Speciality Restaurants Q1 FY27 earnings call

Speciality Restaurants Limited achieved its 20th consecutive profitable quarter in Q1 FY27. The company reported a strong same-store sales growth of 11.35% compared to Q1 FY26. Gross margins improved significantly by 1.2 percentage points, reaching 71.1% from 69.9% in the prior year, primarily due to operational efficiencies and effective vendor negotiations. Dine-in revenue saw a healthy increase from INR 71 crores in Q1 FY26 to INR 81 crores in Q1 FY27.

The company is streamlining its brand portfolio by focusing on three futuristic verticals: Oriental, Italian, and QSR. Older, less visible brands may be phased out to concentrate efforts on power brands. Within the Oriental segment, a multi-brand strategy (Gong, Mainland China, Asia Kitchen, Haka) caters to different price points (INR 600 to INR 2,500 per person) to avoid cannibalization and capture a wider market share. The Italian vertical, with the new Siciliana brand, is also a key growth engine, offering operational leverage in malls.

Despite inflationary trends and gas availability issues, the company successfully expanded its gross margins. This was achieved through proactive conversion from oil-fired/gas-fired ranges to induction processes, managing portion sizes, improving efficiencies, and continuous negotiations with vendors due to increased volumes. The withdrawal of service charges was neutralized by tactical price increases, ensuring margin maintenance.

For FY27, Speciality Restaurants plans to open 8 to 10 new restaurants, complemented by 10 to 15 Walters Burger QSR outlets, with 5 new Walters stores expected by year-end. The company is building a specialized QSR team to rigorously grow the Walters brand. Expansion is focused on physical stores, with new formats and renovations incorporating visible bars to boost liquor sales, which currently contribute 8-9% of revenue but reach 38% in Gong and 25% in Siciliana.

The delivery business has grown significantly to constitute 29% of the total revenue portfolio, driven by increased consumption occasions and the introduction of digital-first brands like Walters Burgers and Haka. While delivery growth is a deliberate strategy, dine-in business also continues to grow, with Q1 FY27 dine-in revenue at INR 81 crores. Management noted that their average order value for delivery is among the highest for dine-in brands, and operating leverage triggers favorably with increased revenue.

Sweet Bengal, a key QSR brand, is undergoing brand evolution. The company has successfully developed technology to extend the shelf life of its sweets to 30 days, addressing a previous challenge with perishable products. This technological enhancement, along with modified packaging, is expected to facilitate expansion into many new markets, significantly growing its visibility and revenue. Kheer Kadam, Mishti Doi, and Sandesh remain its most famous products.

The Durgapur land, previously available with Speciality Restaurants, is being developed under a joint development model for a food and beverage complex, including restaurants, banquets, and service apartments. Speciality Restaurants will hold a 34% stake in the demerged company post-completion. The development is progressing well and is expected to be completed by the end of the current financial year (FY27), contributing to the company's overall value.