Sapphire Foods India Ltd., a company that operates some of our favourite fast-food brands, has launched its initial public offering (IPO) today— Nov 9. The IPO comes at a time when quick-service restaurant (QSR) players are witnessing a strong recovery. In this article, we shall dive into important details surrounding the company and its IPO.

Company Profile – Sapphire Foods India Ltd

Sapphire Foods India Ltd (SFIL) is one of the largest franchisee operators of popular fast-food chains such as KFC and Pizza Hut in the Indian subcontinent. Its franchisee agreement with US-based Yum! Brands allow the company to operate the KFC, Pizza Hut, and Taco Bell brands across India, Sri Lanka, and the Maldives.

As of June 30, 2021 (Q1 FY22), SFIL owns and operates:

  • 209 KFC restaurants in India and the Maldives
  • 239 Pizza Hut restaurants in India, Sri Lanka, and the Maldives
  • 2 Taco Bell restaurants in Sri Lanka

Sapphire Foods India was Sri Lanka’s largest international QSR chain in terms of total revenue (Rs 190 crore— representing 35% of the total market revenue) in FY21. It operates 68 restaurants in the country, representing 39% of the total number of outlets in the market.

SFIL operates quick-service restaurants (QSRs) in high-traffic and high-visibility locations in key metropolitan areas and cities across these regions. They also develop new restaurants in new cities as part of their brand and food category expansion. The company has a well-defined new-restaurant roll-out process that enables it to identify new locations, build out restaurants quickly, and efficiently operate with optimally trained manpower. This process helps them achieve the targeted level of sales for restaurants. 

SFIL also has an in-house supply chain function and works with vendor partners for food processing, packaging, warehousing, and logistics. The company has an experienced management team with robust governance practices.

About the IPO

On Oct 26, Sapphire Foods India received approval from the Securities and Exchange Board of India (SEBI) to raise funds via an IPO. The public issue opens on November 9 and closes on November 17. The company has fixed Rs 1,120-1,180 per share as the price band for the IPO.

The offer for sale (OFS) of 1.75 crore shares by existing shareholders aggregates to Rs 2,073.25 crore. Individual investors can bid for a minimum of 12 equity shares (1 lot) and in multiples of 12 shares thereafter. You will need a minimum of Rs 14,160 (at the cut-off price) to apply for this IPO. The maximum number of shares that can be applied by a retail investor is 168 equity shares (14 lots). 

The main objective of the IPO is to provide an exit strategy (or liquidity) to SFIL’s shareholders and early investors. It aims to achieve the benefits of listing the equity shares on NSE and BSE. The total promoter holding in the company will decline from 60.08% to 49.97% post the IPO. SFIL also aims to enhance its brand name amongst existing and potential customers and create a public market for its equity shares in India.

Financial Performance

From the table shown above, it is clear that Sapphire Foods India has posted losses over the past three financial years. It can be attributed to high operating costs incurred towards the expansion of their store network. Moreover, the strict lockdowns imposed across the globe due to the Covid-19 pandemic had caused severe disruptions to all QSR companies.  Interestingly, SFIL has a better revenue per store compared to Devyani International Ltd. In FY21, the income from takeaway and delivery services stood at Rs 551.88 crore or 68.8% of its total restaurant sales. SFIL is currently focusing on this segment to derive efficiency for long-term sustainable growth.

Cash flow is a key indicator of a company’s overall financial health. SFIL posted negative cash flows (or cash outflow) across FY19 to FY21. In the RHP, the company states that it may see negative cash flows in the future that could adversely affect its operations and implementation of its growth plans.

The company plans to continue to grow its business by opening a specific number of new stores every year. Thus, it expects to report losses until these new restaurants mature. However, SFIL will consider smaller formats for new restaurants to reduce rental expenses.

Risk Factors

  • Sapphire Foods India has reported restated losses in the last three financial years and anticipates additional losses in the future.
  • The company may suffer uninsured losses or experience losses that exceed the insured limits. Moreover, they may have to make extra payments to cover all uninsured losses.
  • They are dependent on the Franchisee Agreement with Yum! Brands for continuous operations. The imposition of certain restrictions or the termination of agreements with YUM could adversely affect SFIL’s business and financial condition.
  • SFIL has incurred substantial debts and may incur more debts in the future. It could affect the company’s ability to obtain funds or pursue its growth strategy.
  • There are outstanding legal proceedings involving the company, its subsidiaries, and its directors.
  • The failure or deterioration of its quality control systems and protocols for supply chain or restaurants could lead to the termination of the Franchisee Agreement.
  • The inability to recognize and respond to changes in consumer preferences and food habits could adversely impact SFIL’s overall operations.

IPO Details in a Nutshell

The book-running lead managers to the public issue are BofA Securities India, ICICI Securities, IIFL Securities, and JM Financial Consultants. Sapphire Foods India Ltd had filed the Red Herring Prospectus (RHP) for its IPO on October 27. You can read it here.

Ahead of the IPO, SFIL was able to raise Rs 932.96 crore from anchor investors. The marquee investors include Government of Singapore, Fidelity Funds, Abu Dhabi Investment Authority (ADIA), HSBC, ICICI Prudential, and Societe Generale. 


As mentioned earlier, SFIL has announced ambitious plans to open new stores every year. This strategy will lead to a further increase in operating costs and other expenses in the upcoming quarters. Thus, the company may continue to report losses until these new stores mature. Moreover, another severe wave of the Covid-19 pandemic could affect its overall sales and expansion plans. If they are unable to open new stores and ensure store profitability, Yum! Brands could terminate their current arrangements with SFIL. Since a significant portion of their revenues comes from KFC and Pizza Hut stores, the company will have to focus on strategies to control the Covid-19 impact.

SFIL will be directly competing with prominent listed QSR companies such as Jubilant Foodworks, Barbeque Nation, Burger King India, Devyani International, and Westlife Development after it gets listed. [To learn more about these QSR firms, click here]. The continuing impact of the Covid-19 pandemic and increased competition among global QSR chains may continue to affect cash flows and the overall financial performance of the company.

It seems that the company has received some interest in the grey market. The Grey Market Premium (GMP) of SFIL’s IPO shares stands at ~Rs 120. It means that shares are being traded in the unofficial market at Rs 120 more than the issue price. Before applying, make sure you carefully weigh out the pros and cons of the company and come to your own conclusion.

What are your views on this IPO? Will you be applying for it? Let us know in the comments section of the marketfeed app.