(A) Issue Highlights
(1) Issue Period: 16/5/2012-18/5/2012
(2) Price band: Rs. 146-155
(3) Issue Size: 181.96 crore at the upper price band
(4) Issue Type: 100 % Book Building
(5) Market Lot: 40
(6) Face value: Rs. 10
(7) Maximum Retail Subscription: Rs. 1,98,400 (32 lots)
(8) Registrar: Link Intime
(9) Listing: BSE,NSE
(10) Industry: Fine dining Restaurant chain
(B) Industry profile
Food industry
in India is one of the fastest growing industries in India and by the year 2015
it is estimated to reach $ 300 billion (Rs.15,900 crore).Restaurant industry
amounted to Rs. 430 billion with an annual growth rate of 5-6 %.
Company Profile
Specialty Restaurants Ltd. operates
69 restaurants and 13 confectionaries located across 21 cities of India. The
company has also marked its footprint in Dhaka (Bangladesh).
Restaurant Brands of the company
·
Mainland China (Flagship Brand)-
16 year old ‘Coca Cola Golden Spoon’ award winner brand that serves Chinese
food and constitutes around 60 % of the total revenue.
·
Oh! Calcutta-Serves
Bengali, Nawabi, British & Continental food
·
Flame & Grill:
serves grilled Kababs
·
Haka: serves quick
modern-Chinese dishes and snacks
·
Just Biryani:
serves traditional Indian rice delicacies
·
KIBBEH: provides Lebanese
cuisine
·
Kix: bar featuring
a dance floor and music targeted at
young professional segment
·
Machaan: provides
traditional Indian dishes
·
Sigree: serves slowly
cooked food over a charcoal flame which is known for much-better taste than the
burner-flame cooked food
·
Shack: bar lounge
with beach theme targeted at young professional segment
·
Sweet Bengal:
another 16-year old confectionary restaurant brand and winner of Times Good
Food Awards in many cities.
SRL’s Footprints
Outlet Matrix
(C) Strengths
·
The company boasts 69 strategically
located restaurants spread across 21 cities
·
Stable & securer ratio of ‘Owned
to Franchised’ restaurants
(D) Concerns
·
Geographical concentration of
restaurants skewed towards western region
·
So far only Mainland China and Oh!
Calcutta are widely recognized brands
·
Rising property-rentals shall be a
major concern
·
In case of Contingent liability worth
Rs. 17 crore if materializes shall result in total debt increasing by around 70
%
(E) Objects of the Issue
·
Development of new corporate
restaurants: Rs. 144.7 crore
·
Development of food plaza:
Rs. 15.1 crore
·
Repayment of a term loan: Rs.
10.43 crore
·
General corporate purposes: shall
be finalized after the finalization of the issue price
(F) Financial analysis #
(1) All calculation at the upper price band
(2)
FY12calculations were done considering post-issue equity (conversion of preferential shares factored-in) using
restated financial statements
(2) FY 2012 data is annualized
(3) Preference shares were converted into equity
shares in Nov 2011
Parameter
|
FY
12 Annualized
|
FY
11
|
FY10
|
EPS
|
Rs.
4.2
|
Rs.
5.4
|
Rs.3.9
|
Book
Value
|
Rs.
24
|
Rs.33.8
|
Rs.
24.8
|
P/E
|
36.5
|
28.6
|
40.2
|
P/B
|
6.5
|
4.6
|
6.3
|
Profit
CAGR (4 year)
|
45%
|
50%
|
37%
|
PEG
|
.8
|
.6
|
1.1
|
Return
on Equity (ROE)
|
17.7
|
16.1%
|
15.6%
|
Net
Profit Margin(NPM)
|
10%
|
9%
|
9%
|
ROCE
|
19.8%
|
20.6%
|
15.2%
|
Debt/Equity
Ratio
|
.6
|
.5
|
.6
|
Interest
Cover
|
8.5
|
14.4
|
8.3
|
Current
Ratio
|
1.9
|
1.6
|
1.8
|
M-Cap/
Sales
|
3.7
|
2.6
|
3.4
|
(G) Comparison with the peers
Jubilant food can’t be directly compared with this
company as-
· Jubilant food is the Indian franchise
of global brands like Domino’s Pizza and Dunkin Donuts while SRL owns the fine
dine restaurant business in India and issues franchise business to interested
parties.
· SRL is not involved in home delivery business
· Domino’s and Dunkin brands are global
brands while SRLs brands have domestic acceptance only
As there is no fine dine service provider company which is listed on the Indian bourses comparison is done for valuation purpose only.
# FY 11 peer data is as per moneycontrol site
Company
|
SRL
|
Jubilant Food
|
P/E
|
36.5
|
70.87
(# latest possible)
|
NPM
|
10%
|
9.38%
|
PEG
|
.8
|
.79
|
ROE
|
17.7%
|
37.48%
|
Interest
cover
|
8.5
|
271.98
|
Debt
equity ratio
|
.6
|
.07 ( # FY 2010)
|
M-cap/
Sales
|
3.7
|
9.78
|
(H) Inference
Post issue, at the
upper price band issue shall be available at 36.5 times its earnings, which is
very high especially during the IPO phase.
Though SRL’s profit is growing at a profit CAGR of 45 % resulting in PEG
ratio under 1, still for a company like SRL with recognition limited
domestically valuations are very high.
I have mentioned
above why we can’t put SRL in the shoes of the Jubilant Foodworks’ shoes.
SRL has got only two
well-recognized brands- Mainland China & Oh! Calcutta that too in India
only while rest all brands are going through their inception phase and success
of these brands is difficult to predict.
It is strange that
despite lackadaisical market condition this issue has been offered at such a high
premium to its earnings.
Value investors and
risk-averse investors should clearly avoid this issue.
Who can apply
for this issue?
Dare-devils with deep
pockets having long-term view who clearly understand the inherent risk and
having a capacity to cost-average in case prices going below issue-price
significantly, should only go for this issue especially during the present time when many
recent issues trading below their issue price.
(I) Disclaimer
Analysis is for the information
purpose only. Though due diligence has been taken while preparing this report,
analyst shall not be responsible for any error and shall not bear any financial
liability to the users of this report.
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