Paytm vs Sapphire Foods: Which IPO is better for listing gains?

Primary market investors are spoilt for choice as three companies are collectively looking to raise about Rs 21,000 crore via initial share sale this week. Of these, two companies -- One97 Communications-owned Paytm and Sapphire Foods, the owner of KFC and Pizza Hut chain of stores-- are alone looking to raise about Rs 18,000 crore and Rs 2,000 crore, respectively.
 
Touted as India’s biggest public offer, Paytm’s share sale was launched yesterday and has been subscribed less than 20 percent so far. It comprises a fresh issue of Rs 8,300 crore and an offer for sale of Rs 10,000 crore and the company has already raised Rs 8,235 crore from anchor investors ahead of its share sale. The price band of the three-day share sale, which concludes on November 10, has been fixed at Rs 2,080-2,150 per share.
 
But, analysts aren’t very bullish given its extremely stretched valuation. According to Manan Doshi, co-founder of Unlisted Arena, Paytm may fail to deliver on listing gains while long-term outlook also looks challenging. He says:
 

• The revenue growth isn’t very exciting
• Loss has been narrowed by curtailing advertising expenses
• Paytm is well-diversified but lacks clear leadership
• Sales to m-cap at 49x looks expensive
• Road ahead looks challenging
• Paytm may continue to incur losses to safeguard market share

 
Sapphire Foods IPO
IPO date: November 9-11
Issue size: Rs 2,073 crore
Price band: Rs 1,120-1,180 per share
 
On the other hand, Sapphire Foods is planning to raise Rs 2,073 crore through its public issue at the higher end of the price band of Rs 1,120-1,180 per share. The company will launch its IPO today and the issue will close on November 11. Its valuation is around 7 times FY21 sales which is lower than recently listed Devyani International (14 times FY21), Westlife Development (9.3 times), Burger King (12.5times) and Jubilant FoodWorks (15times).
 
According to Ajit Mishra, VP-Research at Religare Broking:
 

• Sapphire Foods stands to gain from industry growth
• Looks to benefit from popularity among youngsters, good consumer experience
• Turnaround of financial performance holds key

 
Against this backdrop, which IPO looks best for listing gains? And which one might offer good returns from a long-term perspective? Gaurav Garg, head of research at CapitalVia Global, said:
 

• Paytm has diversified business model
• It has 35 crore customers, of which 5 crores are active users
• Valuations look expensive
• Listing gains could be limited; subscribe from long-term perspective
• Sapphire Foods’ per store revenue is more than peers
• Listing gains could be decent

 
Hence, as both the companies are near pioneers in their sectors, investors with high risk-taking appetite and long-term view can subscribe to both these issues. Short-term investors, meanwhile, who are only interested in listing gains, may invest in Sapphire Foods.
 
Apart from these IPOs, stock-specific action will continue to dominate the market trend on Tuesday amid the last leg of corporate earnings.
 
Earnings today

• BHEL
• Hindustan Copper
• M&M
• Petronet LNG

 
Among the 160 companies that are set to report their September quarter earnings today, the prominent ones that will be on investor radar include BHEL, Hindustan Copper, M&M, and Petronet LNG. FII trends over the next few days will also hog the limelight as the stock exchanges and other market infrastructure institutions have come out with a roadmap for the implementation of T+1 settlement cycle. The settlement cycle will be implemented in a phased manner and will apply only to the bottom 100 companies starting February 25. And from March 2022 onwards, the next bottom 500 stocks will be available for introduction to T+1 settlement.

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