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Motilal Oswal Report
Sapphire Foods India Ltd. experienced muted demand in Q2 FY24 with same store sales growth of 0%/-20% for KFC/Pizza Hut. Consolidated revenue grew 14% YoY (inline), led by 24% YoY store additions.
However, 230 basis points YoY improvement in gross margin cushioned the decline in Ebitdam (down 50 bp YoY). Ebitda increased 12% YoY (7% beat) while profit after tax declined 44% YoY during the quarter.
The demand environment is still weak but the shift of the festive season and softening of the raw material may support the earnings. The company is cautious in expanding the Pizza Hut segment while continuing to invest in KFC.
e have factored in an Ebitda (pre India-Accounting Standard 116) - compound annual growth rate of 30% over FY23-25E led by KFC.
We reiterate our 'Buy' rating with a target price of Rs 1,670, given its long-term growth opportunity and moderate valuations versus quick service restaurant peers.
Sapphire Food's consolidated sales grew 14% YoY to Rs 6.4 billion (inline) led by 24% YoY store additions. KFC grew 19% YoY, while Pizza Hut declined 6% YoY in Q2 FY24.
SSSG: KFC at 0% (estimate +1%), PH at -20% (estimate -15%), and Sri Lanka at 1% in Sri Lankan rupee terms.
Sapphire Foods added a total of 36 stores (23/9/4 stores for KFC/PH/SL). The total store count stood at 814.
Consolidated gross profit grew 18% YoY to Rs 4.4 billion (in line) due to moderating raw material inflation. Margin improved 230 bp/20 bp YoY/QoQ to 68.7%
Reported Ebitda grew 12% YoY to Rs 1.2 billion (7% beat), while Ebitda margin contracted 40 bp YoY to 17.9%.
Consolidated return on margin/pre Ind-AS Ebitda decreased 50 bp YoY each to 16.1%/10.6%.
PAT declined 44% YoY to Rs 152 million due to higher depreciation, interest cost and taxes (19% beat). Margin contracted 240 bp YoY to 2.4% (estimate 2.0%).
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