Despite the debut day performance, we continue to maintain our bearish stance and urge investors to book profits at the current levels and wait for the stock prices to decline.
At a time when the primary markets have either seen companies like Samvardhana and Plastene India pulling out their IPOs or the rest like MCX and NBCC trading well below their offer prices, fine dining restaurant chain operator, Speciality Restaurants (SPL), decided to tap the markets on May 16, 2012 with its IPO. After receiving an initial lukewarm response, the issue finally managed to attract some response from the HNI and institutional investors with it getting over-subscribed by 2.54 times, thus helping SPL raise around Rs 175 crore at an issue price of Rs 150 per share.
Despite the pessimistic mood prevailing in the markets, the shares of SPL got listed at a premium to the issue price and ended its debut day at Rs 160.65 per share, a premium of 7.1 per cent from its issue price. At the time of writing our new issue analysis, we had advised readers and the investor community at large to stay away from this counter as we were skeptical over the aggressive pricing logic applied by the merchant bankers and promoters. Despite the debut day performance, we continue to maintain our bearish stance and urge investors to book profits at the current levels and wait for the stock prices to decline.
Without arguing much over the favourable prospects of the food services’ industry in India, the strong foothold of SPL in the fine dining industry and the strong cash flows depicting the strength of its brand value, we feel that the counter at the current levels is commanding tad expensive valuations. At an annualised post-issue EPS of Rs 4.26, its PE multiple stands at 37.7 its current market price of Rs 160.65 per share.
Given the fragile current market conditions, the burgeoning inflationary scenario and highly fragmented nature of the Indian food services industry, we at DSIJ believe that fine dining restaurant players like SPL would feel some pressure in the near term as the disposable and discretionary spending power of people take a beating.
We further believe that SPL’s dependence on the success of its flagship brand Mainland China (MC) is a matter of concern. Any shift in consumer preferences (away from Chinese cuisine) may impact the sales of Mainland China and hence Speciality’s overall growth. The success of the company’s forward-looking plans to open up new restaurants on an Italian-based theme also remains to be seen and it would be too soon to take any call on that at this point.
In conclusion, given the current market scenario and SPL’s expensive valuations, we recommend that investors use this listing day opportunity to book profits and consider re-entering the counter at lower levels of Rs 85 per share.