SPECIALITY - Speciality Restaurants Limited Share Price

In the Q1 FY26 earnings call, management provided an optimistic outlook for the company, highlighting several key points regarding performance and future plans. Total stand-alone income increased by 3.04% year-over-year, although the decision to withdraw service charges affected revenue. Gross margins improved to 70.2%, up from 69.2% in the previous year, supported by favorable inflation trends. Notably, EBITDA margins also grew from 4.5% to 6.2%, attributed to better management efficiencies and contributions from new restaurants.

The management shared forward-looking strategies, stating that they opened a new restaurant, "Siciliana," and introduced a pilot store for "Walters Burger." The company plans to significantly expand its restaurant portfolio, targeting multiple openings throughout the fiscal year. They have a treasury of INR 162 crore available for new openings and renovations, without needing external funding.

For new restaurants, the breakeven period is typically 3 to 6 months. Management indicated the potential for a revenue growth rate of 10% to 15% for the next quarters, dependent on seasonal performance and improved discretionary spending. They also revealed expectations for the same-store sales growth to improve in the upcoming months.

The management acknowledged renovated restaurants yielding a revenue increase of 20% to 30%, emphasizing the importance of refurbishing older units to maintain competitiveness. The company is focusing on key markets, particularly in Maharashtra and Kolkata, with plans to expand into other regions, including Hyderabad and Tier 2 cities, in the future.

Question and Answer Summary from Earnings Transcript

Q1: "Can you elaborate your differential margins between dine-in and delivery, specifically what strategy levers are you using?"
A1: As a predominantly dine-in business, we treat delivery as a supplementary service. Delivery incurs additional costs like aggregator commissions. However, on a blended basis, the profit margins for dine-in and delivery remain comparable, as the operational costs are generally accounted for both service types.

Q2: "How are you going to fund new restaurant openings and refurbishments?"
A2: We currently have a robust treasury of approximately INR 162 crores for renovations and new restaurants. Our ongoing business also generates substantial monthly cash flows, allowing us to proceed without exploring external funding or leverage.

Q3: "How long does it typically take for a new restaurant to breakeven?"
A3: New restaurants generally take between 3 to 6 months to reach breakeven. Refurbishments tend to be quicker due to lower capital expenditures, particularly for long-established outlets.

Q4: "Can we assume that the last quarter growth guidance of 10% to 15% will continue?"
A4: We aim to maintain that guidance. However, since our business is seasonal, especially peaking from September to December, we'll have a clearer picture as we approach that period.

Q5: "What are the numbers pertaining to renovations and how has it impacted revenue?"
A5: Renovated and converted restaurants have seen revenue increases ranging from 20% to 30% year-over-year. We're actively upgrading older locations to enhance asset turnover and maintain comparable operational costs.

Q6: "What is the company's strategy regarding expansion in Hyderabad?"
A6: We're sorry to learn about your past experience. We've closed some unperforming locations and are now targeting malls for expansion. We plan to open new restaurants in Hyderabad within the next few months.

Q7: "What is your view on dark kitchens and will you consider using this model?"
A7: We already operate dark kitchens from our restaurants and have added 11 pure cloud kitchens. This model allows us to maintain minimal staff costs while increasing delivery sales. We are expanding our QSR brand, Walters Burgers, utilizing this strategy successfully.

These responses encapsulate the key points discussed by the management regarding operational strategies, financial outlook, and expansion plans.