Detailed Narrative
Q4 FY26 Performance Overview
Sapphire Foods delivered a strong Q4 FY26, with consolidated revenue growing 11% year-on-year to ₹790 crores. This marks the best quarter in the last 12 quarters in terms of both SSSG and adjusted EBITDA growth. Consolidated restaurant EBITDA grew 21% year-on-year, with its margin expanding 100 basis points to 13%. However, consolidated PBT before exceptional item📎s was negative ₹2.7 crores, and negative ₹15.5 crores including exceptional item📎s related to Labour Code changes and merger costs.
KFC India: Strong Growth and Strategic Initiatives
KFC India was a key growth driver, with revenue increasing 15% year-on-year, the highest in the last 8 quarters. Same-store sales growth (SSSG) for KFC was 4%, or 6% excluding the Navratri impact, marking the highest in 14 quarters. This performance is attributed to a two-pronged consumer recruitment strategy, including entry-level burger meals and disruptive value offers like BOGO. The company has also implemented digital kiosks in 73% of restaurants, contributing to an APC (Average Per Customer) upside.
Pizza Hut India: Continued Challenges
The Pizza Hut India business continues to face challenges, with revenue declining 6% in Q4 FY26. For the full year, Pizza Hut's restaurant EBITDA was negative 3.3%, a decrease of 570 basis points from the previous year. Despite these challenges, the company's strategy of focusing on dine-in and omni-channel experience in Tamil Nadu, its exclusive market, has delivered double-digit SSSG and EBITDA delta.
Sri Lanka Business: Healthy Performance
The Sri Lanka operations demonstrated very healthy performance, achieving 15% revenue growth in LKR terms and 11% SSSG in Q4 FY26. This marks the sixth consecutive quarter of double-digit SSSG for the region. The company added 19 KFC restaurants and 3 Pizza Huts in Sri Lanka during the quarter, bringing the total to 136 Pizza Hut restaurants. Restaurant EBITDA margin for Sri Lanka was 14.6% in Q4, though down 20 basis points year-on-year due to high minimum wage increases.
Capital Expenditure and Store Expansion
Sapphire Foods opened 19 KFC restaurants and 2 Pizza Huts in India, and 3 Pizza Huts in Sri Lanka during Q4 FY26, bringing the total restaurant count to 1,052. The total capital expenditure for FY26 was approximately ₹320 crores. The company expects a similar level of capex for FY27, with new KFC stores costing ₹2.1-2.2 crores and Pizza Hut stores ₹1.35-1.4 crores, excluding refurbishment and renewal fees.
Devyani International Merger Update
The merger with Devyani International is progressing, with a projected timeline of 12 to 15 months from its announcement on January 1, 2026. The company has received approval for its registered office change. SEBI approval is anticipated within the next 30 to 45 days, followed by NCLT approval, which could take 7 to 10 months. Management expects the merger to be completed by the end of the current financial year (FY27).
Operational Environment and Margin Outlook
The company faced LPG-related availability challenges and inflationary pressures in both India and Sri Lanka, with LPG prices potentially increasing costs by 25-40%. Despite this, KFC maintained zero store closures, and Pizza Hut closures were less than 3% in April. Recent price hikes of 1.5-2% for KFC and around 2% for Pizza Hut were implemented. Management noted that current gross margins on value offers are supported by vendor partners, but a potential loss of this support could impact gross margins by 50-70 basis points in the future.