Sapphire Foods India Limited

Sapphire Foods reported a total revenue of INR 811 crores for Q3 FY26, marking a 7% year-on-year growth. The company saw significant improvement in profitability compared to previous quarters, with consolidated EBITDA (post Ind AS) reaching INR 136 crores, representing a 16.8% margin. Adjusted EBITDA stood at INR 77 crores with a 9.5% margin, though it declined 5% YoY. Consolidated restaurant EBITDA grew 5% YoY, but its margin was 15%, stated as 'down 40% year-on-year'.

The KFC segment was a key driver of performance, with revenue growing by 11% year-on-year and a positive Same-Store Sales Growth (SSSG) of 1%. Restaurant EBITDA margin for KFC improved to 18.8%, up 60 basis points over last year, driven by discount reduction, value offer rationalization, and cost efficiencies. The company added 27 new KFC stores in the quarter, contributing to 60 additions in CY25, and plans to open 60-80 new KFC stores annually going forward^⏳.

The Pizza Hut segment continued to struggle, experiencing an 11% decline in revenue and a negative SSSG of 12%. Restaurant EBITDA for Pizza Hut was negative 3.1%. The company reported zero net store additions for Pizza Hut in CY25, indicating a focus on consolidation rather than expansion. Management highlighted the need for alignment with franchisee partners and marketing support for a turnaround, as the Tamil Nadu market's success is not easily replicable elsewhere due to territory overlap and lack of alignment.

The Sri Lanka business demonstrated robust growth, with SSSG up by 11% and overall revenue increasing by 16% in INR terms (15% in LKR). The company added 3 new stores in Q3 FY26, with 7 additions in CY25, and expects to maintain this pace in CY26. However, despite a 160 basis points improvement in gross margin, the restaurant EBITDA margin dropped by 110 basis points to 16.7%. This margin compression was primarily attributed to significant increases in minimum wages and cyclone-related costs during the quarter.

Sapphire Foods launched the INR 99 Krisper Meal offer in KFC, which is showing good traction and driving transactions faster than SSSG in pilot stores, now rolled out to 33% of the estate. Digital kiosk penetration has reached 70% of the estate, contributing to an increase in Average Per Customer (APC) spend and providing valuable customer data. These initiatives aim to grow the consumer base and enhance the customer journey.

The merger process is expected to take around 12 months to become effective, with CCI approval anticipated within 3-6 months. Until then, entities operate independently. Management emphasized that closer coordination on strategy points will be possible post-CCI approval. A key challenge for Pizza Hut's revival outside Tamil Nadu remains the lack of alignment with other franchisee partners for marketing investments due to territory overlap, creating a 'deadlock' in those markets.