Sapphire Foods' revenue grew by 8.1% YoY to Rs 7.8 billion. KFC (India) and Pizza Hut (Sri Lanka) delivered double-digit revenue growth, while Pizza Hut (India) registered mid-single-digit de-growth. Gross margin contracted by 120 bps to 67.4%.
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Sapphire Foods International Ltd.'s revenue/Ebitda were in line with our estimates, while adjusted profit after tax was below. The company reported 8.1% revenue growth supported by 10.6/19.0% growth across KFC/Pizza Hut (Sri Lanka).
Store expansion continued, with eight new KFC stores and 2/1 Pizza Hut stores across India/Sri Lanka respectively, taking total restaurant count to 974. Going ahead, the company plans to add 60-80 KFC stores each year, while taking a more cautious approach on Pizza Hut expansion.
We have lowered our Ebitda estimates for FY26/27E by 5.2/4.8% to factor in Q1 performance and a weaker-than-expected recovery. While same-store sales growth is likely to improve on favorable base, operating margins in Pizza Hut would remain under pressure.
Valuing the stock at 16x FY27E EV/Ebitda we arrive at target price of Rs 309 (Rs 318 earlier). We downgrade our rating to ‘Sell' as Pizza Hut's performance is expected to take longer time to recover.
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