choice Broking.

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