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Speciality Restaurants Ltd IPO Note by ARM Research (Apply)

Review By ARM Research Pvt. Ltd. on May 18, 2012

Issue Summary

Total Issue of Shares (lk): 117.39
QIB Investors (lk): 58.69
Non -Institutional Investors (lk): 17.60
Retail Investors (lk): 41.10
Issue opens on: 16th May,2012
Issue closes on: 18th May,2012
Price Band (Rs.): 146-155
Lot size (No. of shares) and multiple 40
Face Value (Rs): 10
Issue Size (Rs in Cr.): 171.39 - 181.96
Equity Shares outstanding prior to the Issue: 35,218,242
Equity Shares outstanding after the Issue: 46,957,657

CRISIL has assigned an IPO Grade 4 to SRL IPO indicating company has 'Above Average Fundamentals'.

SRL is one of the a fine dining operator in India, with 69 restaurants and 13 confectionaries as of February 29, 2012, featuring certain well recognized brands in the Indian restaurant industry. It focuses on providing guests an affordable fine dining experience with quality food and service in a modern ambience. The Promoters launched the first restaurant of its restaurant network in 1992 under the name Only Fish, which was later renamed Oh! Calcutta in the year 1996. In 1994, Promoters launched the first Mainland China restaurant in Mumbai. Over the years, it has grown in 21 cities in India and one city in Bangladesh. In Fiscal Year 2011 and the nine months ended December 31, 2011, the number of guests served at its owned and operated restaurants was approximately 2.59 million and 2.09 million, or, on average over7,313 and 8,127 guests each day, respectively.

The restaurants consist of different restaurant concepts and are located across India, particularly in the western region. The flagship brand is Mainland China which serves Chinese cuisine in a standalone fine dining setting. Chinese cuisine is the most popular foreign cuisine in India according to the India Retail Report 2009.

As of February 29, 2012, its main brand Mainland China brand encompassed 36 restaurants across India as well as one in Bangladesh. The Mainland China restaurants contributed 53.27%, 57.03%, 60.28% and 61.13% to its total revenues from food and beverages in Fiscal Years 2009, 2010, 2011 and the nine months ended December 31, 2011, respectively.

The other core brand, Oh! Calcutta, encompassed seven restaurants across India as well as one in Bangladesh as of February 29, 2012 and features a range of cuisines from the east Indian city of Kolkata, including Bengali, Nawabi, British and Continental cuisines served in a fine dining setting.

The other restaurant brands are Sigree, Flame & Grill, Haka, Just Biryani, KIBBEH, Kix, Machaan, Shack, as well as a confectionary brand, Sweet Bengal.

Risks & Concerns

  • Too much dependence & market recognition on Mainland China leading to concentration risk
    Speciality's business is dominated by the success of its brand Mainland China, which currently contributes more than 50% to overall revenue. Though the launch of various new brands has reduced the proportion to 57% in FY10 from 84% in FY06, any shift in consumer preferences (away from Chinese cuisine) may impact the sales of Mainland China and hence Speciality's overall growth.
  • High real estate costs and shortage of skilled manpower may affect fine-dining players
    A majority of the restaurant players, including Speciality, operate under leased premises. Hence rising real estate lease rentals may impact the players' profitability and the growth of the industry. Operating fine-dining restaurants in India has become costly due to rising lease rentals as well as increasing cost of interior décor.
  • SRL's inability to identify, open and operate new restaurant locations profitably may adversely affect its business.
  • SRL generates a majority of its revenues from western India. Any event negatively affecting the consumer food services industry in western India could have a material adverse effect on its overall business and results of operations.
  • Changing consumer preferences and inability to adapt to the changes may affect the results of the operations leading to high concentration risks.


  • The main focus is to scale Mainland China to 100 restaurants by 2016. It also plans to expand Sigree to a formidable Indian fine dining brand over next few years.
  • No peer group comparison is possible since there is no player with the same business model
  • The annualized earnings on diluted equity for FY12E is Rs 4.4 valued at a P/E of 33.5-35.6x.
    Currently the primary and secondary equity markets are seeing daily massacre on the streets & the IPO seems to be richly priced any sought of non performance will not be pardoned.

However as the number of core brand Mainland China restaurants scale up revenue growth will be seen at a healthier pace and commercial property market which has seen fall in rentals could lead to further expansion on margins and result in increased scalability & profitability going forward.

Conclusion / Investment Strategy

We recommend only Long term Investors to "Subscribe" to the SRL IPO since the business model seems to be robust with the direct relation of the increase in restaurants to its revenue increase with maintained EBITDA and PAT margins over a future period will result into promising growth potential going forward.

Reviewer recommends Subscribing to the issue.

Review By ARM Research Pvt. Ltd. on May 18, 2012