IPO NOTE

3 October 2024

By Majid Ahamed

About the Company

Neopolitan Pizza and Foods Ltd, based in Gujarat, was founded in 2011 under an agricultural brand. In 2012, the company changed its name to Neopolitan Pizza and Foods Private Ltd. On November 3, 2014, Neopolitan Pizza and Foods Ltd was listed on the Emerge ITP platform of the National Stock Exchange (NSE). However, after finding no significant benefits for shareholders and seeking to reduce the financial and administrative burden of compliance, the company voluntarily delisted its shares from the NSE, effective June 7, 2018, with trading ceasing on June 6, 2018.

The company currently operates in two segments:

1. Restaurant Business: Neopolitan Pizza owns and franchises restaurants offering traditional Italian-style pizza, including gluten-free and vegetarian options.
2. Agricultural Commodities Trading: The company is also involved in the trading of agricultural products.

The restaurant brand is called “Neopolitan Pizza.

The Restaurant Business

The Restaurant Business is one of the major operating businesses for the company. As of March 31, 2024, had 21 Restaurants located in more than 16 cities, spread across 2 states and union territories in India. They opened their first restaurant in February 2012, with the launch of the Company-owned Restaurants in Vadodara, Gujarat. Revenue generated from our Restaurants represented 7.25%, 13.16%, and 7.79% of the company’s revenue from operations in Fiscals 2022, 2023, and 2024 respectively. 

Most of the company’s revenue currently comes from the COCO and FOCO models contributing over 90% of the overall revenue in the restaurant business, 

Source: DRHP

Here are some pictures of the stores, most of which are located in Gujarat. Recently, they have also opened new stores in Maharashtra and Uttar Pradesh.

The company’s Google ratings and reviews have been quite positive. These reviews provide a clear indication that the company has been able to focus on product quality and deliver consistent results over the years in the regional market.

Agriculture Business

At Neopolitan Pizza And Foods Limited,  the company is committed to providing the highest quality agricultural commodities to our customers. They source products directly from farmers and suppliers who share our commitment to sustainability, quality, and fair-trade practices. 

The range of agricultural commodities includes Cereals, Pulses, Fruits, and Vegetables. The Company deals in various fruits and vegetables like tomatoes, onions, potatoes, guavas, bottle gourds, brinjals, apples, mangoes, oranges, pomegranates, sweet limes, cabbages, cauliflowers, etc. 

The Company also deals in various Cereals, Pulses & Grains like wheat, rice, chana dal, corn, masoor dal, maida, maize, etc. For the agricultural commodities trading vertical, the Company operates on a B2B model and sells its products on a wholesale basis to business entities. 

The Company has no retail outlets for its agricultural commodities trading vertical. For the period ended March 31, 2024, the Company has earned major revenue from wheat in the category of cereals and pulses which comprises 41.28% of total revenue from trading of agricultural commodities, and from apples in the category of fruits and vegetables which comprises of 50.94% of total revenue from trading of agricultural commodities.

The Offer & Proceeds of the Issue

The company is looking to raise capital of around 12 Crores in total in the IPO, of all of them 12 Cr is the fresh issue where this amount would go inside the company’s reserve, in which 0.6 Cr is allotted for the market makers or dealers, and the remaining 11.4 Crores is giving for the public and institution to subscribe.

The fresh issue money will be allocated as follows:

• The company plans to spend ₹7.08 crore on capital expenditure, which involves investing in long-term assets with benefits extending beyond one year, by purchasing various plants and machinery to expand the QSR network to around 25 Branches. The premises for the proposed new restaurants are expected to be taken on a lease basis. The company typically takes premises on a lease basis and does not own the underlying premises.
• Around ₹ 3.58 crore will be used for working capital requirements, where the company is working capital intensive, where these funds will used to fund the inventory and the trade receivables
• The remaining funds will be used for general corporate purposes and other charges related to brokerage.

Valuation

The company is targeting a market capitalization of ₹34 crores with a P/E ratio of 16. In comparison, peers like Restaurant Brands Asia and Devyani Food International are trading at P/E ratios of over 100 times earnings. The company’s revenue from operations in the pizza segment is less than 10%, which is relatively low. The majority of its business comes from trading agricultural products.

A key catalyst for growth would be an increase in pizza revenue, which would make the company more attractive to investors. However, the company has not yet demonstrated strong execution capabilities where the sequential revenue growth in the restaurant segment has been fluctuating. Additionally, their plan to expand operations into the U.S. raises concerns, given the company’s small size and the challenges of building a successful QSR (quick-service restaurant) brand in terms of sales growth.

Currently, the company is concentrated in Gujarat, where it appears to have good demand in regional markets. Investors should watch how the company grows and contributes to the restaurant business. With increasing rural demand and consumption, small players like this could capitalize on opportunities in the market, making it a compelling theme to consider. However, given the company’s small IPO size and current execution risks, it might be prudent for investors to wait and track its progress before investing.