Sapphire Foods Q4 Results Review - Favorable Risk Reward: HDFC Securities

HDFC Securities Institutional Equities

We upgrade Sapphire Foods International Ltd. to Add from Reduce with target price of Rs 1600 (25 times FY26 Pre IND-AS enterprise value/Ebitda) as we expect it to deliver revenue and Ebitda compound annual growth rate of 18/19% over FY23-26 on the back of-

1. management priority on course correction i.e., improving profitability over store expansion for its low-margin Pizza Hut brand,

2. KFC margins expected to improve further with newer stores (KFC stores have multiplied from 203 stores in FY21 to 429 in FY24) once they achieve maturity,

3. macro-economic stability for Sri Lankan business as reflected in FY24 numbers ( revenue/Ebitda growth of 25/16% respectively in Indian rupee terms of YoY basis).

Moreover, reasonable valuations (17 times FY26 Pre Ind AS EV/ Ebitda) provide enough margin of safety.

Overhang of stake sale by PE funds (promoters own 30.84% stake as on March 31, 2024) has moderated significantly, as promoters have perpetual lock in for its 26% stake.

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