Sapphire Foods India Limited - IPO Note

Quick Service Restaurants

Sapphire Foods India Limited - IPO Note

Quick Service Restaurants

Price range
Rs. 1120-1180
Issue Period:
Nov 09, 2021
Nov 11, 2021
November 09, 2021

Stock Info

CNX Nifty
Face value (Rs.)
Market lot
Issue size
Rs. 2073 cr.
Public Issue
17,569,941 cr. shares
Market cap post IPO
Rs 7498 cr.
Equity Pre - IPO
52.79 cr.
Equity Post - IPO
52.79 cr.
Issue type
Offer for sale

Shareholding (Pre IPO)

Source: Ace equity, StockAxis Research

Shareholding (Post IPO)

Source: Ace equity, StockAxis Research

Key Strengths and Strategies

Leading QSR brands with a substantial market presence
Sapphire Foods is an omni-channel player, leveraging their brick-and-mortar restaurants and digital stores to provide dine-in, delivery and take-away services. Their wide footprint of restaurants provides superior accessibility, creates brand awareness and visibility, and improves customer retention in a competitive food service market. By leveraging their brand strength, innovative product offerings, wide restaurant footprint, robust supply chain management system, and dedicated workforce, they are well-positioned to capture further opportunities in the QSR chain sub-segment

Strong relationship with YUM
SFIL’s association with YUM started in 2015 and they presently have the non-exclusive rights to operate restaurants under 3 of YUM’s leading brands, namely, the KFC, Pizza Hut and Taco Bell brands. They also enjoy access to YUM’s system and expertise in building and establishing brands and operating large-scale restaurants chains. Their Franchisee Arrangement allows them to operate 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, while leveraging YUM’s global best practices and systems. They benefit from their ‘One System’ commercial negotiations where they negotiate with their suppliers, jointly with YUM and its other franchisee in India, to procure their key raw materials and equipment. They also benefit from YUM’s extensive global marketing and advertising concepts, product development capabilities and cooking techniques to drive sales and generate increased restaurant footfalls, while being guided by YUM’s restaurant development procedures and standards.

Focus on accelerating growth:
The current COVID-19 pandemic, while having a negative impact on the food services industry, has also provided opportunities to brands that can assure consumers of consistent great tasting products, food safety, hygiene, great value and easy accessibility across dine-in, takeaway and delivery channels. In Q4FY21, high street international chain QSR restaurants recovered to almost 100% of their revenues in Q4FY20, prior to the COVID-19 pandemic, aided by their ability to comply with social distancing norms and safety and hygiene requirements. Over the next few years, Sapphire Foods intends to accelerate their growth through the following strategies:

  • Continuously enhance relevance of their current brands.
  • Leverage their omni-channel strategy - Dine-in, Take away, Own Delivery, delivery via aggregators.
  • Leverage strength on cost efficiencies, manage unit economics and achieve economies of scale.
  • Fast-paced restaurant expansion to capitalize on growth opportunities.

The company plans to continue to build their restaurant network using a cluster strategy, where they would launch their brands from flagship locations in high traffic and high visibility locations in key metropolitan areas and cities and then develop new restaurants within that cluster.

Improving new restaurant economic model
Sapphire Foods has continuously worked on improving their new restaurant economic model in consultation with YUM. This is aimed at enhancing the value and affordability proposition of their global brands to drive more transactions with higher ticket sizes and acquire new customers through differentiated offerings. SHIL is also working on optimizing the restaurant size (both the front-of-house customer area and back-of-house kitchen area) to reduce capital expenditure, occupancy, and operating costs without impacting revenue capacity. They have launched PACE SETTER program to bring in sustainable cost efficiencies and, developed a robust internal process system to identify new potential trade areas for the next 3 years to achieve their targeted level of sales.


Highly competitive market:
SFIL competes within the food service industry & the QSR sector not only for customers, but also for personnel and suitable sites for their restaurants. Their biggest competitors include international QSR chains operating in India, such as McDonalds, Domino’s Pizza, Subway, Starbucks, and Burger King. SFIL may or may not be able to identify and obtain suitable store locations, which could impact their ability to achieve growth.

Loss making business:
The company has been reporting losses for the last three years. Temporary as well as permanent store closures and reduced store-level operations, including reduced operating hours and dining-room closures as mandated by regional regulatory bodies due to pandemic added pressure on the financial performance of SFIL. It plans to grow the business by opening new stores every year which could lead to further losses. Increases in costs/expenses and investments in new restaurants may reduce margins and adversely affect business & financial condition.

Franchisee Arrangement termination can affect business operations:
The Franchisee Arrangement with YUM provides SFIL with a right to use KFC’s, Pizza Hut’s and Taco Bell’s system and system property covering aspects of business operations and requires SFIL to maintain system-wide operating procedures and product quality, taste parameters, food preparation methods, food safety, cleanliness & customer service standards that are consistent with the global standards of YUM. For example, for quality purposes, SFIL only purchase ingredients from YUM’s approved suppliers. A failure or deterioration in quality control systems or protocols for supply chain or restaurants could lead to the termination of the Franchisee Arrangement, and have an adverse effect on the company’s business, reputation, results of operations and financial condition.

Devyani International (DIL) & SFIL have franchisee rights over same core brands:
With franchisee rights over same core brands, DIL & SFIL can compete in the same area which can lead to cannibalization of sales. Also, YUM can operate directly or indirectly (through franchisees) in areas where SFIL is present. This can adversely impact the business, results of operations and financial condition of SFIL.

The issue is purely an OFS:
The issue is purely an OFS and company will not get any capital from this issue. All proceeds will go to such selling investors.

Company Description

Company profile:
Sapphire Foods India Limited (SFIL) was incorporated on November 10, 2009. Sapphire Foods is YUM’s largest franchisee operator in the Indian subcontinent with revenue from operations of Rs 1,340 crore and Rs 1,020 crore 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 190 crore 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).

As of June 30, 2021, the company owned and operated 209 KFC restaurants in India and the Maldives, 239 Pizza Hut restaurants in India, Sri Lanka and the Maldives, and 2 Taco Bell restaurants in Sri Lanka. The company's total number of restaurants in the subcontinent region grew from 376 in 2019 to 450 in 2021. Their franchisee arrangement with YUM allows them 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.


The company intends to expand its business while focusing more on the new restaurant economic model in consultation with YUM to become profitable. Increasing internet and mobile penetration within India and the advent of food delivery apps are key factors to lead consumers away from traditional dine-in experiences and towards convenience-driven options. The prevalence of home delivery in the Indian QSR industry is expected to continue to grow due to changing lifestyles and changing consumer eating patterns in the post-COVID atmosphere. At the upper price band of Rs 1180, the IPO is valued at 7x of FY21 sales, which looks reasonable considering its peers (Devyani International, Jubilant Foodworks & Burger King India) trade at a much higher multiple. Hence, we recommend SUBSCRIBE to the IPO for long term perspective.

Peer comparison (Rs crore) FY19 FY20 FY21  
Company Revenues EPS ROE (%) Revenues EPS ROE (%) Revenues EPS ROE (%) PS ratio
Sapphire Foods India 1194 (15) - 1340 (31) - 1020 (19) - 7
Devyani International 1311 0 - 1516 (1) - 1135 (1) - 15
Jubilant Foodworks 3563 24 29% 3927 21 24% 3312 18 18% 15
Westlife Developments 1402 2 4% 1548 0 - 986 (6) - 9
Burger King India 633 (1) - 841 (2) - 494 (5) - 14

Key Information

Use of Proceeds:
The total issue size is of Rs. 2,073 crore is fully an OFS constituting offer for sale of up to 1.76 crore equity shares by investors. Company will not get any capital from this issue. All proceeds will go to such selling investors.

Book running lead managers:
JM Financial, BofA Securities, ICICI Securities, IIFL Securities

The company is run by Sanjay Purohit, Whole Time Director and Group CEO of the company. He has over 30 years of work experience across consumer product categories including food and apparel retail, packaged food, and paints. He is well supported by an experienced senior management team.

Financial Statement

Profit & Loss Statement:- (Consolidated)

Yr End March (Rs Cr) FY19 FY20 FY21
Net Sales 1194.00 1340.00 1020.00
Material Cost 395.00 432.00 310.00
Employee Cost 206.00 229.00 196.00
Other Expenses 447.00 494.00 390.00
EBITDA 146.00 185.00 124.00
EBITDA Margin 12.00% 14.00% 12.00%
Depreciation & Amortization 154.00 191.00 209.00
EBIT -8.00 -6.00 -85.00
Other Income 12.00 11.00 62.00
Interest & Finance Charges 72.00 72.00 76.00
Profit Before Tax - Before Exceptional (68) (67) (99)
Exceptional items 0.00 (94) 0.00
Tax Expense 1.00 (2) 1.00
Net profit for the year (69) (159) (100)
Net Profit Margin - - -