The primary offering is entirely an offer for sale (OFS), in which its existing shareholders and promoters are offloading 17,569,941 equity shares in the range of Rs 1,120-1,180 each.
A day before the IPO, Sapphire Foods India raised about Rs 933 crore from anchor investors, who were allotted 7,906,473 equity shares at the upper price band of Rs 1,180 per share.
Total 53 anchor investors including 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 among others participated in the anchor allotment.
Despite reporting losses for the last few years, analysts are suggesting investors to subscribe to the issue. They are firm on the bullish prospects of the company and competitive valuations, which leaves some value on the table for investors.
Fast food culture under QSR is expected to flourish in India due to an increase in the working class population and continued urbanization, said Reliance Securities in its pre-IPO note. The brokerage has given it a ‘subscribe’ rating for long term.
“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 more than 90%, which bodes well for long-term investors,” it added.
However, brokerage firm Choice broking has a word of caution for investors over uncertainty around profitability due to higher likelihood of continuing incurring losses in the coming fiscals. It has assigned ‘Subscribe with Caution’ rating to the issue.
“Net debt to equity stood at 1.35x which seems higher. Continued capex requirement for expansion and modest trajectory of EBITDA and margin, higher interest cost would continue to weigh on profitability in near fiscals,” it added.
Investors can subscribe to the the IPO in a lot size of 12 shares, and in multiples thereof. Shares of the company are likely to get listed on November 22 on both BSE and NSE.
Canara Bank Securities, which has recommended subscribing to the issue for listing gains as well as long-term investment, said the company has been optimizing its stores by reducing its space as part of its cost saving strategy.
“The bottom line of the company is negative, it is positive at the operating level with an operating margin of 12-14% in FY19-21 backed by a strong balance sheet,” it added.
Sapphire Foods India is YUM’s largest franchisee operator in the Indian subcontinent with wide product offerings across brands. The company is operating under the QSR category with an omni-channel presence.
Amarjeet Maurya, AVP – Mid Caps, Angel One, said the post-issue FY21 EV/Sales works out to 7.4x, which is low compared to its peer Devyani International.
“Sapphire Foods has a better revenue per store compared to Devyani. On the EBITDA front, the company is continuously showing improvement,” he added. “Considering all the positive factors, we believe this valuation is at reasonable levels.”
“Considering the trailing twelve month (TTM) adjusted EBITDA of Rs 1,823.74 on a post-issue basis, the company is going to list at a EV/EBITDA of 41.38 with a market cap of Rs 7,498 crore while its peers, namely Jubilant Foodworks and Westlife Development, are trading at a EV/EBITDA of 49.26 and 73.55, respectively,” said analysts at Marwadi Shares and Finance, with a subscribe rating.
