Shares of Sapphire Foods India rose over 8% on August 1, reaching a 52-week high of Rs 1,817.2 per share on the National Stock Exchange (NSE). The surge follows positive outlooks from brokerages after the company, which operates Pizza Hut and KFC, reported its first-quarter earnings for FY25, aligning with expectations.
For Q1FY25, Sapphire Foods posted a profit of Rs 8.52 crore, a significant drop of 65.8% compared to Rs 24.94 crore in the same quarter of FY24. However, the company’s revenue from operations increased by 9.8%, reaching Rs 718.29 crore, up from Rs 654.38 crore in the previous year. The company’s EBITDA stood at Rs 124 crore, showing a 3.3% year-on-year growth.
The company reported that its consolidated restaurant sales for Q1FY25 amounted to Rs 716.50 crore, marking a 10% growth. They noted that consumer discretionary spending remained subdued, similar to previous quarters. Sapphire Foods mentioned that KFC’s performance was affected by the timing shift of the Navratri Festival, while marketing strategies improved results for both Sapphire Pizza Hut and their Sri Lanka business.
KFC saw an 11% year-on-year growth in restaurant sales, with an 18.8% restaurant EBITDA margin, though there was a decline in EBITDA% due to operating de-leverage and negative same-store sales growth (SSSG). Sapphire Foods highlighted that KFC is particularly impacted during vegetarian festivals due to its primary non-vegetarian offerings.
Pizza Hut showed an improvement with a 17% sequential increase in average daily sales, exceeding normal seasonal trends. The brand reported a 3% year-on-year growth in restaurant sales and a restaurant EBITDA of 4.6%, despite additional marketing expenses.
The Sri Lanka business experienced strong growth, with an 11% increase in SSSG and a 13% rise in restaurant sales in local currency (19% in rupee terms). This growth is seen as a positive sign as Sri Lanka recovers from economic challenges and high inflation.
During Q1FY25, Sapphire Foods opened 13 KFC and one Pizza Hut restaurant in India, bringing the total restaurant count to 886 as of June 30, 2024.
Pizza Hut has faced challenges due to weak unit economics and intense competition. According to Motilal Oswal, store expansion for Pizza Hut is expected to slow down in FY25 to focus on improving profitability metrics. The brokerage maintained a cautious outlook on quick-service restaurants (QSRs) due to ongoing demand challenges but reiterated a buy rating on Sapphire Foods with a target price of Rs 1,850.
Despite a challenging operating environment, Sapphire Foods’ management remains optimistic about future performance. JM Financial praised the company’s aggressive approach with KFC and careful strategy with Pizza Hut, noting positive signs in Sri Lanka. They maintained a buy rating with a revised target price of Rs 1,740, stating that the valuation at 23x FY26E EBITDA is not demanding, but the recovery in SSSG will be crucial for further valuation increases.
Analysts at Elara Capital identified the festive season as a key factor for driving share price performance for all QSR companies. They adjusted FY25E SSG growth estimates for KFC to 1.1%, factoring in a subdued Q1 but expecting a healthy recovery in the near term. They maintained a buy call on the stock, raising the target price to Rs 1,900 from Rs 1,785.
