Speciality Restaurants Ltd Appears to be Overpriced

[Ed. Note – This article does not meet our new editorial guidelines, nor does the company mentioned meet our investment criteria. It will be removed from the site in the future.]

Speciality Restaurants Limited (BSE:534425; NSE:SPECIALITY ) is a midcap (market cap Rs 2120 million ) Indian company, in fine dining business with popular multiple brands, and an aggressive growth strategy. With 97 outlets as restaurants and confectionaries spanning 26 cities in India and Bangladesh, it has made headlines for its plans for expansion on an unprecedented scale. Just before launching the IPO, the managing director of Specialty Restaurants, Anjan Chatterjee had said to media, that they would be going ahead with their IPO launch, despite the uncertain market. “Within our own sphere I think we have a unique story, and we have been building this over a period of last 20 years, so we are going ahead with the IPO,” he said. And the company succeeded in oversubscription of the issue of ten rupee shares with premium of 140 rupees per share, collecting Rs 1760.1 million. Since then they have added 14 restaurants to their chain and reduced long term debt reflected in reduction of interest cost. They are considering foraying into Quick Service Segment(QSS) and already launched the outdoor catering brand Mobifest, as a new business segment.

Mile Stones:

Major milestones of this company promoted initially by Anjan Chatterjee, (as per in the company website) described as below:

1992 : He launches his first restaurant in Mumbai, Only Fish (later rechristened Oh! Calcutta!)1994 : The first Mainland China opens at Sakinaka, Mumbai.1999 : The success of Mainland China and Oh! Calcutta across India spurred him to open a Restaurant Group under the name Speciality Restaurants Pvt. Ltd.2001 : Speciality launches its most successful venture, Mainland China, in Kolkata. Anjan receives the first Teacher’s Achievement Award for leading the way in key aspects of entrepreneurship.2002 : The successful Mainland China opens doors in Pune and Chennai. Speciality acquires two Mainland China restaurants, in Mumbai and Hyderabad, from promoters.2003 : Speciality now owns five restaurants in five cities.2005 : Speciality acquires Oh! Calcutta! in Mumbai from promoters.2006 : Speciality opens its 10th restaurant.2007 : Speciality acquires Just Biryani and Sweet Bengal, while Machaan opens in Mumbai.2008 : Speciality opens its first franchise restaurant in Guwahati. Flame & Grill opens in Kolkata. 2010 : Speciality opens its 50th restaurant and its first franchise in Dhaka, Bangladesh.2012 : The Company goes public with a very successful IPO.

The Major Products

Speciality Restaurants Limited is the company that operates the main brands like Mainland China, Sigree, Sweet Bengal, Haka, Mezzona and Oh! Calcutta. The company’s revenue has been growing at compounded rate of 35%, while the bottom line has grown around 49% for last four years. The company believes there is untapped potential for fine dining space, as the new industry is still in a nascent stage in India. The company sees a lucrative business opportunity in tier 1 and tier 2 cities across different states. The flagship brand Mainland China is the main profit earner for the company. Its main theme is that it provides 5 star food and quality at much lower prices. As the properties are leased, if the lease rentals come down,the operational margins could improve further. It added around 14 outlets during last one year and wants add around 45 for three years commencing FY12-13.
Financial data is as follows(million rupees)

Period Q4 of FY12-13 Q3 FY12-13 Q4 FY11-13 FY12-13 FY11-12
Revenue 584 585.4 464 22269 1962
Net profit 53.4 66.4 22.4 234.1 172.5
EPS Rupees 1.14 1.42 0.63 5.17 5.77
Equity 469.6 469.6 352.2 469.6 352.2
dividend 10% 0

Current market price of Speciality Restaurants is 168.5 discounts the EPS of 5.17, 32.5 times. Long term PE of 25 may be reasonable considering the strength of the brands. 

52 week price range of the share has seen a high of 227 and a low of 142. The addition of 15 restaurants during current fiscal is projected to add a revenue of 250 million rupees and net profit of 30 – 40million rupees on a conservative estimation.

Projected EPS for FY 13-14 could be 6 -7.

Present PE of 32.5 appears to be high as hotel and restaurant industry PE is around 28.5.

Jubilant Food Works with its international brands is quoting on a PE of 51.

Considering maiden dividend of 10%, and promoter holding of 60.69%, FII holding of around 4%, the present price of 168.5 may not hold and, it may be wise to book profit during rallies and look for buying opportunity below 145-150, during market volatility.  After  12 months the price may stabilize around 175-185

However investors with risk appetite, may choose to hold the share. Long term prospects are moderate, as long term stability of this nascent business sector needs to be watched.