Thread by @aditya_kondawar

Roti, Kapda and Makaan - 3 important needs?

Not really, these days it is Pizza, Burger & Coffee 😛

Just joking! Today we are going to talk about Sapphire foods that sells all of that!

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Everything about Sapphire Foods IPO🧵👇

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About the Company -

- One of YUM’s franchisee operators in India
- Sri Lanka’s largest QSR chain with 35% of the total market revenue and 68 restaurants representing 39% of the total number of market outlets
- Has a presence in the Maldives too

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Brands and Outlets -

- As of Q1FY22, they owned/operated 209 KFCs in India + Maldives, 239 Pizza Huts in India, Sri Lanka & Maldives, and 2 Taco Bells in Sri Lanka
- Image 1 shows bifurcation of brands and their count
- Image 2 shows geographical presence

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- 7,056 employees - 6,648 at the restaurant level, 408 in operations and other support functions
- FY21 Attrition rate – 81%
- Distribution - omnichannel - brick-and-mortar restaurants and digital stores to provide dine-in, delivery, and takeaway services.

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Issue Details - Img 1

Complete Offer for sale by - Img 2

Risks -

- Competes with QSR chains operating in India, Sri Lanka, Maldives, such as McDonald's, Burger King, Domino’s Pizza, and Subway, as well as local restaurants and restaurant chains in the QSR segment

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That risk point u just read isn't just a generic risk factor. Local restaurants and independent stand-alone food chains are definitely a force to be reckoned with.

They may be from the unorganized sector but mind you they create massive brands too.

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Let me give you a few examples -

Last month, I was in Hyderabad at a South Indian specialty place called Chutneys (They are famous for their 6 types of chutneys). The place has 3 floors and on a Thursday night, we had to wait for 30 mins.

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In Matunga, Mumbai a few weeks back - Had to share a table at this breakfast place as seating was full + many Zomato/Swiggy deliveries in waiting

In Pune, Vishal Nagar - A tea seller has branded his tea and sells a very small cup at 20 rs.

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And People still line up for his tea (more about his brand than his taste).

Now, of course, we can give 100s of more such examples of small brands doing a crazy amount of business.(local-centric mostly)

The point is that small brands are eating into the total QSR pie!

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More risks -

- Fragmented market and increasing competition (like we saw above)
- Shortage of skilled staff and high attrition - The shortfall in quality manpower, as well as the industry’s attrition rate of 35% to 40%, keeps the cost of the manpower high.

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Financials -

- Sapphire hasn’t shown any meaningful growth in its financials and the company is loss-making.

Aggregator Revenue and share –

Q1FY22 – 142 cr, 47.1% of restaurant sales
FY21 – 290 cr, 28.6% of restaurant sales

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Valuation -

- Rs 7500 cr market capitalization post listing
- 1081 cr sales
- 6.9x price to sales

Peers -

The company is a replica of Devyani in terms of business and brands.

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Sapphire v/s Devyani -

- Devyani – 1135 cr sales in fy21, 17617 cr mcap, so 15.5x price to sales
- Devyani’s 692 stores generated 1135 cr in FY21, while Sapphire’s 437 stores generated 1081 cr in sales
- Sapphire’s stores are generating more revenue per store.

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Conclusion -

- Operationally Sapphire’s stores are generating more revenue per store. But Sapphire's OPM was 18% v/s 26% by Devyani in FY21.
- One must note that Sapphire hasn’t shown any meaningful growth in its financials and the company is loss-making.

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- The company may seem relatively cheap (Sapphire’s 6.9x P/S v/s Devyani's 15.5x P/S) but as a whole in the QSR segment, there is no margin of safety in the valuations.

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Industry -

- Share of the organized market increased from 26% in terms of revenue in FY10 to 41% in FY20 and is expected to reach 54% in FY25.

- Share of chain QSRs in the overall food services market is low in India (4%) as compared to the USA (39%) and the UK (18%)

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Yum Agreement Details -

Also called as Master Franchise agreement, which Sapphire enters into with Yum brands.

Some details below

End of thread! Thanks for reading. Stay tuned for more :)