Sapphire Foods India Ltd: Value strategy sustains KFC momentum: Q1 Review

Research evidence excerpt

Sapphire Foods India Ltd: Value strategy sustains KFC momentum: Q1 Review

ported by local advertising) in

mature chicken markets. Innovations included the Shawowrma and Double

Chicken Dynamite. Digital kiosks are now in 75%+ stores. Dine-in + take-

away mix improved to 59% (from 57% in Q4). Gross margin grew 160 bps y/y

(stable q/q) because of lower discounts and ~2% price hike; which along with

channel mix and operating leverage drove ROM improvement of 120 bps y/y

(to 16.9%), despite gas cost pressure. Management's near-term priority is

driving transaction-driven SSSG momentum, and it sees 15-20% KFC revenue

growth as achievable if SSSG sustains at 5-6%. 16 KFC stores were added in

the quarter (footprint: 591) and SAPPHIRE reiterated its 60-80 annual store

guidance as new stores continue to perform “reasonably well”.

• PH India: SSSG improves though margins continue to disappoint. SSSG/

Revenue grew +1/3% y/y (~similarly across dine-in and delivery). The Tamil

Nadu market (Sapphire's exclusive territory) continues to outperform the rest

of India on additional mass-media marketing investments and aggressive value

dine-in offers. Dine-in/take-away mix was ~stable at 50%. GM improved 80

bps y/y (+20 bps q/q) due to lower discounts + a 2-3% price hike) though ROM

declined by -110 bps y/y (to -3.6%) on higher energy/gas costs. New launches

included Crafted Flatzz, Baked Chicken Wings and a new line of Masala

Beverages. Store expansion remains cautious (though 5 were added in the

quarter). The management views Pizza Hut’s proposed global sale as a net

positive since a new brand owner would bring renewed focus and benefit the

brand.

• Sri Lanka: +9% SSSG, macro pressures weigh on margins. Revenue grew

+16% y/y (14% in LKR) with 9% SSSG (vs 11% in Q4), sustaining the DD