Release Date: May 10, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sapphire Foods India Ltd (BOM:543397, Financial) achieved a 37% growth in sales revenue and a 92% growth in EBITDA over the past three years.
- The company added 129 new stores in FY24, with KFC contributing 88 new stores, marking the highest annual restaurant additions.
- KFC Sapphire achieved its highest-ever annual EBITDA margin of 19.7%.
- The company was ranked among the top three franchisees by Yum for both KFC and Pizza Hut on customer metrics and operating standards.
- Sapphire Foods India Ltd (BOM:543397) was rated the number one QSR in India on its ESG score by the Dow Jones Sustainability Index and is in the 95th percentile among all QSRs globally.
Negative Points
- Adjusted PAT for FY24 declined by 44%, indicating a significant drop in profitability.
- Consolidated restaurant EBITDA declined by 5% year-on-year in Q4, with a margin decrease of 260 basis points.
- Pizza Hut's system revenue declined by 3% YoY, and SSSG declined by 15% YoY, reflecting challenges in this segment.
- Sri Lanka operations faced store operating cost inflation, impacting profitability despite revenue growth.
- The company experienced a negative SSSG of 3% for KFC, indicating a decline in same-store sales.
Q & A Highlights
Q: Directionally, are you seeing any stabilization of same-store sales trends for KFC? Is it reverting or improving? Can you give us some idea in terms of how the year has started?
A: Sanjay Purohit, Group CEO and Whole-Time Director: April is not a competitive month for KFC due to Chhota Navratri, but May is significantly better than the Jan-Feb-March quarter. Sequentially, this quarter is better if we remove Navratri. We are seeing trends along those lines but not further improvement on KFC. Pizza Hut is showing improvement compared to last year, but we need more time to confirm a positive trend.
Q: How do you interpret the fact that aggregators seem to be doing well in terms of YoY growth rate while the overall QSR industry is lagging? Is this a structural trend or a temporary phenomenon?
A: Sanjay Purohit, Group CEO and Whole-Time Director: Aggregators' growth rates are higher due to the expansion of options and restaurants and better growth from high-value transactions, particularly from casual and fine-dine restaurants. KFC's performance aligns with the growth seen by aggregators.
Q: Could this be a fairly muted year in terms of expansion for Pizza Hut given the changes and relocations planned?
A: Vijay Jain, CFO: We are taking a cautious approach with Pizza Hut. While we won't give out annual numbers, it is fair to say that expansion will be muted. We are focusing on reviving consumer interest and improving operational metrics before expanding aggressively.
Q: What is your outlook on inflation and potential price increases going into FY25?
A: Vijay Jain, CFO: We expect gross margins to remain stable, with no material price increases planned for H1. Any price revisions will be minimal.
Q: How do you see competitive intensity affecting KFC and Pizza Hut? Will new innovations drive more footfall to your stores?
A: Sanjay Purohit, Group CEO and Whole-Time Director: Competitive intensity is higher in the pizza category due to its size and ease of operations. Fried chicken has lower competitive intensity due to the complexity of kitchen operations. Innovations like Melts for Pizza Hut aim to revive consumer interest and increase pizza consumption occasions.
Q: Do you expect a positive SSSG for Pizza Hut in the next two quarters?
A: Sanjay Purohit, Group CEO and Whole-Time Director: Reviving Pizza Hut will take time, and the current soft demand environment doesn't help. We are optimistic about our direction but cautious about immediate results.
Q: What is your take on KFC EBITDA margins going forward? Is there potential for expansion?
A: Vijay Jain, CFO: Our long-term guidance for KFC margins is around 20%. If SSSG remains challenging, margins will be under pressure. However, with positive SSSG in the range of 3% to 6%, margins should return to near 20%.
Q: How aggressive are you in protecting your order count share for KFC?
A: Sanjay Purohit, Group CEO and Whole-Time Director: We are focused on maintaining pricing and offering value options to drive transactions. Our Snackers range at INR99 and lunch range at INR149 are examples of this strategy.
Q: What are the markers for resuming store additions for Pizza Hut?
A: Vijay Jain, CFO: We will look at SSSG, ADS levels moving towards 50,000, and achieving 8% to 10% restaurant EBITDA before increasing the pace of expansion for Pizza Hut.
Q: What is the aspiration for ADS and margins in the Sri Lanka business?
A: Vijay Jain, CFO: We aim for mid-teens margins with 5% to 7% SSSG to manage cost inflation. Expansion will be cautious until we achieve these targets.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
