Sapphire Foods IPO: Subscribe rating by Marwadi Financial Services - Competitive strengths and key risks

Sapphire Foods India Limited said it will launch its initial public offer (IPO) on Nov 09, 2021. The offer will close on Nov 11, 2021 and the company has fixed the price band at ₹1,120-1,180 per equity share.

Marwadi Financial Services has recommended Subscribe rating to Sapphire Foods IPO.

Talking about valuations of Sapphire Foods IPO, Marwadi Financial Services in its note said, "Considering the TTM (June 2021) adjusted EBITDA of Rs.1,823.74 on post issue basis, the company is going to list at a EV/EBITDA of 41.38 with a market cap of Rs.74,980 mn while its peers namely Jubilant Foodworks and Westlife Development are trading at a EV/EBITDA of 49.26 and 73.55 respectively. We assign “Subscribe” rating to this IPO as company is a leading QSR brand with a substantial market presence and has scalable new restaurant economic model for expansion. Also, it is available at reasonable valuation as compared to its peers."

Sapphire Foods IPO: Competitive Strengths, as per Marwadi Financial Services

- Leading QSR brands with a substantial market presence and scale.
- Strong relationship with YUM.
-Continuous focus on delivering great customer experience.
-Operational excellence.
- Scalable new restaurant economic model for expansion.
-Great place to work led by experienced management team and backed by institutional capital.

Sapphire Foods IPO: Key Risks, as per Marwadi Financial Services

-A failure or deterioration in the quality control systems for the supply chain or restaurants could lead to the termination of the Franchisee Arrangement, and have an adverse effect on the business, reputation, results of operations and financial condition.

- The company have had negative cash flows for the three months ended June 30, 2021 and 2020 and the financial years 2021, 2020 and 2019, and may have negative cash flows in the future

Sapphire foods India Ltd. is one of the YUM’s franchisee operators in the Indian subcontinent. It is also Sri Lanka’s largest international QSR chain in terms of revenue and number of restaurants operated as of March 31, 2021. It has also established a presence in the Maldives.

The company have differentiated product offerings with KFC, Pizza Hut and Taco Bell as a market leader in chicken, pizza and Mexican-inspired food, respectively.