Sapphire Foods IPO: KFC, Pizza Hut operator subscribed 54% so far on day 2; what should investors do?

Sapphire Foods’ initial public offering is entirely offer-for-sale (OFS) of 1.75 crore equity shares by promoters and existing shareholders. Image: Reuters

KFC and Pizza Hut operator Sapphire Foods India’s IPO has received 56 per cent subscription so far on day two of the bidding process. The issue received bids for 54.56 lakh equity shares against an offer size of 96.63 lakh shares so far on the second day of bidding. The portion reserved for retail investors saw 2.97 times subscription, while the reserved portion of non-institutional investors was subscribed just 6 per cent, and qualified institutional buyers have put in bids for 82,728 shares against 52.70 lakh shares reserved for them. Their portion was subscribed 2 per cent.

Sapphire Foods, set up in 2015, is one of the Yum brand’s restaurant operators in the Indian subcontinent. It operates under a three-way franchise arrangement for Yum in India. Sanjay Manyal and Hitesh Taunk, research analysts at ICICI direct Research have assigned ‘unrated’ rating to the IPO. Sapphire Foods has leading QSR brands in its portfolio of restaurant operations and enjoys a substantial presence in the QSR space in the geographical markets of India and Sri Lanka.

It monitors the quality of customer experience through a sophisticated Guest Experience Survey (GES) system, a third-party tool used around the world to measure customer satisfaction. The research firm said that negative publicity of junk food, non-exclusive franchise agreement & termination possibility, and high competition in the QSR segment, are among key risks and concerns to the IPO.

Analysts at Marwadi Financial Services have given ‘subscribe’ rating to the issue as the company is a leading QSR brand with a substantial market presence and has a scalable new restaurant economic model for expansion. “Also, it is available at reasonable valuation as compared to its peers,” it said. The research firm said that considering the TTM (June 2021) adjusted EBITDA of Rs.1,823.74 on post issue basis, the company is going to list at a EV/EBITDA of 41.38 with a market cap of Rs.74,980 mn while its peers namely Jubilant Foodworks and Westlife Development are trading at a EV/EBITDA of 49.26 and 73.55 respectively.

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