KFC and Pizza Hut operator Sapphire Foods will make a debut on the bourses on November 18. The listing date has been preponed from November 22, the earlier scheduled listing date.
Experts have a mixed opinion on the Sapphire listing price, but they are not expecting a grand debut either given the declining grey market premium, loss making status, no growth capital from IPO and intense competition in the QSR (quick service restaurant) space.
The company raised Rs 2,073.25 crore through its public issue at a price of Rs 1,180 per share, the upper price band. It is entirely an offer for sale issue, so the company did not get any money from the offer. All the money from the offer after reducing issue expenses was received by selling shareholders.
Sapphire Foods shares were available at a price of Rs 1,240-1,265 in the grey market, which is a Rs 60-85 or 5-7 percent premium over the issue price of Rs 1,180, as per the IPO Watch and IPO Central. The grey market premium was Rs 120-125 on the day of opening of public issue for subscription (November 9). The grey market is an unofficial platform where the trading starts with the announcement of IPO price and continues till listing of shares.
“There are certain genuine reasons that contributed to the fall of the grey market premium. First of all, Sapphire Foods is still a loss-making company business and on top of that more losses are expected ahead as the company strategy is to grow its business. There is hardly meaningful growth in its financials and debt laden balance sheet also,” says Ankur Saraswat, Research Analyst at Trustline Securities.
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He further says valuation seems reasonable compared to its peers but there is very intense competition in the QSR space with its competitors. Company has a short franchise history that started in 2015. So, the listing price would be around Rs 1,265 apiece.”
Gaurav Garg, Head of Research at CapitalVia feels the reason behind the decrease in the grey market premium is the dampened overall market sentiments. However, the company is still expected to list at a premium, he says.
According to Sonam Srivastava, the Co-founder of Wright Research, one big reason for the fall in premium could be due to the issue being a 100 percent offer for sale. “So the money raised from the markets would not be injected back in the company but would go to the promoters and existing shareholders.”
Sapphire Foods is one of YUM’s franchisee operators in the Indian subcontinent, and is also Sri Lanka’s largest international QSR chain, in terms of the number of restaurants operated as of March 2021.
As of June 2021, the company 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.
The public offer of Sapphire Foods was subscribed 6.62 times during November 9-11. The reserved portion of qualified institutional buyers was booked 7.5 times and that of non-institutional investors saw 3.46 times subscription. Retail investors had put in bids 8.7 times the portion set aside for them.
The KFC operator has posted a consolidated loss of Rs 99.89 crore in the financial year FY21, against loss of Rs 159.24 crore in FY20. Revenue from operations in the same period declined to Rs 1,019.62 crore from Rs 1,340.41 crore due to Covid crisis.
In the quarter ended June 2021 also, it reported consolidated loss of Rs 26.4 crore, narrowing from loss of Rs 75.17 crore in the corresponding period last fiscal. However, revenue increased significantly to Rs 303.05 crore from Rs 110.99 crore YoY.
Ujjawal Kumar, Research Analyst at Green Portfolio says Sapphire may see flattish listing.
“The issue is completely offer for sale & the company does not get any growth capital. The company is loss-making & hasn’t generated any profit in the last 3 years. In August 2021, the company made a preferential allotment to existing shareholders at Rs 505 per share. The valuation has doubled in the last 3 months. This is a major red flag,” he reasoned.
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