Exclusive Offer: No Brokerage until Dec 31st + 5 Free Trades every month, for life + Zero Account Opening Fee    START NOW >
Chittorgarh logo
Contact Us   Facebook   Go
IPO's in India
  IPO Dashboard
  Current IPO List
  IPO Calendar
  Performance Tracker
  Grey Market Premiums
  IPO Ratings
  IPO Reviews
  IPO Message Board
  Basis of Allotment
  IPO Alerts
  IPO Prospectus Docs
  IPO Reports (Historic)
  IPO News Live
  IPO FAQs
  IPO Alert Blog
Current IPOs-BSE, NSE
More IPO's...
Current SME IPO's
More SME IPO's...
Current Bonds / NCDs
More Bond's, NCDs...
Subscribe with us...
 Free Email Alerts
 Name
 Email 

India Stock Market
  Stock Message Board
  Stock Market Home
  NSE Bulk Deals
  NSE Circuit Filters
  Corporate Announcements
  Market Holidays
  Stock Gadgets
Stock Trading Brokers
  Broker Comparison
  Stock Broker Articles
  Discount Brokers
  Zerodha (Trade at Rs 20)
  RKSV
  Trade Smart Online TSO
  Traditional Brokers
  ICICI Direct
  Sharekhan
  Kotak Securities
  SBI Securities
  HDFC Securities
  Reliance Securities
  Bajaj Capital
  Standard Chartered
  Geojit BNP Paribas
  IDBI Capital
  Motilal Oswal
  Angel Broking
  Ventura
  Indiabulls Securities (ISL)
  India Infoline (IIFL)
  Religare Broking

Speciality Restaurants IPO Review by K.M. Global Financial Services Ltd

  

 

K.M. Global Financial Services Ltd says 'Avoid' to Speciality Restaurants Ltd IPO

Date Posted: May 16, 2012

Download PDF Report    |    IPO Review List   |    IPO Detail

Issue Summary

Issue Period: May 16th - 18th
Price Band (Rs): 146 - 155
Issue Size (Rs Cr): 171 - 182
Mcap (Rs Cr): 686 - 728
Grading (1 to 5) Crisil: 4
Promoter: Anjan & Suchhanda Chatterjee
Listing: NSE, BSE
BRLM: Kotak Investment Banking


Company Background

Specialty Restaurants Limited is a fine dining operator in India, with 69 restaurants and 13 confectionaries in 22 cities as of February 29, 2012, focused on providing guests an affordable fine dining experience with quality food and service in a modern ambience.

The promoters launched the first restaurant in 1992 under the name Only Fish, which was later renamed Oh! Calcutta in 1996. In 1994, the promoters launched the first Mainland China restaurant in Mumbai. They own and operate 49 restaurants and 13 confectionaries and have franchise arrangements for the other 20 restaurants. Most of the restaurants are located in Western India.

Objects of the issue

  • Development of New Restaurants
  • Development of Food Plaza
  • Repayment of Term Loan

Company Financials

Valuation Concerns - No Room for Error

Based on the company's projections of same store sales growth of 12% and addition of around 16 new restaurants it expects revenue growth of over 30% in FY13. Revenue growth coupled with margin expansion due to a weak commercial property market should lead to falling rental costs and an impressive growth in profits. But the issue price has factored in this growth and leaves little margin for errors.


Other Comments

Industry Overview: Organized Food Services Industry Growing over 25%

Entry of international chains has spurred domestic players to become more organized and responsive to the changing needs of customers. In the fast evolving food services industry, existing players are spending more resources on revamping their branding, improving efficiency and growing economies of scale in order to maintain competitiveness and increase market presence. International cuisines are moving toward the midmarket pricing segment rather than the top tier pricing segment, traditionally found in five-star hotels serving international cuisines. Full-service restaurants will likely remain standalone as mall developers are expected to encourage kiosks and food courts that house multiple establishments (Source: NRAI Report 2010).

SRL's Operations:

  • Marquee brands: Specialty Restaurants has several brands but its key revenue contributors are Mainland China and Oh! Calcutta. Their other restaurant brands are Sigree, Flame & Grill, Haka, Just Biryani, Kibbeh, Kix, Machaan, Shack, as well as a confectionary brand, Sweet Bengal.
  • Experienced Management: The management has over 19 years of experience in catering to guest tastes and has successfully developed multiple brands. The promoter has first-hand knowledge and experience of working in fine dining restaurants, having obtained a diploma in hotel management and having trained as a management trainee at a leading five star hotel in India.
  • Location Strategy: Mainland China is in over 22 cities and a majority of its revenues originate from Western India. The firm is focused on metros and Tier-1 cities & selectively expanding into Tier-2 towns.
  • Scalability: All the properties are leased and the company follows an asset-light model. This will allow the company to expand quickly. It leverages the Mainland China brand by combining it with other brands of the company. It has also grown through the Franchise Owned, Company Operated model.
  • New Brand Development: The company is focused on the urban middle class segments and has a good sense of the consumer's evolving palette. They are selecting appropriate niches to expand into such as Lebanese and Italian restaurants.


Risks to Growth

  • Negative Publicity: SRL and all restaurant businesses are vulnerable to negative publicity and health issue campaigns. These can quickly harm the brand value.
  • Rising Costs for Interior & Capital Improvements: Inflation in the cost of construction materials will adversely affect SRL's margins and its rate of expansion.

Conclusion / Investment Strategy

Price Leaves Little on the Table for Investors

We recommend that investors avoid subscribing to the IPO of Specialty Restaurants Ltd as the issue price is too high for our comfort. The price is at 23 to 25 times our FY13 earnings estimate of Rs 6.2. Long term investors should keenly track the company going forward due to its valuable brands such as Mainland China and a track record of consistent growth. The stock should be accumulated at lower valuations in the secondary market.


IPO Review Author

About K.M. Global Financial Services Ltd

K.M.Global Finserv is an India based financial services firm. Company provides services in area of institutional equities, wealth management, corporate advisory including advisory services on mergers & acquisitions, restructuring, private placement of equity, debt and mezzanine instruments in domestic and international capital markets, trading in equity to high net worth individuals and Stock Broker services at BSE & NSE.

Research Analyst: Afshan Sayyad / +91 22 40023026

Head of Research: Aditya Damani / +91 22 22630125

KM Global Finserv Pvt. Ltd. 4th Floor, Surya Mahal, 5, Burjorji Bharucha Marg, Fort, Mumbai 400001

 

More Speciality Restaurants Ltd IPO Views / Analysis ...

1. ARM Research Pvt Ltd
2. Dilip Davda