NeoPolitan Pizza and Foods coming with IPO to raise Rs 12 crore

NeoPolitan Pizza and Foods

• NeoPolitan Pizza and Foods is coming out with an initial public offering (IPO) of 60,00,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 20 per equity share.
• The issue will open on September 30, 2024 and will close on October 04, 2024.
• The shares will be listed on SME Platform of BSE.
• The share is priced 2 times higher to its face value of Rs 10.
• Book running lead manager to the issue is Turnaround Corporate Advisors.
• Compliance Officer for the issue is Manish Kumar Arora.

Profile of the company

Neopolitan Pizza and Foods operates in two segments, namely the restaurant business and the trading of agricultural commodities. In the restaurant business, the company owns and operates its own restaurants as well as operates through a franchise model. The company offers Neopolitan-style pizza, which is a traditional Italian pizza made with fresh ingredients. The menu includes a variety of toppings, and the company offers gluten-free and vegetarian options.

The brand was named “Neopolitan Pizza” a name derived from little village of Italy where Pizza originated. The concept continued to thrive after adopting the Unlimited Buffet idea “ALL YOU CAN EAT”. Neopolitan Pizza is ISO 22000:2018 Certified company. The newly re-designed and rebranded Neopolitan Pizza concept pushes the limits of the regular restaurant experience by offering a variety of Soup, Exotic Salads, freshly baked Bread, Pasta, Hand Tossed Pizza and Dessert including such popular items as flat bread pizzas and many more. The concept of Neopolitan Pizza is very family oriented and kid friendly.

In addition to the restaurant business, the company is also engaged in the trading of agricultural commodities. The company deals in products such as wheat, rice, tomatoes, onions, and other such products. The trading segment of the business aims to source high-quality agricultural products from trusted suppliers and sell them to customers at competitive prices. The company's strategy is to leverage its expertise in the food industry to offer a unique and high-quality dining experience to its customers while also diversifying its revenue streams by engaging in commodity trading. The company’s focus on sourcing high-quality ingredients for its pizza also applies to its trading business, where the company aims to ensure that its products meet strict quality standards.

Proceed is being used for:

• Expansion of its Retail Network by launching 16 new Quick Service Restaurant (QSR)
• Security deposit and advance rent
• Brokerage charges
• Meeting working capital requirements
• General corporate purposes

Industry Overview

India is one of the major players in the agriculture sector worldwide and it is the primary source of livelihood for about 55% of India’s population. India has the world's largest cattle herd (buffaloes), largest area planted to wheat, rice, and cotton, and is the largest producer of milk, pulses, and spices in the world. It is the second largest producer of fruit, vegetables, tea, farmed fish, cotton, sugarcane, wheat, rice, cotton, and sugar. Agriculture sector in India holds the record for second-largest agricultural land in the world generating employment for about half of the country’s population. Thus, farmers become an integral part of the sector to provide people with means of sustenance. The Indian agricultural sector is predicted to increase to $24 billion by 2025. Indian food and grocery market is the world’s sixth largest, with retail contributing 70% of the sales. India’s agricultural and processed food products exports stood at $43.37 billion in FY23 (April 2022-January 2023). As per Second Advance Estimates for 2022-23 (Kharif only), total foodgrain production in the country is estimated at 153.43 million tonnes. At current prices, agriculture and allied sectors account for 18.3% of India’s GDP (2022-23).

Meanwhile, the market for food services in India is predicted to increase from $41.1 billion in 2022 to $79.65 billion by 2028, with a CAGR of 11.19%. According to the Food Service and Restaurant Business Report 2022-23 by Francorp and restaurantindia.in, the industry is predicted to employ 1 crore people by 2025, despite losing over 20 lakh jobs at the height of the COVID-19 pandemics. The country's restaurant and food service market is split into two segments, with the unorganised segment holding the lion's share of the market, according to the report, which also noted that the organised sector expanded rapidly between 2014 and 2020. The market for quick service restaurants (QSRs) in the country is predicted to be worth $690.21 million in 2022 and $1069.3 million in 2027, rising at a CAGR of 9.15%, according to the report’s additional findings. The QSR chain market is anticipated to increase at a CAGR of 23% over the course of FY20–25, making it the fastest-growing sub-segment overall in the food service industry.

Going forward, the agriculture sector in India is expected to generate better momentum in the next few years due to increased investment in agricultural infrastructure such as irrigation facilities, warehousing, and cold storage. Furthermore, the growing use of genetically modified crops will likely improve the yield for Indian farmers. India is expected to be self-sufficient in pulses in the coming few years due to the concerted effort of scientists to get early maturing varieties of pulses and the increase in minimum support price. Moreover, the quick service restaurant sector (QSR) in India is anticipated to grow by 20-25% in the current fiscal year due to an increase in demand and more market penetration driven by a rapid shop expansion. Long-term, factors like increasing QSR penetration rates, a shift from the unorganised to the organised segment with a preference for branded QSR players, given the convenience and hygiene factors (delivery over dine-in), etc., will support revenue growth.

Pros and strengths

Authenticity and menu diversity: The company is known for its authentic Neopolitan-style pizza, which is made using traditional techniques and ingredients. This sets it apart from other pizza chains in India, which often offer more localized variations of pizza. While pizza is the main offering, the menu is diverse enough to cater to different tastes and dietary preferences. The menu includes vegetarian and vegan options, as well as salads, pasta, burger, sandwiches, and desserts.

Franchise model and good customer service: The company has successfully implemented a franchise model, with a total of 18 franchises operating on Franchisee Owned Franchisee Operated (FOFO) model which has allowed it to expand rapidly across India. This has helped the company to reduce its capital investment while also enabling it to tap into the local knowledge and expertise of its franchisees. Moreover, the company places a strong emphasis on customer service, which is evident in its well-trained staff, prompt service, and personalized attention to customer needs. This helps to create a positive customer experience and fosters customer loyalty.

Competitive pricing and adequate inventory: The company works closely with its suppliers to ensure it gets the best possible price for its products. This allows it to offer competitive pricing to its customers, making it an attractive option in the market. Moreover, the company has adequate storage capacity of 4,000 sq.ft. for its inventory holding which is well connected with Road. Labours as and when required are available from local area as to manage the loading and unloading of transport vehicles. Any stock inward is first received at warehouse and quantity is confirmed and dispatch is done regularly as per the requirements from buyers.

Risks and concerns  

Dependent on limited customers for substantial portion of revenues from agricultural commodities: A portion of the company’s revenues from Agricultural Commodities has been dependent upon a few customers. For the period ended March 31, 2024, March 31, 2023 and March 31, 2022, its top ten customers accounted for around 92.07%, 81.80% and 72.67% of its revenue from Agricultural Commodity. However, the loss of any significant customer would have a material effect on its financial results. The company’s business from customers is dependent on its continuing relationship with such customers, the quality of its products and its ability to deliver on their orders, and there can be no assurance that such customers will continue to do business with it in the future on commercially acceptable terms or at all. However, in case of any change in the buying pattern of its end users or disassociation of major customers can adversely affect its business or if its customers do not continue to purchase products from it, or reduce the volume of products purchased from it, the company’s business prospects, results of operations and financial condition may be adversely affected.

Dependent on few suppliers for purchases of agricultural commodity: A substantial portion of the company’s purchases of Agricultural Commodity has been dependent upon a few suppliers. Its inability to obtain goods material in a timely manner, in sufficient quantities could adversely affect its operations, financial condition and/or profitability. It depends on a number of suppliers, for procurement of goods required for its agricultural sales. During period ended March 31, 2024, March 31, 2023 and March 31, 2022, top ten suppliers accounted for 80.87%, 78.50% and 73.70% of its total purchases respectively. The company has not entered into long term contracts with its suppliers and prices for goods are normally based on the quotes it receives from various suppliers. Inadequate and timely unavailability substandard quality of the goods, could have a material adverse effect on its business. Further, any discontinuation of supply of goods by these suppliers or a failure of these suppliers to adhere to the delivery schedule or the required quality and quantity could hamper its manufacturing schedule.

Franchise model for its QSR segment involves partnering with third-party franchisees: One of the significant risks associated with the franchise model is the lack of control over franchisees’ day-to-day operations. Franchisees have considerable autonomy in running their businesses, including staffing, marketing, and supply chain management. Any failure by these franchisees to maintain brand standards or operate effectively could damage the company's brand image and reputation. Moreover, the company's success depends on the franchisees’ ability to provide a high-quality customer experience consistently. If franchisees fail to provide this level of experience, customers may choose to visit competitors instead, leading to a loss of revenue and market share. In addition, if franchisees fail to comply with applicable laws and regulations, such as health and safety standards, it could lead to legal penalties, negative publicity, and further damage to the brand image and reputation.

Outlook

Neopolitan Pizza and Foods has two segments: restaurant operations and agricultural commodity trading. The company owns and operates restaurants and also operates through a franchise model. It specializes in Neapolitan-style pizza made with fresh ingredients and offers a variety of toppings, including gluten-free and vegetarian options. The company uses technology in many parts of its operations, like online ordering, tracking deliveries, and getting feedback from customers. It emphasizes customer service through well-trained staff, prompt service, and personalized attention, creating a positive customer experience and fostering loyalty. On the concern side, substantial portion of its revenues from Agricultural Commodities has been dependent upon few customers. The loss of any one or more of its major customers would have a material effect on its business operations and profitability. Moreover, the company’s business is dependent on certain suppliers and the loss of one or more of them would have a material adverse effect on the business.

The company is coming out with a maiden IPO of 60,00,000 equity shares of Rs 10 each at a fixed price of Rs 20 per share to mobilize Rs 12 crore. On performance front, revenue from operations surged by 119.63%, increasing from Rs 2003.54 lakh in FY 2022-23 to Rs 4400.36 lakh in FY 2023-24. This substantial growth was largely due to a sharp rise in revenue from agricultural trading. Moreover, the profit after tax (PAT) also saw a substantial increase, up by 80.41%, from Rs 116.80 lakh in FY 2022-23 to Rs 210.72 lakh in FY 2023-24, reflecting the company’s stronger financial performance and operational efficiency.

The company will continue to use only the freshest and highest quality ingredients in its pizzas, while ensuring that its food preparation and delivery processes are efficient and consistent across all its outlets. Its commitment to quality will help it to build a loyal customer base and differentiate itself from its competitors. Further, the company has total 20 outlets (COCO, FOCO & FOFO). It will continue to expand its presence in India by opening new company-owned outlets and partnering with more franchisees. It will prioritize locations that are strategic and have high footfall, while also ensuring that it maintains its standards for quality and customer service. It will work closely with its franchisees to ensure that it is equipped with the necessary training, tools, and support to operate their outlets effectively.