Promoters selling part of their stake after filing the Red Herring Prospectus makes mockery of IPO regulation.
When the entire pre-IPO equity is under lock-in, how individual promoters are allowed to sell over 2.77 cr shares through private deals? Also, when the price has to be decided through the book building process, how the promoters are selling at the upper band price on the eve of the IPO? Will this not influence the IPO pricing process? SEBI, are you listening?
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DEVYANI INTERNATIONAL OFFER AT A GLANCE |
|
| Offer Type | Book Built |
| Platform | Main Frame |
| Fresh Issue | Rs 440 Cr |
| Offer for Sale | 15,53,33,330 shares (Rs 1398 Cr) |
| Face Value | Rs 1 |
| Price Band | Rs 86 – Rs 90 |
| Mkt/Bid Lot | 165 Nos. |
| Implied M-Cap | Rs 10,823 cr |
| Implied Equity Cap | Rs 120.25 cr |
| Free Float | 65.22% |
| Lead Manager | Kotak Mahindra Capital, CLSA India, EdelweissFinancial, Motilal Oswal |
| Registrar | Link Intime |
| Listing At | BSE, NSE |
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INDICATIVE ISSUE SCHEDULE |
|
| Opening :4-Aug-2021 | Closing :6-Aug-2021 |
| Allotment :11-Aug-2021 | Refunding :12-Aug-2021 |
| Demat Credit :13-Aug-2021 | Trading :16-Aug-2021 |
The Offer
New Delhi-registered and Gurugram (Gurgaon) head-quartered Devyani International Ltd is going public with an IPO of Rs 1,838 cr. The offer consists of a fresh issue of Rs 440 cr from the company and an offer for sale (OFS) of 15,53,33,330 shares valued at Rs 1,398 cr (at the cap price). Of the OFS, corporate promoter RJ Corp is offering to 9,00,00,000 shares and Dunearn Investments (Mauritius) is offloading 6,53,33,330 shares. The offer is being made through the book-building route with a price band of Rs 86-90 for Re 1 paid-up share. At the cap price, the quantum of IPO works out to over 2042.22 lakh shares.
Applicants should bid for a minimum lot of 165 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE & NSE on August 16, 2021. Kotak Mahindra Capital, CLSA India, Edelweiss Financial and Motilal Oswal are acting as managers to the offer and Link Intime has been roped in as registrar to the issue. The bidding opens on Wednesday, August 4 and closes on Friday, August 6, 2021.
The company proposes to utilize the net proceeds to the tune of Rs 324 cr towards repayment/prepayment of borrowings and the balance fresh issue amount is earmarked for general corporate purposes. However, the objects of the fresh issue have not been appraised by any bank or financial institution or any independent agency.
Lineage
Under the erstwhile Controller of Capital Issues (CCI) era, only companies that had a track record of earning profits in three consecutive years preceding the public issue could ask for a premium. But, today, perennially loss-making companies are allowed to collect bumper premium. Our regulators seem to be interested only in collecting as much fees as possible, and Rules and Regulations have no meaning to them. No wonder, unscrupulous promoters are out to exploit the regulators’ ignorance and fleece the investing public.
Take the case of Devyani International Ltd (DIL). The company presents Delhi-based Ravi Kant Jaipuria, Varun Jaipuria and RJ Corp as promoters. Ravi Kant Jaipuria, the founder of RJ Corp, received summon in January 2021 from SEBI to appear before the Investigating Authority to clarify certain matters with respect to dealings of securities of his group company Varun Beverages. He appeared before the Investigating Authority on January 29, 2021 and the investigation is reportedly pending. But that does not stop him from floating public a loss-making group company with an accumulated deficit of Rs 887 cr at an exorbitant value of over Rs 10,000 cr!
As per the regulation, the entire pre-IPO equity of an issuer-company will be under lock-in for a period of minimum one year. DIL’s RHP dated July 26, 2021 also states that its promoters had agreed not to sell, transfer, charge, pledge the promoter’s stake from the date of filing of the RHP until the expiry of the lock-in period. But, on August 2, 2021 the company made a public announcement that the individual promoters Ravi Kant Jaipuria and Varun Jaipuria had transferred 1,49,99,997 shares and 1,27,77,777 shares respectively to ten investors at price of Rs 90 a piece. By fixing the upper band as the final price for their private deal, are they trying to influence the investing public? If promoters can fix the price before the book building, why do they provide a price band and withhold many an important information like final equity, net worth, discounting ratios, etc. from the RHP?
Though the performance of Varun Beverages seems to be an exception, many a promotion of the RJ Group has failed to click. Four DIL’s subsidiaries and eight group companies have incurred losses. DIL has also advanced loans to such loss making entities that were outstanding as of June 30, 2021. The statutory auditors of DIL Nigeria, have qualified in their audit report with respect to its inability to repay certain loans, and excess of total liabilities over total assets resulting in negative equity indicating a material uncertainty regarding its ability to continue as a going concern.
DIL’s joint venture track is pathetic. The Minor Food Group (India) P Ltd, set up in fiscal 2015, was a failure and DIL divested its holdings in March 2021. Similarly, DIL had invested in the business of tea trading under the brand name of TWG which had operations in India through two stores and in the UK through DIL’s erstwhile subsidiary Devyani International (UK) P Ltd (DIL UK). DIL was unable to successfully operate the business and in fiscal 2021, it sold the business of two TWG stores in India by way of a slump sale to its corporate promoter, RJ Corp, and DIL’s shareholding in DIL UK was sold to a subsidiary of the corporate promoter. A pertinent questing that arises here is, if these loss making ventures were good to RJ Corp, why they had failed under DIL?
Key Management
Both the individual promoters, Ravi Kant Jaipuria and Varun Jaipuria, are on the board of DIL in Non-Executive capacity. Another Non-Executive Director is Raj Pal Gandhi who has over 28 years of experience with group company, Varun Beverages Ltd.
Virag Joshi, who had earlier associated with Indian Hotels, Domino’s Pizza, Milkfood and Priya Village Roadshow, is the Whole-time Director (President & CEO) of the company. He has been on the Board since November 2004. Manish Dawar is another Whole-time Director and Chief Financial Officer. He is a Chartered Accountant and a member of the Institute of Company Secretaries of India. He had earlier worked with Reebok India, Reckitt Benckiser, Vedanta, DEN Networks and Vodafone India. However, he has been a director of DIL only from February 17, 2021.
Three Independent Directors of the company namely Naresh Trehan (thoracic and cardiac surgeon), Girish Kumar Ahuja (former member of a committee on direct tax matters constituted by the Government of India and part-time non-official director on the central board of directors of State Bank of Indi) and Pradeep Khushalchand Sardana (previously associated with PepsiCo) have joined the board on the same day of April 21, 2021. Rashmi Dhariwal, an attorney-at-law from the Calcutta High Court, is the woman Independent Director of the company since April 6, 2018.
Stakeholders
Of the present equity of Rs 115.36 cr, the promoter group collectively holds 75.79% (RJ Corp 69.76%, Varun Jaipuria 4.54% and Ravi Kant Jaipuria 1.48%). Of the public category of 24.21%, Dunearn holds 14.16%. Post-IPO, on the enlarged equity of Rs 120.25 cr, promoter group will have 62.91%. Under the public category, Dunearn will hold 8.15% and Yum India will have 4.41%.
Business Track
Incorporated in 1992, DIL is in the business of operating QSR chains in India. In 1997 the company signed a development agreement with PepsiCo Restaurants International (India) for opening Pizza Hut outlets in North India, pursuant to which first Pizza Hut outlet was opened in Jaipur. The company acquired Speciality Restaurants P Ltd in 2002 and amalgamated in 2004. In 2003 Tricon Restaurants (India) P Ltd issued a letter of intent to the company for opening Pizza Hut outlets in Kolkata and in 2004 Yum India issued a letter of intent to the company for opening KFC outlets in Kolkata.
In 2005 the company signed an International Development Agreement with Costa for opening Costa Coffee outlets in India. In 2010 DIL opened the first KFC outlet in Nigeria and opened the first KFC and Pizza Hut outlets in Nepal. Same year, Devyani Food Street P Ltd (DFSPL) formed a joint venture with Delhi International Airport Ltd and DIL. In 2011 DIL launched its own brand for South Indian QSR- Vaango. In 2012 First Pizza Hut Delivery opened in Nepal and also DIL acquired 60% stake in Delhi Select Service Hospitality P Ltd.
The company acquired Pizza Hut delivery outlets from Yum India in Western and Southern India in 2015 and acquired the balance 40% stake in DFSPL from Delhi International Airport P Ltd in 2016. In 2017 DIL entered into a concession agreement with GMR Hyderabad International Airport to operate and maintain the food court of Hyderabad Airport under the brand name ‘Food Street’. In 2019 DIL entered into an agreement with Yum India for acquisition of 13 KFC outlets and in 2020 it acquired Yum India’s 61 KFC outlets.
Financial Track
After 28 years, the company achieved revenue of over Rs 1500 cr in fiscal 2020. But, last fiscal saw the revenue sliding to Rs 1,135 cr due to the pandemic. Despite the restaurants’ popularity the company’s losses are mounting. Post IPO, the company’s accumulated deficit will be almost equal to the share premium collected.
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Devyani International Consolidated Financials (in Cr) |
|||||
| Period Ended |
Mar-21 |
Mar-20 | Mar-19 | Mar-18 |
Mar-17 |
| Revenue |
1135 |
1516 | 1311 | 1111 |
1048 |
| Operating Profit |
254 |
244 | 233 | 103 |
-16 |
| OPM% |
22.4 |
16.1 | 17.7 | 9.3 |
-1.6 |
| Other Income |
64 |
19 | 13 | 25 |
9 |
| EBIDTA |
318 |
262 | 246 | 128 |
-8 |
| EBIDTA % |
26.5 |
17.1 | 18.6 | 11.3 |
-0.7 |
| Interest |
153 |
158 | 136 | 31 |
86 |
| Depreciation |
229 |
223 | 203 | 67 |
85 |
| Net Profit |
-63 |
-121 | -94 | 31 |
-180 |
| Accumulated Loss |
887 |
832 | 704 | 495 |
539 |
| Equity (Implied) |
115 |
106 | 106 | 106 |
106 |
| Reserves (Implied) |
886 |
536 | 527 | 528 |
520 |
| Borrowing |
380 |
431 | 400 | 313 |
219 |
| Fixed Assets |
445 |
492 | 496 | 453 |
373 |
Valuation
DIL’s upper band (Rs 90) put a market cap of over Rs 10300 for a company whose revenue is now stay put about Rs 1,100 cr and accumulated deficit is inching towards the size of the revenue. Due to the erosion of net worth, the company’s book value per share is lower than paid up value which is the lowest among the peer group. Also, the company’s Debt/Equity is the highest among the peers.
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Financials |
|||||
| (Amount in Cr) |
Devyani |
Jubilant | Westlife | Burger |
Barbeque |
| Market Cap |
10383 |
49135 | 8773 | 6892 |
3214 |
| Borrowing |
381 |
0 | 215 | 0 |
121 |
| Fixed Assets |
445 |
868 | 521 | 476 |
298 |
|
Revenue |
1135 | 3312 | 986 | 494 |
507 |
|
Other Income |
64 | 73 | 44 | 28 |
46 |
| EBIDTA |
318 |
844 | 95 | 36 |
94 |
| Interest |
153 |
163 | 85 | 82 |
85 |
| Net Profit |
-63 |
231 | -99 | -174 |
-92 |
| Equity Cap |
115 |
132 | 31 | 383 |
19 |
| Reserves |
886 |
1295 | 450 | 807 |
489 |
| Acc. Loss |
887 |
0 | 0 | 516 |
262 |
|
Stock Features |
|||||
| Current Price (Rs) |
90 |
3723 | 563 | 180 |
856 |
| Face Value (Rs) |
1 |
10 | 2 | 10 |
5 |
| Book Value |
0.99 |
108.12 | 30.89 | 17.59 |
65.44 |
| Promoter Stake % |
62.9 |
41.9 | 58.0 | 52.7 |
35.7 |
| Debt/Equity |
3.34 |
0 | 0.45 | 0 |
0.49 |
|
Profitability |
|||||
| OPM % |
22.4 |
23.3 | 5.2 | 1.5 |
9.6 |
| Net Margin % |
-5.3 |
6.8 | -9.6 | -33.3 |
-16.6 |
| Cash EPS |
1.47 |
46.01 | 2.58 | -1.21 |
8.18 |
| Earnings Per Share |
-0.52 |
17.57 | -6.38 | -4.54 |
-24.10 |
|
Discounting |
|||||
| Price/Earnings |
– |
212.0 | – | – |
– |
| Price/Cash EPS |
61.1 |
80.9 | 218.1 | – |
104.7 |
| Price/Book Value |
91.3 |
34.4 | 18.2 | 10.2 |
13.1 |
| Price/EBIDTA |
32.6 |
58.2 | 91.9 | 192.8 |
34.0 |
| Price/Revenue |
9.2 |
14.8 | 8.9 | 13.9 |
6.3 |
| Price/Fixed Assets |
23.3 |
56.6 | 16.9 | 14.5 |
10.8 |
Concern
The RJ Group has too many companies under its fold. But, their track record in industries other beverages and bottling is far from convincing.