Is Travel Food Services' IPO a risky bet for investors?

ET Intelligence Group: Travel Food Services (TFS), which operates quick service restaurants (QSR) and lounges in airports, plans to raise ₹2,000 crore through an offer for sale. The public issue will reduce the promoter group's stake to 86.2% from 100%. The company's revenue and net profit has steadily increased in the past two years. It has negative working capital days as it gets paid from customers upfront and enjoys a period of credit while paying creditors. About 86% of its revenue comes from the top five airports, signalling high concentration. Also, its entire business is dependent on passenger traffic at airports. Considering these factors, investors with high-risk appetite may consider the IPO.

Business
Incorporated in 2007, Mumbai-headquartered TFS operates a travel QSR and lounge business across airports in India, Malaysia and Hong Kong. The company also has outlets at select highway sites in India. Based on FY25 revenue, the company holds around 26% share in the Indian airport travel QSR sector and 45% in the Indian airport lounge sector, according to a Crisil report.


Travel QSR business comprises a range of food and beverages (F&B) across cuisines and brands. The lounge business comprises designated areas within airport terminals, accessible primarily by first and business class passengers, members of airline loyalty programmes, select credit card and debit card holders, and members of other loyalty programmes. The company operates 442 travel QSR outlets and 37 lounges. It has 37 in-house brands and 90 brand partners, out of which 32 are international brands. From 2009 until March 2025, the company has maintained a contract retention rate of 93.9%.

Financials
Revenue from operations and net profit grew 26% and 23% annually to ₹1,687.7 crore and ₹1,067.2 crore between FY23 and FY25. Similarly, earnings before interest, taxes, depreciation, and amortisation (Ebitda) grew by 21.5% to ₹676.3 crore. Ebitda margin declined to 40.1% in FY25 from 42.9% in FY23. Like-for-like (LFL) sales growth drastically dropped to 4.6% in FY25 from 166.6% in FY23. This is because the launch of new terminals attracts passenger traffic away from old terminals, which affects LFL growth. Hence, LFL growth may not be an apt parameter to capture the company's growth momentum.

Valuation
Considering the post-IPO equity and net profit for FY25, the company demands a price-earnings (P/E) multiple of up to 38. It does not have a direct publicly listed airport QSR peer. Some of the other QSR chains are not profit making, which makes their P/Es incomparable. On the price-sales front, TFS is demanding a multiple of eight compared with P/S between two and eight for peers including Jubilant Foodworks, Devyani International, and Sapphire Foods.