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Sapphire Foods IPO review (May apply)

Review By Dilip Davda on November 3, 2021

•    SFIL is the franchise operator for YUM's in Indian subcontinents.
•    It has turned aggressive post-pandemic to increase its store counts.
•    The management hopes to break even its operations in the near term.
•    Due to negative earnings so far, its IPO price P/E could not be ascertained.
•    Risk seekers/cash surplus investors may consider investing for the long term.

Sapphire Foods India Ltd. (SFIL) is one of YUM's franchisee operators in the Indian subcontinent with revenue from operations of Rs. 1340.41 cr. and Rs. 1019.62 cr. for the financial years 2020 and 2021, respectively. It is also Sri Lanka's largest international QSR chain, in terms of revenue for the financial year 2021 (with revenue of Rs. 1.90 billion representing 35% of the total market revenue), and the number of restaurants operated as of March 31, 2021 (with 68 restaurants representing 39% of the total number of outlets in the market) (Source: Technopak Report). 

The company has also established a presence in the Maldives. As of June 30, 2021, it owned and operated 209 KFC restaurants in India and the Maldives, 239 Pizza Hut restaurants in India, Sri Lanka and the Maldives, and two Taco Bell restaurants in Sri Lanka. The company aspires to be India's best restaurant operator by serving customers great food with great experience at a great value. It operates restaurants in high traffic and high visibility locations in key metropolitan areas and cities across India and develops new restaurants in new cities as part of its brand and food category expansion.

Its franchisee arrangement with YUM allows the company to operate, on a non-exclusive basis, under the KFC brand in several states in India and across the Maldives, the Pizza Hut brand in several states in India and across Sri Lanka and the Maldives, and the Taco Bell brand across Sri Lanka.

It has a dedicated business development and projects team and a well-defined new-restaurant roll-out process that enable it to identify new locations, build out restaurants quickly and efficiently operate with optimally trained manpower to achieve the targeted level of sales for restaurants. SFIL's total number of restaurants in the Territories grew from 376 restaurants as of March 31, 2019, to 450 restaurants as of June 30, 2021. It's overall stores tally which was at 437 as of March 31, 2021, stood at 482 as of June 30, 2021. 

To avail listing benefits and provide an exit to some of its stakeholders, SFIL is coming out with a maiden IPO of 17569941 equity shares of Rs. 10 each as an offer for sale (OFS) with a book building issue worth Rs. 2073.25 cr. (at the upper cap). The company has fixed the price band of Rs. 1120 - Rs. 1180 per share. The issue opens for subscription on November 09, 2021, and will close on November 11, 2021. Minimum application is to be made for 12 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 27.65% of the post issue paid-up capital of the company. It has allocated 75% for QIBs, 15% for HNIs and 10% for the Retail investors. 

Joint Book Running Lead Managers (BRLMs) to this issue are JM Financial Ltd., BofA Securities India Ltd., ICICI Securities Ltd. and IIFL Securities Ltd. while Link Intime India Pvt. Ltd. is the registrar. 

Having issued initial equity at par, the company raised further equity in the price range of Rs. 177.96 to Rs. 12635.23 per share between September 2015 and September 2021. It has also issued bonus shares in the ratio of 70 for 1 in March 2017. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 9.36, Rs. 177.96, Rs. 195.38, Rs. 309.09, Rs. 331.86 and Rs. 342.08 per share. 

Being secondary offer (i.e. pure OFS), SFIL's post IPO equity capital will remain the same at Rs. 63.54 cr. Based on the upper cap, the company is looking for a market cap of Rs. 7498.02 cr. 

On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) it has posted turnover/net profit (loss) of Rs.  1206.28 cr. / Rs. - (69.40) cr. (FY19), Rs. 1351.74 cr. / Rs. - (159.25) cr. (FY20) and Rs. 1081.24 cr. / Rs. - (99.90) cr. (FY21). For the first three months ended on June 30, 2021, of FY22, it has posted a net loss of Rs. - (26.40) cr. on a turnover of Rs. 313.93 cr. against loss of Rs. - (75.17) on a turnover of Rs. 136.18 cr. for the corresponding previous period. Thus it has marked sharp improvement in the top line. According to management, this is due to its aggressive expansion of outlets during this period. 

For the last three fiscals, the company has posted an average negative EPS of Rs. - (22.46) and an average negative RoNW of - (24.92%). The issue is priced at a P/BV of 14.63 based on its NAV of Rs. 80.67 as of June 30, 2021, and at a P/BV of 8.38 based on its post-issue NAV of Rs. 140.83 per share (Not clarified as to it is on lower or upper cap).

Its P/E on IPO pricing could not be ascertained due to negative earnings for the reported periods in RHP. 

As per offer documents, SFIL has shown Jubilant FoodWorks, Westlife Development, Burger King and Devyani Intl., as its listed peers. They are currently trading at a P/E of 31.72, 00, 00 and 00 (as of November 03, 2021). However, they are not truly comparable on an apple to apple basis. Due to losses posted by Westlife, Burger King and Devyani Intl. their P/E is negative (un-ascertainable). 

The company has not declared any dividend in the last three fiscals and till the filing of this RHP. It will adopt a prudent dividend policy post listing based on its financial performance and future prospects. 

The four BRLMs associated with the offer have handled 54 public issues in the past three years, out of which 18 issues closed below the offer price on the listing date. 

Conclusion / Investment Strategy

While we are witnessing fancy for food chains despite their loss-making operations, many companies have thrown their hats in the fray to encase the ongoing boom. Though all of them have bright prospects ahead and may turn the winds in their favour once the pandemic scare gets over, these investment opportunities are purely meant for the long term rewards. Due to madness seen in the recent past for fancy pricing for loss-making units, such bets may be lapped up by risk seekers/cash surplus investors, others can stay away.

Review By Dilip Davda on November 3, 2021

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 before making any actual investment decisions, based on the information published here. My reviews do not cover GMP market and operators game plans. Any reader taking decisions based on any information published here does so entirely at their own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

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.

(Dilip Davda -SEBI registered Research Analyst-Mumbai,

Registration no. INH000003127 (Perpetual)

Email id: ).

Sapphire Foods IPO FAQs

  1. 1. Why Sapphire Foods IPO?

    The initial public offer (IPO) of Sapphire Foods India Limited offers an early investment opportunity in Sapphire Foods India Limited. A stock market investor can buy Sapphire Foods IPO shares by applying in IPO before Sapphire Foods India Limited shares get listed at the stock exchanges. An investor could invest in Sapphire Foods IPO for short term listing gain or a long term.

  2. 2. How is Sapphire Foods IPO?

    Read the Sapphire Foods IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. Sapphire Foods IPO what should investors do?

    Sapphire Foods IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the Sapphire Foods IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.

  4. 4. Is Sapphire Foods IPO good?

    Our recommendation for Sapphire Foods IPO is to subscribe for long term.

  5. 5. Is Sapphire Foods IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe for long term to the Sapphire Foods IPO.

  6. 6. When will Sapphire Foods IPO allotment status?

    The Sapphire Foods IPO allotment status will be available on or around November 16, 2021. The allotted shares will be credited in demat account by November 18, 2021. Visit Sapphire Foods IPO allotment status to check.

  7. 7. When will Sapphire Foods IPO list?

    The Sapphire Foods IPO will list on Thursday, November 18, 2021, at BSE, NSE.