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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 ₹1,340 crore and ₹1,020 crore for the financial years 2020 and 2021, respectively. Company’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 in the Territories. As of June 30, 2021, they 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. Total number of restaurants are 450 as of June 30, 2021.

Positives: (a) YUM's largest franchise operator in the Indian subcontinent in terms of revenue (b) Portfolio of well recognized global brands across spectrum (c) Scalable business model (d) Experienced Board and senior management team.

Investment concerns: (a) SFIL is making continuous losses on bottom-line front, hence profit concerns remain; (b) Slowdown in the economy could impact the overall revenue of the company (discretionary in nature).

Outlook & Valuation: In terms of valuations, the post-issue FY21 EV/Sales works out 7.4x to (at the upper end of the issue price band), which is low compared to its peers Devyani International (FY21 EV/Sales -16.3x). Further, Sapphire Foods India has a better revenue per store compared to Devyani International. On the EBITDA front, the company is continuously showing improvement. Considering all the positive factors, we believe this valuation is at reasonable levels. Thus, we recommend a subscribe rating on the issue.

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SEBI Registration number is INH000000164

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