Pizza Hut, KFC and Taco Bell Operators Sapphire Foods stock gets listed On Thursday, November 18, at Dalal Street. The listing of Sapphire Foods started off well in the stock markets with a 15 per cent premium. This was largely expected because Neelam Foods IPO Had received a good subscription rate as well as gray market premium. The stock of Neelam Foods is listed on BSE (Bombay Stock Exchange) at Rs 1360.75 against the final issue price of Rs 1,180. The stock opened at Rs 1,368 on the NSE (National Stock Exchange), slightly higher than its counterpart, as of 10 am.
The offering from Sapphire Foods, one of Yum’s franchise operators in the Indian subcontinent and Sri Lanka’s largest international quick service restaurant (QSR) chain, received a good response from investors. On the last day of bidding, Neelam Foods Public Offer was subscribed only 6.62 times, which was lower than the performance of the recent IPO.
Sapphire Foods has raised Rs 2,073 crore through a public offer. The first issue was purely an Offer for Sale (OFS) by the promoters and investors. The IPO price band of Sapphire Foods was fixed at Rs 1,120-1,180 per share. The company raised Rs 933 crore from anchor investors in the upper price band.
The portion reserved for retail buyers was booked 8.7 times. Qualified institutional investors had bid only 7.5 times their quota of shares. Non-institutional investors bought shares at 3.46 times their stake. The IPO of Sapphire Foods was booked 1.07 times on the second day of subscription, mainly with support from retail investors.
Started in 2015, Sapphire Foods India Limited has been the largest franchise operator of the YUM brand in the Indian subcontinent. Sapphire Foods has the non-exclusive right to operate restaurants in the regions under the three major brands – KFC, Pizza Hut and Taco Bell. All these are well known fast food brands not only in India but across the world. This competitive portfolio made Sapphire Foods attractive to investors. The scalable QSR business model that Sapphire Foods follows typically has a strong cash generation potential. The experienced board and senior management team were some of the key strengths of Neelam Foods.
Neelam Foods’ operating revenue shrank by 7.6 per cent during FY19-FY21, in line with the industry trend due to business uncertainties led by Covid-19.
The company reported sales of Rs 1,020 crore in FY21 with an EBIDTA margin of 12.2 per cent, though it reported a loss of Rs 100 crore in FY21 which is less than higher interest cost. The company recorded sales of Rs 303 crore during Q1FY22 as against Rs 111 crore in the Covid-hit quarter in the year-ago quarter.
Most of the analysts have given subscribe rating to the issue despite reports of losses.
“The fast food culture under QSR is expected to flourish in India due to the increase in working class population and continuous urbanization. We note that the QSR business model is quite impressive, as each restaurant franchise begins to generate significant ROE at the restaurant level when it reaches a utilization level of over 90 percent, which bodes well for long-term investors. Also, the better cash flow generating capacity of the business provides comfort. Hence, we recommend subscribing to the issue for a longer term perspective,” said Reliance Securities.
“While valuations seem fair compared to competitors, we are concerned about business profitability due to the high probability of continuing losses in the coming financial year. Additionally, the company has a short operating history as it started franchise operations with the YUM brands in 2015. Keeping all these parameters in mind, we assign a ‘Subscribe with Caution’ rating to this issue,” said Choice Broking.
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