Shares of Sapphire Foods India Ltd saw a significant surge on September 5, 2024, climbing as much as 8% to hit a 52-week high of ₹364.40.
The surge was driven by heavy trading volumes, with around 18 lakh shares changing hands on the stock exchanges, a sharp increase compared to the company’s average daily trading volume of just 3 lakh shares over the past month.
Stock Performance and Trading Activity
By mid-morning (10:26 am), Sapphire Foods shares were trading 3% higher at ₹346.40 on the National Stock Exchange (NSE), even after cooling off from their 52-week high.
The uptick in trading activity and stock price movement was primarily attributed to Sapphire Foods’ ongoing stock split.
The stock is currently trading on an ex-stock split basis, following the company’s decision to split one share into five.
This move was approved during Sapphire Foods’ 15th Annual General Meeting (AGM). The record date for the split was today, which likely led to some profit booking, causing the stock to retreat slightly from its intraday high.
Stock Split Impact and Market Response
A stock split generally makes a company’s shares more affordable to investors by increasing the number of shares while reducing the price per share proportionally.
This can often lead to increased investor interest and higher trading volumes, as seen with Sapphire Foods today.
However, some investors may take advantage of the stock’s recent gains to book profits, which could explain the slight dip from the day’s high.
Concerns Over Debt and Financial Performance
Despite the recent stock surge, Sapphire Foods’ overall performance has been somewhat muted over the past year, with the stock gaining just 18%.
One key concern among investors is the company’s high level of debt. As of March 2024, Sapphire Foods India had a total debt of ₹1,160 crore, a substantial increase of ₹963 crore from the previous year. Although the company holds ₹181 crore in cash, it still faces a significant net debt of ₹983 crore.
Additionally, Sapphire Foods, which operates popular fast-food chains such as Pizza Hut and KFC under the Yum Brands franchise, reported a sharp decline in profits in the first quarter of FY25. The company’s consolidated net profit plunged by 68% year-on-year to ₹8.52 crore.
While the company’s revenue from operations rose by 10% to ₹718 crore during the same period, the overall financial performance was dampened by the ongoing challenges faced by the quick-service restaurant (QSR) sector.
The industry has been grappling with weak unit economics across both dine-in and delivery services, leading to a tougher operating environment for players like Sapphire Foods.
Conclusion
While Sapphire Foods’ stock rallied today, boosted by the excitement around its stock split and increased trading volumes, the company’s high debt levels and recent weak earnings are factors that investors should consider.
The QSR industry remains challenging, and despite some revenue growth, the company’s profitability has been hit hard. Going forward, how Sapphire Foods manages its debt and navigates the tough market conditions will be key to sustaining investor confidence.