Sapphire Foods India Q1 FY27 earnings call

Sapphire Foods delivered a strong Q1 FY27, marking its second consecutive quarter of robust performance. Revenue grew 15% year-on-year to INR888 crores. Consolidated adjusted EBITDA increased 37% year-on-year to INR75 crores, achieving a margin of 8.4%. Consolidated PBT stood at INR16.2 crores, representing a 1.8% margin, up 200 basis points year-on-year.

KFC India demonstrated strong performance with 5% Same-Store Sales Growth (SSSG) and 17% system growth. This was largely attributed to a two-pronged strategy focusing on everyday value offers like the INR99 chicken crisper burger meal and disruptive abundant value promotions. The restaurant EBITDA for KFC was a healthy 16.9%, improving by 120 basis points over the previous year, despite challenges from energy costs.

Pizza Hut India achieved a positive SSSG of 1% after five quarters, with both dine-in and delivery channels showing similar SSSG. The company launched new products like Crafted Flatzz and baked chicken wings to drive sales. However, the restaurant EBITDA for Pizza Hut remained a loss of 3.6%, declining by 110 basis points, primarily due to higher energy costs. Management reiterated a cautious approach to store expansion for calendar year '26.

The Sri Lanka business delivered a strong 9% SSSG and 14% revenue growth in LKR terms. Despite this, profitability remained a significant concern, with restaurant EBITDA at 12%. This was primarily due to inflationary pressures, depreciation of the Sri Lankan rupee, minimum wage increases, and higher utility and fuel costs exacerbated by the geopolitical crisis in the Middle East. Management's strategy is to continue driving transactions, expecting profitability to recover over time^⏳.

Management noted no material improvement in the overall demand environment, with June being weaker than April/May, though July showed improvement. The company implemented cautious price hikes of 2% for KFC and 1% for Pizza Hut, taken in two installments, without observing a major negative impact on SSSG or consumer demand. The strategy for Pizza Hut involves maintaining competitive pricing and rolling discounts into everyday low pricing to ensure value for customers.

Sapphire Foods added 16 KFC restaurants, 5 Pizza Hut in India, and 1 Pizza Hut in Sri Lanka during the quarter, bringing the total restaurant count to 1,074. The guidance for KFC store additions remains 60-80 stores annually. For smaller cities, unit economics are similar to Tier 1 cities, as lower Average Daily Sales (ADS) are offset by significantly lower operating costs, ensuring comparable profitability and payback periods.