Sapphire Foods India Ltd
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Sapphire Foods India Ltd
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Ladies and gentlemen, good day, and welcome to the Sapphire Foods India Limited Q2 and H1 FY '25 Earnings Conference Call hosted by Orient Capital. [Operator Instructions]
I now hand the conference over to Ms. Shivani Karwat from Orient Capital. Thank you, and over to you.
Good evening, everyone. Welcome to the Q2 and H1 FY '25 Earnings Con Call for Sapphire Foods India Limited. From the management we have with us, Mr. Sanjay Purohit, Group CEO and Whole-Time and Director; Mr. Vijay Jain, CFO; and Mr. Kaushik Vankadkar, Head Investor Relations. I hope everybody had a chance to go through the results and the investor presentation, which was uploaded on the exchange earlier today.
Before we proceed, a reminder that this call may contain some forward-looking statements which do not guarantee future performances and involve unforeseen risks. A detailed disclaimer has also been published in the presentation.
I will now hand over the call to Mr. Sanjay. Over to you, sir.
Good afternoon, everybody. My name is Sanjay Purohit. Welcome to our quarter 2 and 6-month FY '25 consolidated financial highlights. As usual, between me and Vijay Jain, our CFO, we will share with you the results. These are already up on our website, plus have been filed with SEBI. Our quarter 2 consolidated restaurant sales at INR 694 crores, grew by 8% year-on-year with EBITDA of INR 115 crores at 16.6%.
As you can see, growth conditions have been difficult. Our consolidated restaurant EBITDA declined 8% year-on-year and restaurant margin was 13.7%, down 240 basis points. Our consolidated EBITDA, I spoke about was INR 115 crores, 16.6%, this declined year-on-year by 1%. Our consolidated adjusted EBITDA was INR 59 crores, which declined year-on-year by 13% or 210 basis points.
Our consolidated PBT before exceptional items was INR 5.3 million or 0.8%, whereas the adjusted PBT before exceptional items was about INR 14 crores or 2.1%. The exceptional items, impairment came from our Maldives business where we've got 2 KFC and 2 Pizza Hut stores each and the Maldives business contributes 0.4% of our overall revenue. This business has struggled over the last one year.
After the Middle East geopolitical situation, when we saw sales down by nearly 60% year-on-year and over the last one year, this has not improved. This sharp reduction in the sales of those 4 stores resulted in the business incurring losses. And hence, as a prudent approach we have taken a noncash impairment of INR 11.4 crores in the quarter as an exceptional item in our consolidated financials.
Now let me go to Slide #19 and speak about KFC. Typically, quarter 2, as all of you would know, is the softest quarter for KFC. And this is because we've got a number of vegetarian only festival days. Interestingly, this year, we have seen a greater impact, greater negative impact during such festival vegetarian days. Because SSSG was negative 8%, because of the resultant deleverage our restaurant EBITDA came at 16.5% or down 270 basis points year-on-year.
Part of this is reflected in the muted demand conditions. And as I've said in the past, our response for SSSG revival revolves around focusing on increasing occasions of consumption through product innovations like chicken rolls variants, Zinger burger variants, snackers. We focus on day part extensions like lunch, late night and Wednesdays. And we drive value at 3 different price points of snacking, individual meals and group meal occasions.
From a store opening perspective, we opened 19 stores in the quarter and as we have been indicating, by the end of this calendar year, we should roughly be doubling our store count that existed in [ December '21 ] as we had indicated. What we are seeing of KFC in quarter 3 is a continuation of what we have seen perhaps over the full calendar year where SSSG is roughly in the region of minus 5%, minus 6%. And as we come out of Navaratri and post-Dussehra this is the kind of inherent business demand that we are seeing.
I'll now hand it over to Vijay to talk about the specific numbers.
I'm on Slide 23, which gives channel-wise sales contribution. Dine IN plus Takeaway mix was at 58% for the quarter and Delivery at 42%. This largely remained in line with the previous quarter, Q1 FY '25. The SSSG came at minus 8% with ADS at 111. We added roughly 80 restaurants in last 1 year. And the overall revenue growth came at 9%. Gross margin improved by 40 basis points year-on-year. And while gross margin improved by 40 basis points due to overall restaurant EBITDA came at 16.5%. This was impacted on account of the operating deleverage caused by minus 8% SSSG.
Slide #26 gives you a 4-year trend and 5-quarter trend. The overall brand still remains quite strong. And with the measures, Sanjay spoke about just a minute back and the vegetarian festival days out of our way, we hope for better H2 as we move forward.
With respect to Pizza Hut, we have seen a 17% sequential quarter-on-quarter upliftment in average daily sales in the April, May, June quarter versus the January, February, March quarter. So our ADS levels have reached 48%, and this has remained more or less stable in quarter 2 also where ADS levels have been in the region of 47%. Our restaurant sales increased by 3% with SSSG being minus 3%.
In line with our -- the strategy that we called out, we will continue to invest behind marketing and that marketing investment first went behind melt between April and September. And now in October, we've launched the exciting Momo Mia range of Appetizers and Pizzas. We are quite confident that as we continue to invest behind marketing and our in-store execution improves today, on an average, all our stores are above 4 rating on Swiggy, Zomato as well as on Google.
So clearly, the emphasis that we have put on improving operations has also help. So we are quite confident that in the medium term, the brand will revive. We continue to be cautious on store openings. But while we opened only one store in the quarter, we should open roughly 20 to 25 new stores this year -- sorry, we opened 3 stores in this quarter, and we should open between 20 and 25 stores in the year.
Vijay could you just take the numbers.
So on Slide 33, sales channel-wise sales contribution, Dine IN plus Takeaway came at 48% and Delivery at 52%, again, in line with quarter 1 of FY '25. Overall, SSSG was minus 3% at 47,000 ADS. And the overall revenue grew by 3%, with gross margins up by 40 basis points, the negative SSSG led to operating deleverage and combined that with the additional marketing investments impacted EBITDA, which came at 4.1%.
Slide 36 gives you the 4-year trend and 5-quarter trend. It can be seen that last 2 quarters, the ADS has partially recovered and even Q4 last year, we actually incurred losses. So even from a profitability wise, we are in the range 4% to 5%. So if we continue to focus on the brand revival through the product innovation and the marketing investments, we believe that brand will be much stronger in the medium term.
Our Sri Lanka business continues to recover well, with both sales and profit improvement, restaurant sales grew by 10% in LKR terms, while SSSG here was 9% and transaction growth was also very healthy. In rupee terms, restaurant sales increased by 19%. Restaurant EBITDA margins were also the best in the last 4, 5 quarters but let Vijay take the specific numbers.
So Slide 41, channel-wise sales contributor Dine In plus Takeaway for Sri Lanka business came at 62% with Delivery at 38%, exactly same as quarter 1. The SSSG was 9% backed by positive SSP resource driven by [indiscernible]. From an ADS point of view, LKR 335,000 ADSs and INR 93,000. Overall revenue grew by 10% in LKR and 19% in INR. In terms of gross margins, while we dropped by 110 basis points in Sri Lanka. The restaurant EBITDA grew by 20 basis points to 15.5%.
Slide #45, gives 4-year trend and 5-quarter trend and the last 2 quarters, in fact, last several few quarters of positive SSSG backed by transaction growth bodes well as we move forward into H2.
So in conclusion, it's been a difficult quarter and a difficult 6 months, but we continue to focus on what we can control on the basics of improving store operations. Our cost management has been really good. Gross margins, as you can see, we've been able to get some benefits right across. The nature of channel has changed a little bit more in favor of Delivery. Now with most of the vegetarian month -- vegetarian days over, we should get a better read by the end of the November on how the second half is progressing. But we are still confident that if we stick to the basics, we will get out of this in a much better position.
Now with this, I will hand it over to all of you all for the question-and-answer session.
[Operator Instructions] The first question is from the line of Vishal Gutka from HDFC Securities.
Three questions from my side. First, on KFC, we have gone for a massive expansion in the last 3 years. I think 3 years back, the store count was 200 [indiscernible]. At the same time, the market might not have the same rate with regards to store expansion. I just wanted to check in the wake of current slowdown, where are we exactly expanding? Are we expanding into more into existing cities or it's completely emerging markets? And do you think there is a need to recalibrate expansion at least in existing cities because that will provide the buffer time so that store expansion catches up with the market growth rate. That's the first question.
Second question is on Pizza Hut. Dominos gone very, very aggressive on the NPDs and innovation calendar. Although we also made some launches, melts and I think Momo Mia that is coming up. But I believe that we really need to push the pedal on the innovation trend is concerned. What kind of areas would be required to achieve low teen margins in the context of increased competency from various players? Because earlier, ADS might not be relevant in the current context during the competency has gone up in a significant manner.
And last question on M&A front. Given that we'll be generating a decent amount of cash flow over the period of next 2, 3 years, any thoughts on M&A? And are you open to acquiring a minority stake in any cloud-based kitchen banks, which -- who are compliant with the 7 rules that we have on that front.
And the last, I would like to wish the entire thing happy Diwali.
Just can you -- Vishal, can you elaborate on your question to which you said on Pizza Hut innovation and what was the question?
Yes. So Domino's has gone very, very aggressive in terms of innovation. 4, 5 innovations were launched in the period of 6 months kind of basket. We've done melts and I think recently have come with Momo Mia, so just wanted to understand, sir, can we go aggressive on innovation front as well, NPDs and innovation. And the question is at ADS, what ADS numbers will be able to achieve low teen margins? Because earlier ADS numbers might not be relevant given that the competency has gone up significantly in this category.
Yes, very well. So I'll take the first question on KFC expansion. Over the last 3 to 4 years, 85% of our restaurants have come in towns where the population is more than 1 million. I don't see this trend changing as we move forward as well. And within that 85%, the 50% to 60% of restaurants would have come in the top metros. So that trend would remain even as we move forward.
In terms of overall count, we called out that we would double the count by December '24, and we should be close to 500. So that's on track. Post that, we will again revisit what the guidance should be for the future expansion, but that's how the mix will play out between the metros, the Tier 1 and the popular towns where the population is more than 1 million.
On Pizza Hut and you would...
I just wanted to check on KFC you are telling that existing only expanded, right? [ virgin ] market expansion is a little bit lower, right? I think...
15% to 20% of our store expansion comes in a probably [ virgin ] market.
Yes. So I just want to add color here. Even in existing cities, the idea is to -- so there might be parts of existing cities that are not served and we typically have a certain way to look at a distance from an existing KFC store that we could look at a new store. Now that varies according to the development of the brand in a particular city. So it will vary a little bit. So I think even if we are in -- if you are expanding in Mumbai, we are expanding in Mumbai into trade areas that might have been less well served than earlier on. Yes. So that's one.
On the innovation part, I think our belief on innovation is, first of all, innovation never ever will come at the cost of the core products. So the core product itself has to do really well. And typically, innovation appeals to a set of consumers who quite likely are our loyalist. And for them, you give a new reason to come back to the store. In some cases, like melts you are actually pulling the consumer into a new occasion of snacking also. Now the big part of innovation is to be able to land it with every single consumer of yours. And typically, this takes time.
So to do an innovation -- to do 4, 5 innovations perhaps in a short period of time, actually, it's quite counterproductive because your consumer is unlikely -- all your consumers are unlikely to have sampled the innovation. With Melts, we have seen roughly anywhere between 4 to 9 months is the ideal time for an innovation. After which you decide whether it should be part of your core menu or not. And I think our pace of innovation we are quite happy with as of this moment.
You spoke about what level of ADS will get us to low-teen level margins, I would say, in the region of about 55 is where we would get to double-digit margins.
Finally, on your M&A and cash flow, while -- right now, our cash doesn't -- so what we generate through the year is marginally short of what we spend on CapEx, but there will be a period, there will be a time when -- very soon when this -- our generation will be higher than our requirement. And hence, at that point in time, we will look at -- we will -- we continue to look at M&A at this moment, there are no great opportunities that we see.
Also, we have defined our criteria in terms of do's and dont's, and that's clearly part of our annual report. We have called out the 7 mantra, which we believe are key to success at scale in a food business. So those are the [indiscernible] which we keep using to evaluate the opportunity. There is no hurry. There is enough and more runway for both KFC as well as Pizza Hut. So if not in the short term, in the medium term, we would love to add a third brand using those criteria. And at that point in time, we'll figure out what's the right mode of structuring in terms of cash flow.
[Operator Instructions] The next question is from the line of Nihal Mahesh from AMBIT.
Yes. I just make a quick. My question -- I do find the kind of slowdown that the entire QSR space is seen. But just [indiscernible] given KFC is an undisputed leader has a value offering, is there a case where maybe the brand is not having enough appeal? I'm coming from maybe looking at this SSG number, which seems generally weak for a strong and a brand like what I would expect out of KFC.
So you'll have to just repeat that question because we got the last part of the question, what do you want us to address on KFC just help us?
So Sanjay, just trying to understand that is the weak SSG for a brand like KFC, which has such a high market share, more a case of a lower appeal with the brand rather than the overall slowdown? Just trying to understand that. I wanted your comments on that.
So a strong brand and weak appeal are perhaps 2 opposite ends of the spectrum. I agree it's a very strong brand and largely competitive intensity will not -- I don't know, first of all, Fried Chicken itself is a reasonable competitive intensity but overall also, it plays in the general outside food occasions in the general restaurant category. So competition comes from other sources also and when you've got a weak demand environment, it also will impact even a brand as strong as KFC. Having said that, I must say that this year, we've been quite surprised by the intensity of the drop that we have seen on the brand during the vegetarian days.
So I think it's even -- so on the North West and even in the South where we have a festival called [indiscernible] in Tamiladu, there also we have seen drops. So I think now post Dusshera for the next 2 -- next 3 or 4 weeks is when we really should look at -- we'll get an assessment of how the rest of the year is panning out.
Having said that, like I said, we continue to invest significantly behind the brand. And when I look at how we do in direct competitive environments, we continue to do really, really strong, even with a direct competitor who's come up in the last, say, one year or so.
And then finally, I think we have much call out that there is an impact of the Middle East tension that we are seeing. There's some geopolitical impact that we perhaps can see on the business not now, it existed under the surface for perhaps the last 2, 3 quarters.
My second question was on the Delivery, Dine In mix. That is obviously something that for the last many quarters, is seeing a trend towards delivery. I just wanted to understand anything to do with the scale-up of aggregators or certain consumption patterns you want to highlight? And Vijay, if you could just quantify the financial impact in terms of margins as the mix shifts more towards delivery?
Yes. So one part of the delivery contribution increasing is the fact that we have opened late night as an occasion. This was very little, say, even a year ago, and today, it's a reasonable part of our business. And that's the only purely delivery. So that's one. Second is we are also seeing pressure in malls. Typically, the footfall pressure in malls has translated into our dine-in in malls suffering a bit.
So these are the 2 large trends that we have seen that have favored delivery versus Dine In.
Nihal, in terms of the impact on shifting the mix from Dine In to Delivery in a P&L, we typically see a 10 to 15 basis point impact for every 1% shift, while this is not the entire impact for a delivery cost, we mitigate to some extent through the pricing. So our gross margins are better on delivery platform as well. So the net impact, what we look at is 10 to 15 basis points.
The next question is from the line of Tejash Shah from Avendus Park Institutional Equities.
First, on KFC, could you break down the nature of the slowdown, specifically, is it driven by a reduction in transaction volume? Or are we observing down trading in the average ticket size also. And also in the same answer, if you can comment on the market share on both KFC and Pizza Hut and how we are observing that?
So the SSSG decline is -- the SSSG and the SSSG declined virtually the same. And very -- perhaps the ticket size might have gone down 0.5% to 1%. That's it. So it is a transaction drop. It is not so much of a ticket size drop. From a market share perspective, I think once the rest of the companies present their numbers, then we will get an idea of how our market share is. But I think just indications that we are getting seem to suggest that we are still perhaps doing better than most of the industry, including on Pizza Hut.
And given the existing demand environment and competitive dynamics, how are you approaching store expansion guidance for KFC and Pizza Hut in the near term? And what are the specific markets apart from private final consumption that you spoke about in earlier calls, what are the specific markers that you are kind of monitoring to kind of turn the momentum on expansion as well?
Yes. So on KFC, I think we'll let this quarter play out. And then -- but by the next quarter's investor call, we should be able to give a guidance on how '25 will pan out. I would -- I mean if I have to as answered today, I would say that we will be a little more cautious than we have been over the last 3 years in terms of our expansion on KFC. On Pizza Hut, we already called out that we were expanding anywhere between 50 and 60 stores. So this year, we believe that it will come down to 20, 25 because there are still opportunities that exist and our pipelines are built over several months and perhaps a year or 2 also.
So yes, just to clarify [indiscernible] cautious compared to what we have been doing over the last 3 years on KFC, where we doubled the account. So that's a relative term we used cautious. Otherwise, we still believe that we will continue to expand pretty much on KFC. And 2 or 3 quarters of negative SSSG should not be a cause of worry to expand a strong brand.
So yes, you will still see pretty healthy additions on KFC as well.
The next question is from the line of Jay Doshi from Kotak.
First of all, in the opening remarks, you mentioned you will double the store count by December '24 which probably means that some 40 store additions. Did I hear it correctly? Or what are you trying to say by FY '25?
No, you heard it correctly, Jay. So close to 500 plus/minus share and there close to 500 stores for KFC.
For KFC. Understood. Second is the last couple of quarters with 114,000 and 122,000 ADS for KFC, profitability was still holding very well at around 18.5% brand contribution margin. This time around, it dropped by 200 basis points. And while I know ADS is slightly lower, but still the drop is -- it appears that you are handling, managing operating leverage much better over the past 6 months than in September quarter. So if you could explain in terms of what has changed and how should we think about this going forward?
And final one, again, on KFC. So all these are KFC related questions. The final one is that if you look at the last 2 years, the seasonality from September to December, ADS tends to be broadly similar levels at September and December, while we've always maintained that September is a seasonally weak quarter and December is a better quarter because maybe we have more store additions in December, and hence, ADS tends to be similar. So in this time around, if you are adding 40-odd stores, will ADS potentially decline in December versus what we are seeing in September quarter? That's it from my side.
The first part of the question on restaurant EBITDA, last year, we also had the benefit of gross margin going our way. So that helped us a lot in managing the overall restaurant EBITDA margin. When you're trying to compare this year's ADS level and compared with previous year, what you're missing is the inflation impact in terms of the cost, wages, the energy cost and all those things. The ADS is marginally lower. The overall cost increase is also an impact, which needs to be considered when you move beyond the year.
So that's the first part. Second, the gross margins have remained range bound for us. Last year, if you see the gross margins, actually, we had a benefit vis-a-vis a year ago in terms of gross margins. And having said that, at minus 8% and at 111,000 ADS, we believe 16.5% restaurant EBITDA, considering these levels of sales is pretty healthy EBITDA. If you wouldn't have managed costs better, this could have gone down much further.
Hence, it has to be looked into the relation of this 111,000 ADS and minus 8%. The second part of your query, which was on Q2 versus Q3 ADS levels. Again, year-on-year, they may not be exactly comparable. Last year, September probably was one of the best months in the year because it came after 2 months of adhik maas and then the shradh moved into October and the 29th September is when I remember the shradh started. So it moved entirely into October.
So the previous year's number may not be entirely comparable and a year ago, that we were coming out of COVID. And so to be fair, if I look at 6, 7 years' history, yes, we do experience quarter 3 to be better in quarter 2, and we don't see any reason why this year the quarter 3 should not be better than quarter 2. Now by how much it would be let maybe a couple of months past and then we'll know better. But yes, quarter 3 should be better than quarter 2.
Understood. Vijay, just one thing on brand EBITDA contribution margin, I was referring to March '24, June '20 and September '24, there is no difference in gross margin. However, EBITDA margin brand contribution has dropped by about 200 basis points versus March '24 and June '24.
Yes. So that's where the drop in ADS of 3%, sometimes a drop in ADS of when you look at 3, you think INR 3,000 is a 3% ADS. With the kind of operating leverage that 3% can impact you by almost 150 basis points in terms of operating leverage, isn't it? Because the flow-through for a business like KFC is as high right? And to add to that, the inflation on minimum bridges, wage cost, energy cost, that adds up.
So from a Jan, Feb, March quarter to July, August, September quarter, we've got -- yes, we've got all operating cost inflation coming in, Jay.
Next question is from the line of Percy Panthaki from IIFL Securities.
My question is on KFC. So I understand that Q2 was marked by the vegetarian days and the decline being higher than usual. So what has been your experience in October. For October, are you in positive SSSG territory on a Y-o-Y basis?
Yes. So even October, Navaratri happened and it -- we also comped Navaratri last year also. Post -- I mean the way that we look at it is that if you see the calendar year and if we see the financial year till date, so whether it is Jan to September or April to September, we are in the region of minus 5%, 6% negative SSSG. And this is what we think the quarter also will come out at.
Okay. Understood.
The impact which we had on the -- because of the vegetarian days the festival days. We don't anticipate that in quarter 3. So hence, we believe this may be the range we are looking at. But again, too early, there is 3 weeks October.
And we are assuming that there is no change in the macro environment. That's an important assumption.
But like are you seeing any kind of green shoots. I mean, post -- I know it's been very few days, but post Navaratri, et cetera, with the vegetarian days out of the picture in the last couple of weeks or so. Are you seeing any green shoots of improvement in the underlying demand?
Currently, what we are not seeing as high as minus 8%. The trend which existed prior to quarter 2 is what the trend is it has come back to.
And actuals week Percy se was a clean week. So the week that ended yesterday was the first sort of clean week without of some Monday to Sunday week that went without any sort of vegetarian disruptions.
Right, right. Sir, just wanted to understand what's happening on the demand front. I mean, if we look at -- and you are not alone, right, all the listed QSR players are seeing weak demand. But if we look at results of, let's say, Zomato, there, the growth is very high, overall, like 20%-plus kind of growth. Even if I take -- remove the restaurant additions that they are doing on their platform and look at the sales per restaurant that is also growing for them. So is it at this is like competition not amongst the QSR players, but amongst the larger industry itself, where smaller restaurants, et cetera, which were not really reaching the consumer earlier are now being able to reach the consumer much more easily through these aggregator apps. So is that what is happening, do you think? I mean just trying to hypothesize here because, again, as I said, this is an overall QSR industry issue of weak demand. It's nothing to do with you, particularly. But I'm just asking you as well as other companies as well.
Yes. So the weak consumer demand environment does not limit itself to QSR industries, but I feel looking at other FMCG companies also their results, and it extends to virtually every other consumer product category. My own take on this is while I don't think there's a big reduction. So GDP growth is still reasonable, however, in most competitive categories over the last 2, 3 years, we have seen significantly heightened competitive intensity.
Certainly, in QSR, today, if I look at High Street, if I look at malls and if I look at online or digital stores. In High Street, if you have, say, 7, 8 competitors in a food gullies, in a mall, you will have competition from perhaps 20, 25 restaurants. And in the digital space, you'll have competition with 100 banks. So I think competitive intensity has gone up. And this competitive intensity is significantly higher than any rise in private consumption expenditure. So this is a -- perhaps short medium-term impact that we are seeing. Having said that, also, at times, perhaps we've expanded also and made the brand available significantly higher than earlier. So that perhaps one also reason. So I think all of this, we've got to put together when we look at the next coming year also, Percy.
Got it. Got it. And my last question on Pizza Hut. So just like in KFC, I asked, are we seeing any kind of positive signs in October for Pizza Hut? And this 55,000 ADS that you said would be required for double-digit margin. I mean is there...
Sorry to interrupt, sir but can you please go back to the queue for the follow up question?
Never mind. We'll just take this quickly. Yes. So on Pizza Hut also, it is similar. I think we are holding after we saw the bump up in quarter 1, we are holding in quarter 2 and currently, Percy. So I think they're also muted demand conditions are not helping. Having said that, at least, we are stable and that itself is green shoots.
[Operator Instructions] The next question is from the line of Devanshu Bansal from Emkay Global Finance Services.
Sir, particularly delivery, we are still doing okay, but the challenges are more in dine-in channels, even in absolute terms, when we see KFC is largely flat in Q2. So do you see this as a structural change in the industry? And is there a need to sort of change our store format strategy as well?
Yes. So undoubtedly, over the last 3 years, there has been some amount of channel shift from dine-in to home service. When we look at other markets internationally, we see that there is a certain limit to how much this channel shift will occur. Having said that, we've always believed that our omnichannel store is best suited to deliver the financial results that we want.
A large portion of the capital is to put up a store goes in the kitchen and only a smaller fraction is spent on the front of house. And hence the -- and it is always better to have dine-in, takeaway and delivery all 3 channels open. So let the consumer choose what she wants, how she wants us to serve. So it continues to be omnichannel rather than only delivery. In only delivery, I just want to call out that unless you have -- unless the brand has the capability of delivering 100% through their own system, on having 100% otherwise, having a large portion of sales go through the aggregators does not make too much of financial sense for a brand.
Just 2 quick follow-ups here. So you mentioned that global study. So what is the extent of shift that typically is happening across the globe between off-premise and on-premise, if you just highlights?
I won't have very specific numbers. But if I just look at businesses in the U.S., et cetera, where the cost of product on delivery is substantially higher than what is on dine-in because of the delivery charges. So their consumers seem to be coming back strongly to both dine-in and takeaway.
Understood. Understood.
And convenience, I think that's the point that I'm making.
Understood, sir. Understood. And between front and kitchen, what is the CapEx segregation for you?
Vertically 70% of the CapEx goes into back of house and the balance 30% is front of house.
Understood. And last question from my end. You mentioned that our transaction size has broadly remained flattish versus last year. The competition at least has been very aggressive and focusing on transaction growth. So what's your view here? Because our ADS has remained flat, are we losing transaction share to the competition?
So I just want to highlight here that when SSSG has been minus 8%, transaction decline also has been in the same region. When KFC overall system growth has been 8%, our overall transactions have also increased in the same proportion. So there's been very little ticket size improvement or otherwise that we have seen. So KFC as a brand has still grown transactions. The same-store transaction growth might be in the same realm of SSSG.
Understood. So you're saying that with your store expansion that is leading to decline in transactions at your existing stores, right?
No, I've never mentioned that. I just said that there is an SSSG decline, however, at a brand level, transactions are still growing. I think that's the only statement that I was making.
And the other part, which you are referring whether we are degrowing because there are other players who are gaining -- we don't see that other players SSSG any better than probably us. So I don't think so that stands true that hypothesis is true.
I was talking more some of these leading pizza players, sir, not from the burger player, but they are sort of sacrificing the bill size on the table, and they are seeing pretty good transaction loads. So my question was...
I'm sorry to interrupt sir, but can you please rejoin the queue for a follow-up question?
Sure. No issues.
The next question is from the line of Gaurav Jogani from JM Financial.
I just have one question. In terms of Pizza Hut sir, given that the margins are in now mid-single digits, and we would require an ADS of at least INR 55,000-odd to reach to that double digit. So how does this impact our unit economics at the store level? And so -- and also given that you will also have inflation going in, in the future years in terms of the other expenses. So would that also push the ADS requirement higher to get to this double digit and then justifying the store unit economics?
So Gaurav in first part, how does it impact clear? Because what we called out is that INR 55,000 ADS or near or thereabouts would be good enough for us to move towards double digit. So what exactly do you mean? And how does it impact?
No, my question was because if the 50,000 ADS right now, that would lead to a double-digit kind of an ADS. But going ahead, there will be also some inflation in terms of rentals and other expenses. So would that also mean that you would require a higher ADS than to get to the double-digit? And then on the unit economics part, given that because we are not doing the double-digit kind of margin right now. So how does that impact the overall unit economic spread in terms of the ROE, ROC profile for the stores?
So the first part of the question is there's an inflation and which does not actually lead to a parallel ADS growth and only in a cost could certainly will require a higher ADS. But then it's a very hypothetical question. Typically, we have been able to manage inflation quite well. Even the cost inflation quite well. When if you look at the last 3 years of Pizza Hut, even right now at a 4% EBITDA margin to EBITDA margins, if you actually do the math, the drop in the revenue has been quite significant.
We were doing at 1 point in time, 60,000 ADS levels. And despite dropping to 47,000 impact on EBITDA has not been quite there. So we have been able to manage the cost inflation quite well. So it will all depend in what form and shape the inflation hits us as we move forward. But yes, that mathematically, there's an inflation on cost, you will certainly require a higher ADS. So that was the first part of the question.
The second is how does the ROI and all work gets impacted. Again, we are looking at a brand in a very different manner Pizza Hut brand for us is a second pillar of growth, which we need to work upon. Right now, the brand is at a stage where we need to build the interest in the brand from the consumer point of view. We don't want to be in a situation that after a few years, we're only left with one leg of growth in terms of KFC. And hence, right now, the -- it's a phase where we need to invest behind the brand.
If you do the math at this stage, of course, the ROI and ROCs will not work out. But this was not the question, let's say, 2 years ago when we were delivering 60,000. When the ROI was pretty decent. So I think the first stage for, let's move towards that 50,000-plus mark starts less moving slowly towards that double-digit mark and then we can discuss that ROI and ROCE conversation.
The next question is from the line of Shirish Pardeshi from Centrum Booking.
Sanjay and Vijay, thanks for the opportunity. Yes. Just 1 quick question. Out of 461 stores you mentioned that we have stores in malls. So what percentage of stores and what percentage of revenue from these small stores we get?
Well, I may not have a the exact number right now, but the revenue for all would be anywhere 45% revenue for more. And of course, in terms of accounts, this probably will be slightly lower. So it would be anywhere between 30% to 35%.
Okay. So here other here, your understanding is that the revenue in the mall stores has been punished very strong?
So what they're saying is that dining mall typically has a very high mix on dining and very small amount of takeaway and a very small amount of delivery as well. So it's not that we don't deliver out of a mall. But yes, the mall dining has taken a definite impact over the last 6 months.
That's what my understanding because most dining would be much stronger. So I don't think the delivery would have affected. So you mean to say that the dining and ticket size is under the step.
Not the decrease side just the transaction because of the footfall at the malls, the kind of probably stall the malls are seeing. And again, it's even what we're seeing at the movie is the kind of movies which we are seeing. I don't think the first 6 months have been great in terms of mall footfall because of the movies as well. So yes, the mall dining has definitely been impacted.
So on the flip side, if we had a nonvegetarian issues in the KFC portfolio, Pizza Hut should have surprised you positively in the mall stores and sales.
So the mall impact has nothing to do with because of nonvegetarian. The mall impact is just the mall footfall and the movies what we're talking about. So it's nothing to do with the cuisine, whether it's vegetation or nonvegetarian. The vegetarian impact, which we're talking about on the KFCs just the overall impact, which has been across small and high street stores. So that impact is irrespective of performance.
Okay. Got it. My second question is on Slide 29, you have given Momo Mia Pizza. But I guess why this is LTO and when this was launched and how long it will be there in the market?
So this is part of our menu right now Shirish. I think when we look at we typically evaluate it after 3 to 4 months, and then we see whether it needs to be a continuous part of our menu or not or LTO.
So it has gone before Navaratri, If I'm right?
So launched in October, first week of October.
October.
Yes, before Navaratri you are right.
Okay. No, I saw that. So that's why I'm saying, but I was more curious why it is LTO.
No, I never said it's an LTO.
No, it's written in the slide, limited time.
It's part of our innovation pipeline. Typically be evaluated after 3 or 4 months. And after 3 or 4 months, we take the call, whether we need to make it as a continuous part of our menu or for us withdraw it at that time.
That I understood, Sanjay. What I was trying to understand to allude, you said that we are trying to build the occasions for the excitement for the consumer. So maize has given some fillig. But then is Momo Mia is also giving you the occasion and footfall increase.
Not clear.
Yes. So you -- did I hear you say that Meg has given you some select Momo Mia should give you a further fill up. Is that what I understood?
Yes.
Yes. So it should give us additional set I think we'll wait for the quarter to play out to understand how this works.
The next question is from the line of Harish Advani from Investec.
I just had one question when it comes to the KFC that we are trying to do in terms of increasing the daypart occasions through rolls and biryani bowls, et cetera. So I just wanted to understand since you've been doing this in the last 2 to 3 quarters, how has this been trending? And if you can share any percentages of how this is contributing to our overall ADS? That was my last question.
So at this moment, while we are pushing the lines, we are pushing roles and so on. And then overall basis, the ball truth is that our SSSGs have continued to be negative. So one can say that it has had a limited impact on improving our sales trajectory.
Okay. And is it possible to quantify how much it's contributing to ADS at the moment?
So contribution, typically, we don't give out, Harish. Yes, typically, we don't give out.
The next question is from the line of Jigyanshu Goel from Bernstein.
Am I audible?
Very much so.
First of all, a very happy factor season going into it. And hopefully, the numbers recover. I just had one question in the interest of time. For the Sri Lanka business, now that contributes roughly 15% of our EBITDA at overall level kind of growth prospects do you see there from a medium- to long-term perspective?
So we've just got out of perhaps about 6 to 8 quarters of a really difficult time in the country and nothing that it's all macro conditions that sort of nose dive. We believe that Sri Lanka would give us similar kind of growth opportunities as India, we should be able to open, say, anywhere between 7 and 10 stores a year, and that's what we would have thought earlier.
At this moment, we are just a tad cautious, still and wait for another quarter or so before we accelerate. Having said that, stores will continue to open, but it will be in single digit. Very helpful.
Just one more additional question. This is on the CapEx related to India. So the -- we see the CapEx for store added has started to drop by 10%. Is this largely due to nonstore CapEx being lower than the past? Or is it also because we are making some changes in the consideration of the stores as we open them?
So again, because I think working out CapEx or through a backward calculation by looking at the cash flow, right? So sometimes the cash flow result the actual CapEx that could be always a mismatch. To be fair, I don't think our CapEx have dropped. It's in the continues to be in the same region, which is roughly INR 2 crores for KFC, INR 1.35 crore to INR 1.4 crores for Pizza Hut.
That remains sometimes the cash flow, depending upon when have you ordered the cash flow can be very different. So there is no change in the CapEx. It's neither increasing or decreasing.
Okay. Great.
Due to time constraint, that was the last question. I would now like to hand the conference over to the management for closing conference. Thank you, and over to you.
Yes. Thank you very much, all of you all for having joined this I'm happy that we've done it just before Diwali and I wish you, your family is a wonderful Diwali and wonderful rest of the festive season in the end of the year. Thank you very much for supporting Sapphire Foods.
On behalf of Sapphire Foods India Limited. That concludes this conference. Thank you for joining us, and you may now disconnect your lines.