What to consider before investing in Sapphire Foods IPO?

%name What to consider before investing in Sapphire Foods IPO?

Just a couple of months after Devyani International hit the IPO market, there is one more franchisee of YUM Brands that is taking a go at the IPO market. Sapphire Foods India Ltd will come out with an IPO of Rs.2,073 crore. Sapphire is the largest franchisee of YUM Brands in the Indian sub-continent comprising of India, Sri Lanka and the Maldives. The IPO will open for subscription on 09-November and close on 11-November. Sapphire is not raising any fresh funds and the entire issue will be an OFS.

In terms of size and reach, Sapphire Foods operates 209 KFC restaurants in India and Maldives, 239 Pizza Hut outlets in India, Maldives and Sri Lanka and 2 Taco Bell outlets in Sri Lanka. These are popularly referred to as the QSR segment or the quick service restaurant segment and have seen demand growing exponentially in the post-pandemic period. Here is a quick take on the IPO of Sapphire Foods opening on 09-November.
%name What to consider before investing in Sapphire Foods IPO?

The 3 brands of Pizza Hut, KFC and Taco Bell are all reputed global QSR brands and command combined sales of over $50 billion annually. Just to give a picture of the growth of Sapphire in these troubled times, Sapphire grew its QSR outlets from 376 to 450 between 2019 and 2021.

How many shares will Sapphire Foods offer in its IPO?

The IPO is an offer for sale or OFS where promoters and early investors will dilute their stake. There will be no fresh funds coming. Post-IPO, the promoter stake will get diluted 60.08% to 49.97% while public shareholder will surge from 39.92% to 50.03%.

OFS comprises the sale of 1,75,69,941 shares and at the upper end of the price band of Rs.1,180, the IPO size works out to Rs.2,073 crore. Apart from promoters offloading 64.2 lakh shares, other key investors taking an exit will include WWD Ruby, Amethyst and Edelweiss Funds.
%name What to consider before investing in Sapphire Foods IPO?

Sapphire Foods has been making net losses but the good news is that the EBITDA margins have been steadily improving over last 2 years. Debt equity ratio is very reasonable at 0.16X and that gives Sapphire the opportunity to grow without worrying about business solvency. Of course, the big bet will be that that a greater share of home deliveries and an improvement in same store sales will do the trick for the company.

What to consider before investing in Sapphire Foods IPO?

While it is still a loss making company, it is making operating EBTIDA profits and margins are improving steadily as shown in the financial metrics. Here are some key considerations to look at while taking the decision to invest in the Sapphire Foods IPO.

  • As the largest YUM Brands franchisee in Indian sub-continent, Sapphire has non-exclusive rights to sell KFC, Pizza Hut and Taco Bell via its outlets.
  • With critical mass, expansion will directly result in higher bottom line. Low debt levels gives the cushion to expand without worrying about solvency.
  • Sapphire offers a unique omnichannel experience comprising take-away, dine-in, own delivery and aggregated delivery (like Zomato, Swiggy, Dunzo etc).
  • Quality and process are key in the QSR business. That is where standardized operating processes, quality levels and customer experience allows easy scalability.

In the QSR segment, Sapphire does stand out for its high ratio of Restaurant EBITDA to sales. This is a business that is growing with a linear market and not exactly a discrete market.

What do you think as the potential investors focus would be?

Share your feedback here in the comment section below.

Disclaimer

The article is for informative purpose and does not suggest to buy or sell or hold. Decision or investing is to be taken by individuals.

Evaluate investing in the IPO based on your individual risk tolerance, investment Span etc.

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