Shares of Sapphire Foods India jumped over 8 per cent in early deals on August 1 to hit a 52-week high of Rs 1,817.2 apiece on the National Stock Exchange (NSE). The jump comes after brokerages reiterated bullish calls on the stock after the Pizza Hut and KFC operator reported in-line earnings for the quarter ended June 2024.
The company posted its first quarter earnings for FY25 with profit at Rs 8.52 crore, down 65.8 per cent in comparison to Rs 24.94 crore during the corresponding quarter of FY24. It posted revenue from operations at Rs 718.29 crore, up 9.8 per cent as against Rs 654.38 crore during the first quarter of previous financial year. The company EBITDA stood at Rs 124 crore, up 3.3 per cent on-year.
The company said that its Q1FY25 consolidated restaurant sales was at Rs 716.50 crore, recording a growth of 10 per cent. “Discretionary consumer spends seem to be subdued and similar to past few quarters trend. Sapphire KFC was impacted by the shift in the dates of the Navratra Festival compared to last year, while product and marketing interventions have led to improvements in the performance of both Sapphire Pizza Hut and Sri Lanka business,” it said.
Sapphire KFC delivered restaurant sales growth of 11 per cent YoY and restaurant EBITDA was at 18.8 per cent ( 200 bps YoY). The company said that the drop in EBITDA% is on account of operating de-leverage due to the negative SSSG (further impact of Navratra). “Amongst all QSR brands given its principal non-vegetarian offerings, KFC is impacted the most during vegetarian festival days,” it said.
Meanwhile, Sapphire Pizza Hut has seen an uplift in performance with 17 per cent sequential increase in ADS, ahead of the normal seasonal trend. It delivered restaurant sales growth of 3 per cent YoY and Restaurant EBITDA at 4.6 per cent ( 440 bps YoY) including additional marketing investments.
Furthermore, the Sri Lanka business continues to improve with a strong quarter of double digit SSSG (11 per cent) and SSTG. Restaurant sales was up 13 per cent in LKR ( 19 per cent in rupee terms). The transaction growth bodes well for the business as the Sri Lankan economy recovers from the twin issues of macro-economic uncertainty and high-cost inflation, it said.
In Q1FY25, the company added 13 KFC and 1 Pizza Hut restaurants in India. Sapphire Foods total restaurant count is 886 as on 30th June 2024.
Pizza Hut has been struggling due to weak unit economics and intense competition. The store expansion spree is expected to slow down in FY25 (mainly in Pizza Hut) to fix the profitability metrics, according to Motilal Oswal.
The brokerage maintained its cautious stance on QSRs for the near term due to the ongoing demand challenges. “We reiterate our buy rating on the stock with a target price of Rs 1,850,” it said.
While the operating environment has been challenging, management commentary suggests further weakness is unlikely and performance should gradually revive. JM Financial stated that it likes Sapphire’s approach to go aggressive on a more resilient KFC and be calibrated in Pizza Hut; green shoots in Sri Lanka also augurs well, it said.
“Valuations at 23x FY26E EBITDA (preIND AS) not demanding; however, the pace of recovery in same-store sales growth (SSSG) will be key for further rerating,” said JM Financial as it maintained a buy rating on the stock with a raised target price of Rs 1,740.
The demand environment in the festive season is the key catalyst to drive share price performance for all QSR companies, according to analysts at Elara Capital. “We pare FY25E SSG growth estimates to 1.1% for KFC, factoring in a muted Q1 and healthy recovery near term, which could imply no potential outperformance of the fried chicken category versus industry average,” they said.
Better profitability is the only respite for players in the fried chicken category and related stability will help command premium or on-par valuations versus peers, Elara Capital said.
The brokerage expects momentum to pick up in H2FY25 with better growth and an improved margin trajectory. It maintained a ‘buy’ call on the stock with a target price of Rs 1,900, up from 1,785 earlier.
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