Sapphire Foods IPO: KFC operator subscribed 1.07 times on Day 2, retail portion booked 5.38 times

The initial public offering of Sapphire Foods, which operates KFC and Pizza Hut restaurants, received bids for 1.03 crore equity shares against an IPO size of 96.63 lakh equity shares, a subscription of 1.07 times on 10 November, the second day of bidding.Retail investors remained at the forefront, subscribing 5.38 times the portion reserved for them. Qualified institutional investors have, so far, bid for only three percent of their quota of shares, while non-institutional investors bought 29 percent shares of their portion.Sapphire Foods’ offer saw 49 percent subscription on the first day of bidding.The company plans to raise Rs 2,073 crore through IPO that is entirely an offer-for-sale by promoters and investors. The offer closes 11 November.The price band has been fixed at Rs 1,120-1,180 a share. Anchor investors invested Rs 933 crore in the company at the upper price band.“At the higher price band of Rs 1,180, the issue is valued at P/S (price-to-sales) of 7.4x which is discount to peers (Devyani International at P/S of 14.8x and peer average P/S of 12.8x. While valuation seems reasonable compared to peers, we are concerned about business profitability due to higher likelihood of continuing incurring losses in the coming fiscals,” said Choice Broking which assigned "subscribe with caution" rating to the issue.The company has short operating history as it started franchise operations with YUM brands in 2015, the brokerage said.Sapphire Foods collaborated with YUM Brands in 2015 which operates brands such as KFC, Pizza Hut and Taco Bell brands globally in over 150 countries. With the franchise agreement with YUM, the company now has non-exclusive rights to operate restaurants under three of YUM’s leading brands, namely the KFC, Pizza Hut and Taco Bell brands.Food services market in India is projected to record a CAGR of 8 percent to Rs 6,21,100 crore during FY20-FY25.“The QSR (quick service restaurant) channel is expected to lead the food services sector in terms of sales value and transactions. With the strong demand drivers for food services sector, there would remain abundant growth opportunities for QSR player in the country,” Choice Broking said.