Devyani International Ltd

NSE:DEVYANI

Earnings Call Transcript 2024-Q4

[Operator]

Ladies and gentlemen, good day and welcome to the Devyani International earnings conference call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Anoop Poojari from CDR India. Thank you, and over to you, sir.

[Anoop Poojari]

Thank you. Good afternoon, everyone, and thank you for joining us on the Devyani International Q4 FY '24 Earnings Conference Call. We have with us Mr. Ravi Jaipuria, Non-Executive Chairman of the company; Mr. Raj Gandhi, Non Executive Director; Mr. Virag Joshi, CEO and Whole-Time Director; and Mr. Manish Dawar, CFO, Whole-time Director of the company. During the call with opening remarks from the management followed by financial highlight by the CFO. Post that, we'll have the forum open for the question and after section.

Before we begin, I would like to point out that some statements made in today's call may be forward-looking in nature and a disclaimer to this effect has been included in the results presentation shared with you earlier.

I will now request Mr. Jaipuria to make it [indiscernible].

[Ravi Jaipuria, executive]

Good afternoon, everyone. I warmly welcome you all to our earnings conference call to discuss the business performance of DIL for the fourth quarter and the financial year 2023/2024.

In a tough consumption year, we have diligently focus on our strategic action goals over the course of the year. We opened 256 new stores, including 47 in the fourth quarter. As of March 31, our total store count has reached 1,782, including the 280 KFC stores we acquired in Thailand on January 18, 2024. The year was also marked by succession and seamless integration of the Thailand KFC business. The transaction, which was completed during quarter 4, has been a significant milestone for us. This development has expanded our international footprint, and the same is in line with our long-term growth objectives of having a mix of international businesses.

The business in Thailand is performing reasonably well and the results are in line with our expectations. Alongside our global expansion, we have also been working on a strategy to enhance our domestic footprint of food courts business in response to India's emergence and major destination for travel, tourism and shopping. The domestic travel market is picking up very well, and we are seeing religious tourism as one of the important thrust. India is also gaining importance in the international market for medical tourism and the value-for-money shopping destination.

All these changes are structural in nature and here to stay. There is a common theme that runs across this phenomenon that is food on the go. With this strategy and to cater to the rising quick trend, we are making food courts as one of the important pillars of our growth aspiration across various consumption channels and touch points of travel and shopping. Our existing bouquet of brands will help us strategy. We have also tested the concept of food courts in multiple locations across such touch points. Needless to add, that we are pleased with the consumer response and performance of our existing food courts.

With this objective, I'm pleased to state that DIL has entered into a strategic partnership with PVR Inox to develop and operate the business of food courts at shopping malls across the country to co-promote movies and food. This will not only help us strengthen our presence at various malls in the country, but will also give a boost to our brands and the food court business. This agreement is in addition to other existing strategic tie-ups for food courts across highways, malls, railways, apart from some of the airports and [indiscernible] that we already operate.

As I said before, food courts will be one of the key focus areas for us going forward apart from our existing core brands. Consumer sentiment continues to be weak throughout the year. Weak disposable income, tight liquidity position, local consumption, geopolitical situation were the main drivers for the weak consumer demand. The Nigerian currency continues to significantly depreciate during quarter 4, resulting in a significant impact on the full year results of DIL.

Coming to India, we expect things to improve post the elections and some stability on the West Asia geopolitical situation. In our view, the weak consumer sentiment and depressed consumer spending is temporary and short-lived. Amid these challenges, our operating and financial performance have remained stable, and we continue to invest in the business for long-term growth. To successfully navigate the dynamic and evolving QSR landscape, we have implemented multiple initiatives this year, including menu optimization, reducing wastage, enhancing controls and improving operational efficiency. These initiatives have helped us to deliver the results.

To sum up, I believe in the long-term potential of the Indian QSR industry. As we actively grow our presence, we are strategically positioned to tap into this opportunity, ensuring sustainable growth and value creation for our stakeholders.

With this, I would like to conclude my address and now hand over to Manish for the financial highlights. Thank you.

[Manish Dawar, executive]

Thank you, Mr. Jaipuria. Good evening, everyone. A very warm welcome, and thank you for your valuable time for attending DIL's Quarter 4 and FY '24 Earnings Conference Call, our 11th call since the listing in August 21.

Having completed the Thailand acquisition, our total store count now stands at 1,782 stores as of the year-end. We have a footprint of 1,692 stores across our core brands out of a total store count of 1,782. This consists of 941 stores for KFC, 572 stores for Pizza Hut and 179 stores for Costa Coffee. Our store distribution in India continues to remain marginally in favor of non-metro destinations.

The operating revenue for FY '24 was INR 3,556 crores, a growth of almost 19% over the previous year. Indian business witnessed a growth of 12.3% over previous financial year. Quarter 4 FY 2024 revenue stood at INR 1,047 crores, representing a 38.7% Y-on-Y increase. This was supported by Thailand acquisition and new store openings. We have consolidated Thailand numbers with effect from January 18, 2024.

The gross margin for the consolidated business, including Thailand, was 70.3% for the full year versus 70% for the previous year, an improvement of 30 basis points on a full year basis. The margins for quarter 4 were lower because of Thailand consolidation and a significant currency impact in Nigeria. As you know, structurally, Thailand and Nigeria operate at a lower gross margin for KFC business versus the Indian business.

The brand contribution for the full year was at 15.5% versus 18.7% for the previous year. The deleverage in top line because of lower ADS numbers across KFC and Pizza Hut, along with my currency issues, has led to the impact on brand contribution models. The pre-invest margins for the full year for the consolidated, was 10.7%.

Reported EBITDA on a post-IndAS basis, including Thailand for FY '24, was 18.3%. During the quarter, the same number was 16.6%. Consolidated operating EBITDA on a pre-Ind AS basis was INR 96 crores versus INR 379 crores in the previous quarter. The Nigerian currency continues to weaken in quarter 4. During the financial year, Nigerian [indiscernible] has got depreciated by almost 200% versus the USD. As a result of this, Nigeria business has recorded an impact of INR 236 crores ForEx loss on account of USD denominated liabilities. Out of this amount, INR 90 crores has been recorded as external item in the P&L for the full year and INR 147 crores has been recorded under other comprehensive income.

The impact of significant depreciation in Nigerian currency has been taken as part of exceptional items in quarter 4, unlike the previous quarter. In view of the above, DIL has also taken a full impairment of its investment of INR 116 crores in Nigerian business through its subsidiary, [indiscernible]. There is no impact of such impairment in the consolidated financial results of the group because the impairment has been taken in stand-alone books.

The PBT for FY '24 on a consolidated was INR 3.7 crores. The main drivers for this variance compared to the previous year has been significant currency out of impact out of Nigeria, deleverage impact coming out of India business and marginal impact because of Thailand consolidation. The [indiscernible] Thailand acquisition, DIL has recorded the purchase price allocation on a provisional basis. As per the accounting standards, DIL has a measurement petulant from the date of acquisition. And hence, to that extent, this is subject to final adjustments.

The total debt in the books at a consolidated level is INR 910 crores as of March 31, '24. Out of this INR 835 crores in the bank debt, consisting of INR 470 crores at international and INR 365 crores in India. The gearing position, despite this debt on a consolidated basis, sits comfortably below 1 as of the year-end, and debt-to-EBITDA coverage is almost 0.28x.

Taking the discussion to our core brands, KFC in India added 106 new stores in FY '24, reaching a total count of INR 590 crores at the end of the year. Average daily sales for quarter 4, INR 93,000 versus INR 104,000 in the previous quarter. Revenues at INR 294 crores during the quarter grew 11.3% on a Y-on-Y basis. Gross margin for KFC during the quarter was 69.9%, thereby reflecting an improvement of 50 basis points over this quarter. Brand contribution remained healthy at 19% for the current quarter.

During the year, Pizza Hut added 61 new stores, reaching a total count of 567 stores in India. Revenue for the full year was INR 709 crores versus INR 700 in the previous year. ADS was INR 32,000 versus INR 37,000 in the previous quarter. Gross margins for the quarter came in at 77.3% versus 75.8% in the previous quarter. Brand contribution was [ INR 57 crores ] for the quarter, with margins at 4.4%, which was slightly lower on a quarter-on-quarter basis, mainly due to the ADS deleverage impact.

Costa Coffee added 67 new stores during the fiscal year, reaching a cumulative count of INR 179 crores. Quarter 4 FY '24 revenue was INR 45 crores, with a growth of 13.6% on quarter-on-quarter and 36% on a year-on-year basis, driven by expansion of new stores. [indiscernible] of 76.7% in quarter 4, brand contribution in quarter 4 stood at 17.9%, an improvement of 3% in the previous quarter.

To conclude, we want to reiterate our commitment to the ambitious growth plans within the Indian QSR market. As we continue to expand, we remain committed to improving our financial performance, reflecting our emphasis on prudent financial management and creating long-term growth for our shareholders.

On that note, I would like to request the moderator to open the forum for any questions or suggestions that you may have. Thank you very much.

[Operator]

[Operator Instructions] The first question is from the line of Tejash Shah from Avendus Spark.

[Tejash Shah, analyst]

I just wanted to start with -- I wanted to pick your brain on how are you seeing demand scenario evolving now for both the brands in India -- or rather, all the 3 brands in India? And how should we think about this year both on store expansion in SEC, how are you kind of budgeting for this year?

[Manish Dawar, executive]

So Tejash, as we said, I mean, the last 1 year demand has been weak, and we do hope that, let's say, post the election, start to see some improvement. At the same time, you know that quarter 1 is seasonally a better quarter compared to quarter 4. Therefore, you will see some better numbers in the current quarter. Having said that, there is no change in our overall thinking. We remain bullish on the QSR medium to long term, and that's the reason we continue to kind of invest our brands in the new strategic tie-ups in Thailand acquisition. So therefore, as far as we are concerned, there could be some, let's say, quarterly adjustments here and there. But we are absolutely bullish on the overall opportunity that is in QSR, especially in India, and therefore, we continue to press ahead and invest.

[Tejash Shah, analyst]

Just's elaborating on that. Election should not be [indiscernible], right? And in the sense, it's post-elections or are you seeing some -- like you have some granular data, which you can't share, obviously, which gives you that demand will bounce after election?

[Manish Dawar, executive]

So Tejash, obviously, we'll not be able to share the granular data. But on the ground, again, it's too early to comment, but we are some green shoots, and we hope that they are kind of live long. So let's see. I mean, obviously, there are some green shoots which are coming out.

[Tejash Shah, analyst]

Sure. And second and last, this pivot we are making towards aggressive or more focused expansion on food codes. So just wanted to know what consumer inside the market inside have led us to kind of make this provide?

[Manish Dawar, executive]

See, if you look at the new generation consumers or if you look at, let's say, the current trends, it's -- people want more choices. They want quick choices, right? At the same time, travel is gaining a very significant movement within the country, shopping is gaining significant movement on an overall basis. And therefore, through this whole strategy, we want to be available at all the channels touch points. So if you look at, let's say, despite the overall slowdown, the travel and tourism traffic is almost at an all-time high. India is becoming a good international destination for reasonable shopping also. So we are seeing a lot of tourists coming into the country, and they've started shopping in metro destinations.

And you would have also noticed that, therefore, with this strategy, we talked about a small railway joint venture. We've talked about a joint -- a strategic tie-up for highways openings. We already have talked about PVR, Jaipuria has alluded in his speech. So we are trying to kind of make food courts as a comprehensive strategy, which will span across the airports, the food courts, the highways, the malls,and everywhere. So that is how we are approaching it. And within them also, if you see, there's a lot of religious tourism which is gaining momentum. And at some point in time, we've already started working on in terms of how do we get to these various sites also with the initiatives we've taken.

[Tejash Shah, analyst]

And sir, how does the store economics of food courts versus, let's say, traditional store?

[Manish Dawar, executive]

See, food courts, because we've been operating food courts for a reasonably long time, obviously, not at a scale that we are now anticipating, because the footfall are high, the consumer choices are available in terms of our own brands and international brands, the profitability is better than traditional brands. And the payback also for the food courts are very attractive.

[Operator]

Next question is from the line of Jay Doshi from Kotak.

[Jaykumar Doshi, analyst]

A couple of bookkeeping questions to start with. What was the revenue contribution and EBITDA contribution of KFC land in 4Q?

[Manish Dawar, executive]

So Jay, we've disclosed the consolidated results and we've disclosed the India results. So therefore, by derivation you can get to international. Now within that, let's say, if you look at predominantly it has come from Thailand only, so therefore, I mean you'll be able to get the numbers. Needless to add, because of the currency and all, Nigeria is hitting in a negative zone as far as the bottom line is concerned. So therefore, it is -- so it is predominantly all contributed by Thailand. And what we talked about at the time of acquisition, the business is more or less in line with that.

So we've seen some bit of impact of the geopolitical situation in some of the stores in South. But barring that, the business is doing very well.

[Jaykumar Doshi, analyst]

Sorry, you mentioned predominantly international EBITDA is KFC Thailand?

[Manish Dawar, executive]

Largely.

[Jaykumar Doshi, analyst]

Understood. So that would be close to INR 30 crores in that case or somewhere around [ INR 370 ], correct?

[Manish Dawar, executive]

I'm not [indiscernible] number.

[Jaykumar Doshi, analyst]

But so, Manish, how do you evaluate the progress of this transaction, right? Normally, companies into sort of share performance of inorganic actions for at least a year and then...

[Manish Dawar, executive]

So Jay, we can evaluate that and come back to you. Because as of now, what we are thinking that, for example, India piece is one and the international piece is one, that is how you are planning to kind of disclose. But we take your suggestion on board, that for at least a year we should look at Thailand being given separately. So we will evaluate and come back to you.

[Jaykumar Doshi, analyst]

Second is this partnership PVR. Essentially, what is the sort of -- if you can give us some color in terms of what would be the contribution of PVR Inox to this partnership, what would be the role of mobile entities [indiscernible] as well as the or not? And what is the investment [indiscernible]?

[Manish Dawar, executive]

We are still working on the entire business plan and all. And therefore, obviously, we will not be able to share the investment numbers as of now. But the whole thesis is, if you look at, let's say, the footprint of malls, PVR is a very strong contributor there. And they are one of the favored tenants whenever a good mall or a great mall is coming anywhere, the first ones to get approached for a cinema. Because that -- I mean, the entire cinema basis is more or less like an anchor tenant and they get to know about this whole mall thing being opened on a -- from a time line perspective, much more and much ahead than us by the time, let's say, the food courts get ready, by the time the rest of the malls are ready, and we are giving to brands for the fit-outs and all.

And that's where we saw that whole strategic kind of advantage with PVR in terms of going with them. At the same time, if you look at, there is a there is a captive footfall that PVR has in terms of people who are coming to watch movies, people who are PVR loyal fans or loyal customers, and therefore, the objective is to somehow kind of combine the food courts along with PVR so that we are able to kind of co-promote the movies and foods. And if you look at outside the countries, it's a great concept, and it's a very, very significant value creator.

[Jaykumar Doshi, analyst]

Understood. So primarily, the focus to start with will be on the pipeline of malls that are currently under development, and where there would be opportunity to sign contracts, long-term contracts or operations of food courts. Devyani's role would be largely operating the food court part and PVR's role would be, given the relationship with the developers and they already would have a lot of leases certain into, is that right understanding?

[Manish Dawar, executive]

yes. That is the right understanding. Not all the brands will come from DIL, so -- and we have the operational capability and expertise. And PVR on the other side, I mean, obviously, in terms of how they are located and how the relationship with the landlords and the mall owners. So it's a great win-win combination for both of them.

[Jaykumar Doshi, analyst]

Sure.

Lastly, there are a few investor questions perhaps concerns around some of the senior management exits that happened in the March quarter. So your thoughts on this and whether we should expect stability going forward? And if there was any slippage in execution associated with this attrition?

[Manish Dawar, executive]

Jay, see, we are a large company now. And obviously, I absolutely point in terms of what you are trying to allude to. But if you look at -- I mean, typically, we have a huge management bandwidth available. We have a huge talent pool available and event available. So there's nothing, I mean they are both handling it earlier. He was there even while, let's say, Rahul was there, and Virag continues to handle. So therefore, from that point of view, there's no big change.

At the same time, I mean, Rajiv, for example, if you look at has been with the [indiscernible] for almost 13, 14 years, and he wanted to move to South closer to his family. So I think he kind of gave his best to the company in any case. So I mean we don't expect any distance. We don't expect any big change because the strategy remains the same. We've all been working on that defined strategy. And therefore, if at all, things [indiscernible].

[Operator]

The next question the line of Anish from Nama Institutional Equity.

[Unknown Analyst]

Yes. Further to the questions on PVR, one is in existing properties, is there any kind of an opportunity available? Second is around 9 months back, PVR and Costa Coffee had signed the deal. So is it that, that one is doing well, so now the next level of the relationship is happening? And if you could give some kind of an update on that deal also. Third is in existing property. That's like Costa Coffee is also there. Now such brands of DIL, can they come there?

[Manish Dawar, executive]

Well, definitely, our first tie-up, which was with Costa and PVR is doing extremely well. We are very happy with it, and we are sending landing our plan with them. We are opening Costa Coffee with them on a weekly basis presently. And we have already opened close to 80 Costa Coffee in the PVR, and will be expanded and adding great value to our business. And also, it's a great advertising place, because all the consumers who are coming to -- customers who are coming to PVR are the right consumers for Costa Coffee. So I think it's a great thing, and we are definitely looking to add products with PVR. And especially with this JV, which is for the food courts, so I think it will add a lot of value for both of us.

[Unknown Analyst]

And in the previous question, you mentioned outside India, this co-promotion of foods and movies is far more prevalent and far more [indiscernible]. Any particular country you want to highlight so that we can get more examples how this can pan out in India also?

[Manish Dawar, executive]

You can look at any of these. So you can look at, for example, take a country like U.K., take U.S., for example, I mean, all of the cinemas and screens are surrounded by the food courts or eating joints, and they have a strategic hub in terms of both as a combo deals and so on and so forth. So it is -- so you can find it there. Even UAE also.

[Unknown Analyst]

Sure. And the genesis of this, is it because slowdown is defined both by PVR and for you also? So is this more because of this because you both have existed for many years. So why now? Is there a slowdown one part of the reason? Because you did mention the co-promotion, you did mention that the -- both can promote each other. So is slow down, one of the reasons for doing this now?

[Manish Dawar, executive]

No, it's nothing to do with slowdown. It's just that it takes time to build relationships. And we started our relationship by having a joint venture with Costa. And then both of us felt happy and they were both success -- and it was successful. We said, what else can we do? And that's the next step we have taken.

[Unknown Analyst]

So the last question on Thailand. So one, wanted to understand competitive intensity there India in that part of the business. And second, the gross margin seem to be lower there, as you said. So what's the reason for that and any progress we can see in 3, 4 years in terms of the margin gap between the 2 business?

[Manish Dawar, executive]

There will be some scope to improve the margin, but the volumes per store are much higher there than what it is in India. So it's a mix up in the other format instead, and the rentals are much lower there. So overall, that's what the margins are in that part of the country. And overall, it's a very good business. And especially, we are market leaders. I mean KFC is the market leader in Thailand. Against 1,000 stores of KFC, they have most probably 200 or 250 stores of McDonald's.

[Unknown Analyst]

Okay.

[Manish Dawar, executive]

So it means Thailand is more mass market for the brand. And therefore, that's the reason the focus is more on the number of transactions rather than the margins? And therefore, on an overall basis, that's a great model to be in. If you see, the Thailand eating out culture is very, very strong and fried chicken is one of the important contributors for the street food. So that is what you are competing, and that's what your future customers are also. So that's the reason the KFC positioning is a little different in Thailand versus India.

[Operator]

The next question is from the line of Devanshu Bansal from Emkay Global.

[Devanshu Bansal, analyst]

Congratulation on a good execution in the quarter. Just small bit on the food courts a bit, Manish. Is it like food courts within theater premises? Or the common food court that is there in the malls? Just a clarification on that?

[Manish Dawar, executive]

So it is the new properties that we are discussing, Devanshu. So it is the common food court in the mall, not inside the -- whereas if you look at the Costa Coffee tie-up, we have with Costa that is inside the movie premises. So this is outside. And how do we design how would make it contiguous? Obviously, that comes in terms of what is the property availability, how is it designed and so on and so forth. So that will really depend on property to property.

[Devanshu Bansal, analyst]

Got it. And will it be like only our brands? Or -- I just wanted to check with competing brands be comfortable with that kind of a relationship because there are global precedence. So any views here?

[Manish Dawar, executive]

See it depends on the nature of the property and size of the property. Obviously, our preference would be to kind of put in our bouquet of brands which are there. And we have a good bouquet of brands. And let's say, apart from that, if there is a space available, we can look at other brands as well. So as you know, I mean, we do run some of the mall food courts in Calcutta or in Noida, and we do have the other brands in those focus as well.

[Devanshu Bansal, analyst]

Got it. And secondly, I wanted to check there has been a strong sequential improvement in gross margin across our core format. This is like all-time high gross margins in our limited reporting history that is there. I wanted to check what are the steps that we have taken to improve this. And is this a sustainable trend?

[Manish Dawar, executive]

This is a sustainable trend, Devanshu. I mean, obviously, post the hyper inflation that we saw, things have stabilized. They have not come down dramatically. But stabilization, given our negotiations, obviously, we are seeing good results. We've also done menu optimization, which Mr. Jaipuria talked about in his speech, that is hoping, how do we look at the promotions at the other pieces that we continuously evaluate. So see, I mean, in the middle of the current consumer sentiment, that we take all the steps to kind of make sure that the margins are protected and that is what we are kind of striving towards and delivering.

[Devanshu Bansal, analyst]

And a follow-up on this, so Manish, under such weak demand scenario, is this a significant savings on promotions? Or is it like more cost setting, et cetera, supply chain [indiscernible]?

[Manish Dawar, executive]

See, promotion is a small element, but obviously, there are opportunities available to tweak. Because let's say, when you're coming out of a hyperinflation, the consumer also is looking for more value-for-money products. We've introduced the value layer I talked about in the previous calls. But wherever the opportunity is there, we just kind of keep refining the promotions, make it more effective, make it more targeted. And at the same time, I mean, the cost saving opportunities also, which are there, we just kind of continue to close things as well.

[Operator]

The next question is from the line of Percy Panthaki from IIFL Securities.

[Percy Panthaki, analyst]

First question is on Pizza Hut, that it's been many quarters into the slowdown. Have we -- and when I say we, I mean both the franchises as well as young brands put together, the 3 parties. Have you done some kind of soul-searching as to what is really going wrong with the Pizza Hut format? I understand that there is an overall slowdown, I understand that these other categories affected more. However, if you look at the difference in performance of SSSG versus Pizza Hut versus the other competitors that you have, the difference in [indiscernible] is very stark, like 15 percentage points, 10 percentage points and so on. So why is it that on a competitive basis, we are losing out I understand the overall macro trends and the consumer being under pressure, et cetera, et cetera? But at least on a market share basis, we should not be performing so badly. So what is the reason for that? And what are the steps we are doing to address it?

[Manish Dawar, executive]

Thanks, Percy, for the question. So I think let me just give you a little bit of history so that we are able to understand what is happening currently to Pizza Hut. So Pizza Hut, as you know, has always been a pre-band in the minds of consumers. So be it the quality, be it the pricing, the overall look and fleet of the store and so on and so forth. And when we got into this hyperinflation, we tried to experiment with fun flavor pizza. And that kind of just got the price -- the overall pricing table down. And I think in hindsight, maybe just we can call ourselves wiser. But probably that's somewhere, I think the brand positioning also got impacted, because premium consumers who are used to coming to Pizza Hut with a particular expectation. While, let's say, fun flavor pizza was available at a much more attractive price point, but it did not resonate well with the consumer expectation and the consumers psyche.

And probably that's the reason why, let's say, I think it kind of impacted the brand so much, and that will take some time to recover. We have taken initiatives in terms of putting more money on the premium side of pizzas, putting more money on advertising and marketing so that we are able to win back the consumer. We are doing product innovations. You would have seen this whole melt range recently. So therefore, I mean we are taking all the steps to make sure that Pizza Hut kind of comes back to original positioning. But we are still seeing that in numbers, and that's the reason we've kind of slowed down Pizza Hut expansion a little bit, and we are a little more cautious there. So we are not able to kind of again on this.

[Percy Panthaki, analyst]

So 2 sub-questions to this. In light of the fact that fun flavor is basically what you've identified as a culprit, is that something that you would want to discontinue? And second subquestion is that we have seen this happening across many brands over the last 2, 3 years, that all the brands have launched more affordable variants. Even in KFC, you have -- which has been a premium brand, you have launched meals at 99, and you've launched that role at 119 or something like that. And we have not seen an adverse effect on that for the overall brand and the other offerings. So why is it that this kind of an adverse offering -- sorry, adverse impact is happening only in Pizza Hut?

[Manish Dawar, executive]

See, it's a different proposition per se. So let's take PFC first. So the KFC core consumer is all about chicken on the bone. And we've not touched chicken on the bone at all, whether it is the pricing or the quality or the pricing table and so on and so forth. Now in consumers' mind, pizza is a pizza, right? So let's say, if you are able to get each at INR 79 or INR 99 versus a pizza of let's say at INR 200, in their mind, it's the same pizza. While lets say, the ingredients are different, the toppings are different, the pizza is different. But from a consumer point of view, a pizza is a pizza.

Whereas for KFC, it's a very, very distinctive proposition. So probably that is the reason why we are suffering more on Pizza Hut. Whereas KFC, for example, when you talk about the reps and the roles, it's more of a size, whereas Pizza Hut would be more of a main proposition. So...

[Percy Panthaki, analyst]

Understood. Understood. Second question was on the margins. As someone just mentioned, your gross margins are at an all-time high, and this is at a time where consumer sentiment is poor, demand is poor, we are in negative on both the brands. So don't you think it would be sort of prudent to give back value to the consumers in terms of the pricing or higher promotions, probably bring down the margins, which might hurt in near term, but that would lead to some kind of revival on the top line. Your thoughts on that?

[Manish Dawar, executive]

So Percy, it depends as to how you want to get back to the consumer. So let's say, if you look at KFC, I mean, we've launched their anti-pricing range or a value proposition for consumers in terms of roles and reps and all, so that's the way to attract new consumers. And therefore, that will continue to kind of build your footprint as far as consumers are concerned. On Pizza Hut, we tested with fun flavor pizza, that was the objective, but it did not succeed. So therefore, I mean, you have to continue to experiment various models in terms of something work, something does not, and we are at it.

So it's not that we are just increasing the price to be able to get to the margins, but I think it's a very small component. It's the whole efficiency, which is component.

[Percy Panthaki, analyst]

But like have you done some kind of sensitivity? Supposing you cut your pricing on an average by 2% to 3%, what kind of impact does it have on your overall sales? So what is the price elasticity of demand, is that more than minus 1%? Less than minus 1? How does it affect?

[Manish Dawar, executive]

See, this category is all about large big-bag announcements and large -- so let's say, 2% to 3% will not make any sense from a consumer point of view.

[Percy Panthaki, analyst]

No, no. I'm saying that the portfolio of 2%, 3% and some of the products, it might be more also.

[Manish Dawar, executive]

Correct. So which is where I'm going. So therefore, you can consolidate that from a different promotion level. And we keep on experimenting with promotions. So there are promotions which are working, where we can kind of continue to be aggressive. There are promotions which are not working and they are a drag, we continue to cut it down. So that's how the margin optimization happens.

[Operator]

The next question is from the line of Srinath V. from Telwater Capital.

[Unknown Analyst]

Am I audible?

[Operator]

Yes, sir.

[Manish Dawar, executive]

Yes, you are.

[Unknown Analyst]

Yes. Just looking at the reported numbers of the food aggregators and whatever newspaper articles were able to get unlisted aggregator, this to be growing at a much faster pace than most of the listed QSR universe. And so I wanted to understand how is the competitive dynamics stacking up? Is there a shift in pallette towards more Indian cuisines? Or how do you kind of read this data broadly? Would like to hear your thoughts.

[Manish Dawar, executive]

Sure. So if you look at the market that you're trying to address in the market that, let's say, the food aggregators are addressing, that's a far bigger market. So let's say, for example, if I were to talk from on -- sorry, on a Bombay perspective, one of our guys who's putting a cart, let's say, in Bader, he can reach the [indiscernible] consumer, right, and vice versa. Let's say, whereas in our case, I mean -- so there, for example, they are able to capture a much bigger share of the unorganized market by making sure that the delivery is seamless, by making sure the logistics are working well.

And therefore, at the same time, it could well be that there is one of out guy who -- in a [indiscernible], who is getting impacted and who is not visible. And therefore, all of that gain kind of comes in the food aggregator numbers. So because -- otherwise, if you look at Food services market, it's not that -- it is mirroring whatever is happening on the food aggregator. It's just that they continue to expand, they continue to penetrate more. And it's a combination of listed. It's a combination of unorganized market. It's a combination of local competition and so on and so forth.

[Unknown Analyst]

Got it. Because if you kind of look at the outlet growth or restaurant growth, these platforms are growing loss of 20%. So is it that there is a significant new addition of, say, meeting pizza players or local chicken players? Have you seen an escalation of competitive intent, which is periodic, right? In a 10-year window, you do tend to have a couple of years which have seen competitive activity. Are we in one of those zones right now?

[Manish Dawar, executive]

See, it is there. But at the same time, please understand -- and I'm quoting something from what was available in public domain. If you go back whatever a couple of years, there was this one another thing whereby at one address, there were some 160 restaurants which are being run, right? And so there, for example, you will take 160 restaurants as the restauration, all with different GST numbers to save different GSTs and so on and so forth. So I mean -- so we don't know what is happening behind, right? Whereas, let's say, if you come to the brand, if you come to the listed players, it's all kind of available. You can see it, you can touch it, you can feel it. So...

[Unknown Analyst]

Got it. Got it. My second set of question on Costa Coffee. Our excellent performance both in SSSG store addition. So wanted to understand if, again, is there a big trend change because we are multiple are unlisted players getting funding? And at this time, we are also seeing very good numbers roll out. So is there some sort of coffee culture change or [indiscernible] change would be done? And second, I wanted to understand how the food -- qualitatively, how the food menu is playing out in Costa Coffee, that would be great.

[Manish Dawar, executive]

Sure. Coffee is an aspirational category. It is something that kind of appeals to the youth. And therefore, it has a great scope. If you look at, let's say, globally also, coffee is a large category. If you look at -- I would not say, let's say, Chinese market transition from tea to coffee. But I mean, if you look at the Starbucks performance in China, look at some of the local coffee players in China. So coffee market is here to stay. Coffee is something -- you cannot get the same quality of coffee that you can get from a barista at your home, Whereas tea something, you can easily make the similar tea at home.

So therefore, coffee market has that unique niche, and it's here to stay. Now within that, let's say, if there is a category which is kind of growing, there is a category which has a huge potential, you would see multiple players kind of coming in. And therefore, you have local players also coming in and they are doing this very well. So therefore, I mean, we are serious about Costa Coffee and that's the reason Mr. Jaipuria also talked about that we started experimenting with PVR for putting up coffee machines, Costa Coffee machines in their cinemas and screens, and that has also done well.

So therefore, coffee is a serious category for us. As far as food part is concerned, I would say food contribution is going up. It is still not at the ideal stage, that it's still a little bit of work in progress. But if you go to any of the consumer panels, if you look at any of the consumer studies and all, the common feedback is Costa Coffee is the best coffee available in the market.

[Unknown Analyst]

Yes, yes. So in the Bombay effort, it is absolutely fantastic. Just want to click in the last one, is the delivery of coffee being a trigger point for Costa growing, as well as the whole segment growing? Is it moving from a 100% banging kind of format to [indiscernible] delivery format, at-home consumption of outside brands?

[Manish Dawar, executive]

See, we have consumers coming in and ordering, obviously, home delivery. But you cannot have the same experience at home. I mean, if you deliver Capuccino at home, by the time it reaches home, it's probably -- 30% of the foam is gone. So therefore, I mean there are those challenges. But there is this increasing traction which is coming in, whereby consumers are asking for coffee to be delivered.

[Operator]

The next question is from the line of Ashish Kanodia with Citi.

[Ashish Kanodia, analyst]

So first on the Thailand business part. So if I look at the last 4, 5 quarters data, which was reported earlier, the brand contribution margin was between [indiscernible] to 15%. So just maybe not exactly on a number, but was there a full deviation from that kind of brand contribution margin versus what you have reported this quarter? Because on the international part, the brand contribution margin now stands at 10%. So definitely, there's a bit of impact on Nigeria, but I mostly wanted to check if Thailand was still in that ballpark 14%, 15% range.

[Manish Dawar, executive]

Ashish, it is still in that range. Obviously, as I said, there was a little bit of impact in South because of the geopolitical situation, but that is a handful of stores. So there was a very, very slight dilution. But directionally, it is absolutely the same numbers that we talked about earlier. There's no change.

[Ashish Kanodia, analyst]

And secondly, in terms of store expansion. So in [indiscernible] you have alluded earlier as well that there will be more calibrated store expansion. So looking at FY '25, what are the thought process in terms of expansion across the core brands in India?

[Manish Dawar, executive]

So Ashish, overall, we are looking at a similar number, which is 275 to 300 stores. Obviously, I know, and I do realize that in '24 we were a little short. But overall, on an OpEx basis, I think we've done exceeding in the middle of slowdown and all. So we are not changing any of our numbers. It remains same at 275 to 300. KFC remains a similar number, no change at all. Pizza Hut, as I said, we'll be a little cautious in terms of how we are opening the store given the overall brand performance. And obviously, we've taken initiatives there, so let's see how it's out. But otherwise, no big change in the strategy.

[Ashish Kanodia, analyst]

Sure, that's helpful. And lastly, this entire discretionary slowdown has been sustaining for almost, say, 1.5, 2 years now and has impacted across categories. So when you look at the new real estate deal sign-ups, are you seeing more lucrative offers? And see if you can just throw some light that, do you see that some of the other noninternational brands, are they feeling more pain and they are locating some of the good real estate. So is the real estate availability and cost becoming accretive hereon?

[Manish Dawar, executive]

As I talked about earlier, if you look at India overall as a market, the real estate probably is only in top 50 to 70 locations. Beyond that, real estate is not a challenge. So let's say, if you look at, let's say, prime commercial areas in Delhi, prime commercial areas in Mumbai and some of the other metro towns, that is where the -- any prime retail spaces is heavily fought for. But the moment you step out of the metros or you go to even, let's say, suburban areas of metros and the smaller towns, real estate is not such a big challenge. There is a way you can negotiate the brands are respected. Landlords are willing to tweak their terms. They are willing to sit on the table and so on and so forth.

[Operator]

We'll take the next question from the line of Gaurav Jogani from Axis Capital.

[Gaurav Jogani, analyst]

Sir, my question one is with regards to the slowdown that you're seeing in the overall ADS numbers. Would alluded more this on the pricing of the value format or it is largely due to the reduction in the transaction size across performance?

[Manish Dawar, executive]

Gaurav, it's a combination of both/. The transactions have not fallen dramatically, it is the overall pricing coming out of the hyperinflation scenario because the consumer wallets remain the same. And therefore, typically, let's say, when this kind of hyperinflation happens,and we were coming out of COVID, obviously, it takes a little longer term to kind of have a reset for the consumers from building up the income levels, as well as this whole sentiment and emotion. At the same time, we've also seen -- I mean, if you look at the overall credit offtake in the country, the consumer credit offtake is sitting at an all-time high. So that is also something which is kind of putting pressure on consumers. So I think probably, we do -- we are towards the bottom of it and things should kind of start to improve.

[Gaurav Jogani, analyst]

Sure. And Manish, with regards to the performance, your margin performance has been much better versus the other peers that you have in the country and you alluded for higher market lines during the quarter. So haven't you -- you have not been mandated by [indiscernible] to do a similar marketing strength. And how do you look at the margin trajectory for the brand there?

[Manish Dawar, executive]

So Gaurav, as far as you know, Yum! also very well. So it cannot be that Yum can favor one franchisee and not the other one, right? So it has been because we all want to revise Pizza Hut brand between [indiscernible] and Yum!. And therefore, it was a common effort. It was a common funds contribution also from their side, from our side, from Yum's, and that is how we are trying to build the brand back so that it is any different from us. But despite the additional contribution on marketing and all the common initiatives, obviously, our performance will set up.

[Gaurav Jogani, analyst]

Yes. So I mean, actually, the question was why it is better versus then what has led to this? And how are you looking at the margin profile for the brand ahead? Do you think that the margins are now bottomed out and should pick up some hereon?

[Manish Dawar, executive]

See, from a cost efficiency standpoint, Gaurav, we are most there. The top line has to pick up to be able to give us back that leverage and building the margins back again to the levels they were at. So we've taken initiatives from a marketing perspective. We've taken initiatives from a new perspective. So let's see how it kind of pans out. If at all, we think the margins can only improve from here.

[Operator]

The next question is from the line of Robert Marshall from Kuana Capital.

[Unknown Analyst]

Can you hear me, okay?

[Operator]

Yes. You're audible.

[Unknown Analyst]

Just a question about same-store sales growth. Obviously in terms of customer segmentation, so kind of premium versus mass, and behavioral. Do you see a lot of consumer areas, you've seen the premium customer areas being more robust, but obviously, you're seeing kind of with Pizza Hut. So it sounds like there's a specific kind of aspect of that. I'd be interested in what your kind of your perspectives are on the same-store sales growth we'll see. And what is the [indiscernible] of competition and new additions in the market versus consumer behavior more generally.

And just a second question to that, how you're seeing the margin return in terms of capital on your expansions. Again, the slowdown on the [indiscernible] expansion seems to be in good back, but it would be interesting to know what you're seeing in terms of margin [indiscernible] format.

[Manish Dawar, executive]

Sure, Rob. So Rob, it's always good to have a premium positioning. And obviously, if you are able to kind of appeal to more and more consumers and consumers into your fold with a premium positioning, it's always the best proposition. And that is how, if you look at KFC and Pizza Hut brands, Costa Coffee for that matter, has been positioned in the minds of the consumers. And obviously, let's say, when you get into a hyperinflation and when the consumer wallets and the disposable incomes, they get impacted, you do kind of start to think in terms of how do I increase the value layer.

And India, if you look at from a consumption point of view, we are probably addressing the top portion of the market or the consumers. We are not even addressing maybe 25%, 30% of population. So from top few value layer is important because you are able to get more and more consumers into your fold, and that is how you'll be able to build the brands into mass brands and brands. So there is always this whole delicate equation that needs to be balanced between premium positioning. And at the same time, it appeals to -- I'm not saying that we'll be able to appeal to 100% of population, but given the way the India is growing, we should be able to -- we should be in a position to appeal to maybe 40%, 50% of the population. And that is where that hold in balance kind of comes in.

And that's where we kind of come into the values as far as KFC is concerned or we talked about fun flavor pizzas and so on and so forth. So we kind of keep on working on both sides to be able to maintain the positioning and get more consumers in. So sorry, what was your second question? [indiscernible], right?

[Unknown Analyst]

Yes, exactly. So that, I guess, to the previous question on the same-store sales growth that you're seeing between the different brands, how that's impacting it and what is competition and then there is some on capital between the different brands and what that means for your expansion plan.

[Manish Dawar, executive]

Yes. Sure. If you look at the same-store sales growth, if you look at the competition, if you look at the overall market, it's more or less sitting in the zone. So we've seen the market leader on the burger side giving a negative SSSG. We've seen our peer competitor give negative SSSG and negative SSSG on Pizza Hut. The same situation is with us. So the entire market is kind of in that zone. We do expect the consumer sentiment to recover, and therefore, this will kind of return back to normal.

In the middle of this and despite whatever is happening, the KFC at a unit level economics maintains the payback period of 2 to 3 years. So earlier it was more closer to 2 years, now it is more closer to 2.5 to 3 years kind of range. And therefore, I mean, as long as our -- it's a good and attractive ROI from that perspective, and that's how we continue to expand.

[Unknown Analyst]

And could you just compare that against the other brands, what are you you're seeing in terms of [indiscernible]?

[Manish Dawar, executive]

See, I would not have the insight on some of the other brands in the market. But let's say, within our portfolio, Costa Coffee also sits in the same ballpark numbers of 2 years. If you look at Vaango, it is under 2 years. So therefore, Pizza Hut given the current situation is longer, it's around 5 to 6 years. But otherwise, all of our brands in the portfolio are less than 2 to, whatever, for KFC 2 to 3 years.

[Operator]

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing remarks.

[Ravi Jaipuria, executive]

Thank you. I hope we have been able to answer all your questions satisfactorily. Should you need any further clarifications or would like to know more about the company, please feel free to contact our Investor Relations team. Thank you once again for your interest and support, and taking the time out to join us on this call. Look forward to [indiscernible]. Thank you.

[Operator]

Thank you members of the management. Ladies and gentlemen, on behalf of Devyani International, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.