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Speciality Restaurants Ltd IPO Review (Avoid)

Secondary market continued to bleed on global worries and lack of decisions on reforms in spite of lower IIP numbers for March 2012. Amidst shaky market sentiment while we had two IPOs tapping the market i.e. Plastene India and Monarch Health (SME IPO), one more company is joining the suicidal move when there is a liquidity crunch.

The IPO of Speciality Restaurant Ltd. (SRL) is opening on 16.05.2012 with an issue of 11739415 equity share of Rs. 10 each being offered under book building process within a price band of Rs. 146-155. The issue will close on 18.05.2012. Kotak Mahindra Capital Co. Ltd. is the sole BRLM for this issue and Link Intime India Pvt. Ltd is the registrar to the issue. CRISIL has assigned IPO Grade 4 to this IPO indicating strong fundamentals of the company. Post issue shares will be listed on BSE and NSE. Minimum application is to be made for 40 shares and in multiples thereof for retail category.

With this float company hopes to mobilize around Rs. Rs. 171.40 - 181.96 Crore (based on lower and upper price band) crore to part finance its expansion plans for development of new corporate Restaurants and Food Plaza along with repayment of high cost debt and general corporate corpus.

The company is currently having 69 restaurants and 13 confectioneries in 21 cities and having ten brands that include Mainland China, Sigaree, Oh! Calcatta, Machaan, Sweet Bengal Mostly Kabab, Just Biriyani, Haka, Flame & Grill and offers its guests an affordable fine dining experience with quality food and service in a modern ambience.

The food services industry is becoming an increasingly important segment of India's economy. According to survey by global analysts, the size of the Indian Food Industry estimated at 200 bn US$ in the year 2006-07 & is estimated to reach 300 bn US$ by 2015. In spite of the current meltdown in the Indian economy, the food services industry in India is expected to remain one of the fastest growing industries in the Asia Pacific. The food services industry comprises two distinct market segments: the organized segment comprising 10.7% of the total industry & unorganized segment comprising of roadside eateries.

Company follows "Franchises owned, company operated outlet model", which allows optimize capital for growth. On performance front, the company has posted restated net profit of Rs. 6.31 crore, Rs. 11.19 crore, Rs. 15.63 crore and Rs. 224.57 million, respectively translating into an basic EPS of 2.21, 3.92 & 5.48 as on March 31st 2009, 2010 & 2011 respectively. For the first nine months of the current fiscal EPS stands at Rs. 5.20 (not annualized). As on that date NAV stands at Rs. 38.14. With additions to its capacity, the management is confident of maintaining the tempo of growth.

As far as BRLM's track record is concerned, as intimated by them out of 13 IPOs they managed (jointly or severally), 3 IPOs failed to give listing gains. (As per Chittorgarh web data, it is 13 out of 38 IPOs failed to give gains on debut day.)

As claimed by the issuers that there are no listed peer group in pure terms, PE ratio comparison is not done, however, based on current earnings attribution on enhanced equity, it is coming at around 34 PE and around 4 P/BV which looks aggressive in present terms of the market.


Conclusion / Investment Strategy

Remarks: In context of ongoing situation in secondary/primary market and new listing norms coupled with low ebb of investor's confidence, this issue can be termed as High Risk-High Yield bet.

Review By Dilip Davda on May 14, 2012

The Speciality Restaurants IPO Analysis helps you to understand about the company, offer detail, valuation, capital structure and financial performance. Our SEBI registered IPO Analysts tells you if Speciality Restaurants IPO worth investing. The Speciality Restaurants IPO Note sets the IPO expectations in systematic way which tells you if Speciality Restaurants IPO good to buy (good or bad / yes or no). The IPO Forecast tells you weather to invest in Speciality Restaurants IPO by providing IPO recommendations i.e. subscribe, avoid and neutral.

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).


About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

Email: dilip_davda@rediffmail.com


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