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
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.
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.
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).
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.
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