SAPPHIRE - Sapphire Foods India Limited Share Price

Management's outlook for Sapphire Foods is cautiously optimistic, focusing on recovery and strategic improvements. They highlighted the challenging macroeconomic environment but noted that they had achieved a 10% increase in restaurant count, bringing the total to 963. Sales also grew by 11%. However, adjusted EBITDA saw a decline of 4%, primarily driven by KFC's negative same-store sales growth (SSSG) of -4%. EBITDA margins remained healthy at 17.3%.

For the fourth quarter of FY25, the company reported revenues of Rs. 710 crores, marking a 13% growth. They added 6 KFC restaurants, and consolidating these figures, the adjusted EBITDA was Rs. 50.8 crores, reflecting a 7% decline year-on-year. Their consolidated PAT was Rs. 2 crores, with an adjusted PAT of Rs. 3.3 crores.

The management discussed KFC's strategy to attract new customers, particularly through campaigns emphasizing core menu offerings and value. They recorded a dine-in plus takeaway mix of 57% against a 43% delivery mix. Despite low SSSG, the delivery business showed promising growth, tripling the performance of aggregator platforms.

Regarding Pizza Hut, management emphasized a cautious approach to store expansion, targeting around 20-25 new stores annually. They underlined ongoing challenges with marketing strategy alignment, which has impacted their SSSG, although they expect improved results from renewed advertising efforts.

Looking ahead, management aims for KFC to maintain projected net restaurant additions of 60-80 annually and sees potential for high single-digit growth in Sri Lanka. They expect improved consumer spending with easing inflation, which could stabilize SSSG.

Major Questions and Answers from Q&A Section of Earnings Call Transcript (14th May 2025)

1. Question from Vidisha Seth, Ambit Capital: "Can you give some color on the broader demand scenario and specifically on KFC SSSG? Is it logical to assume that SSSG will turn positive in the first half of FY26?"

Answer: Yes, the demand situation remains neutral, with no significant improvement or worsening over the last few quarters. While we're experiencing -1% SSSG in Q4FY25, we expect a more stable SSSG moving forward. The previous year saw low single-digit declines, so turning around to a positive SSSG is feasible, albeit gradual.

2. Question from Gaurav Jogani, JM Financial: "What's the network addition guidance for KFC and Pizza Hut in the current environment?"

Answer: Our guidance remains unchanged: for KFC, expect net additions of 60 to 80 stores as a medium-term target. Conversely, for Pizza Hut, we will be cautious, with max additions around 20 to 25 stores annually.

3. Question from Saurabh, Goldman Sachs: "What gives you confidence in resolving the difference of opinion in Pizza Hut?"

Answer: I meant to say it may take 1 to 2 quarters, not months. Our confidence comes from data showing that mass media advertising positively impacts transactions. By showcasing successes in our exclusive territories, we can potentially demonstrate effectiveness and align on strategy.

4. Question from Devanshu Bansal, Emkay Global: "How should we interpret the flat SSSG in April, and is there demand improvement?"

Answer: The flat SSSG in April indicates no material changes in demand conditions. April had specific events like Navaratra impacting consumption. It's too soon to comment on the broader demand picture, as May and June are generally stronger months.

5. Question from Ashish Kumar, Infinity Alternatives: "Are you considering adding more brands given the challenges with Pizza Hut?"

Answer: While we have the capacity to manage multiple brands, we want to ensure that any new brand can achieve significant scale and success. Our focus remains on KFC and Pizza Hut, which have long-term potential.

These responses reflect the management's assessment of current challenges, guidance on future strategies, and insights into brand performance.