Summary
Sapphire Foods India Limited - Q3 FY26 Earnings Call Summary Friday, February 06, 2026 4:00 PM
Event Participants
Executives 3 Kaushik Vankadkar (Head of Investor Relations), Sanjay Purohit (Whole-time Director & Group CEO), Vijay Jain (Executive Director & CFO)
Analysts 4 Ashutosh (MIT), Gaurav Jogani (JM Financial), Kaivalya Baing (IIFL Capital), Percy Panthaki (IIFL Capital), Rehan Saiyyed (Trinetra Asset Managers)
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Total Revenue | ₹811 crores | +7% YoY; Driven by strong KFC performance (+11%) and Sri Lanka (+15%), offset by Pizza Hut (-11%). |
| KFC SSSG | +1% | Improved from earlier quarters; January trending higher due to the ₹99 Chicken Krisper Meal launch. |
| Pizza Hut SSSG | -12% | Continued decline due to lack of marketing scale and territory overlap issues with other franchisee partners. |
| Sri Lanka SSSG | +11% | Robust transaction growth; business continues to deliver double-digit growth despite macro challenges. |
| Restaurant EBITDA Margin (Consol) | 15.0% | -40 bps YoY; Impacted by Pizza Hut operating leverage and Sri Lanka wage hikes. |
| KFC Restaurant EBITDA | 18.8% | +60 bps YoY; Attributed to rationalized value offers, discount reduction, and store-level cost efficiencies. |
| Pizza Hut Restaurant EBITDA | -3.1% | Significant drop due to negative operating leverage from falling sales; Tamil Nadu remains a positive outlier. |
| Adjusted EBITDA | ₹77 crores | -5% YoY; Adjusted EBITDA margin stood at 9.5%. |
| PBT (Before Exceptions) | ₹24 crores | 2.9% margin; reflecting the impact of broader store network costs and brand investment. |
| Store Count | 1,028 stores | 31 additions in Q3 (27 KFC, 1 Pizza Hut India, 3 Sri Lanka); Pizza Hut India had 0 net additions in CY25. |
Geographic & Segment Commentary
- KFC India: Revenue grew 11% with a restaurant EBITDA of 18.8%, marking the best profitability quarter recently. The segment is shifting focus from the ₹299 Epic Saver to the ₹99 Chicken Krisper Meal to drive transactions among non-users. Digital penetration is high, with kiosks now covering 70% of the estate to enhance the frictionless customer journey.
- Pizza Hut India: Performance remains bifurcated, with Tamil Nadu (exclusive territory) delivering double-digit delta in SSSG and EBITDA, while the rest of India struggles. Management has paused expansion (0 net additions in CY25) to focus on brand revival and resolving coordination issues with the other franchisee partner. The focus is on aligning marketing communication and leveraging the “dining-forward” omnichannel format.
- Sri Lanka: The business grew 16% in INR terms (15% in LKR) with an 11% SSSG, maintaining its position as the #1 QSR brand in the country. Restaurant EBITDA margin was 16.7% (-110 bps YoY), impacted by a significant increase in minimum wages and cyclone-related costs. Management plans to continue expansion at a high single-digit pace in CY26.
Company-Specific & Strategic Commentary
- Value Strategy Shift: Transitioned from the ₹299 Epic Saver to a ₹99 “Chicken Krisper Meal” in 33% of KFC stores, successfully driving transaction growth (SSTG) faster than SSSG.
- Franchisee Consolidation (Merger): Following Board approval for the merger/consolidation of franchisee territories, management expects a 12-month timeline for completion. Key benefit will be closer coordination on Pizza Hut strategy once CCI approval is received (estimated 3-6 months).
- ESG Leadership: Achieved a DJSI ESG rating of 73/100, ranking among the top 3 QSR brands globally and #1 in India. The company has published ESG reports under GRI, SASB, and BRSR standards for four consecutive years.
- Operational Efficiency: KFC gross margins improved by 40 bps YoY through discount reduction and “value offer construct rationalization,” despite inflationary pressures.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| KFC Store Openings | 60 - 80 stores per year | Management maintains this range for the foreseeable future to expand footprint. |
| Pizza Hut Expansion | Minimal/Near-Zero | Focus remains on brand revival and franchisee alignment before resuming aggressive growth. |
| Sri Lanka Growth | High single-digit | Targeted store count growth of 8-10% for CY26. |
| KFC Gross Margins | -50 to -60 bps impact | Prospective dilution from the ₹99 meal initiative, to be offset by higher SSSG leverage. |
Risks & Constraints
| Risk | Context |
|---|---|
| Pizza Hut Brand Deadlock | Performance outside Tamil Nadu is hindered by a lack of aligned marketing investment between Sapphire, Devyani, and Yum! Brands. |
| Sri Lanka Macro/Labor | Significant minimum wage hikes in Sri Lanka have already compressed restaurant margins by over 100 bps. |
| Delivery Slowdown | Delivery growth has plateaued or slowed compared to post-COVID peaks, requiring more aggressive dine-in value offers to maintain momentum. |
Q&A Highlights
KFC Performance and Value Tactic
- Question: Is the January SSSG improvement due to macro factors or specific initiatives? (Gaurav Jogani)
- Answer: It is likely both, but the ₹99 Chicken Krisper Meal (launched Dec) has clearly driven a swing in Dine-in/Takeaway transactions. (Sanjay Purohit)
- Question: Will the ₹99 meal dilute margins? (Gaurav Jogani)
- Answer: It may impact gross margins by 50-60 bps from Q3 levels, but the resulting SSSG growth should more than compensate through operating leverage. (Vijay Jain)
Pizza Hut Turnaround & Merger
- Question: Why does Tamil Nadu perform so much better than the rest of India? (Rehan Saiyyed)
- Answer: Tamil Nadu is an exclusive Sapphire territory with no format overlap (delivery vs. dining forward), allowing for clear, consistent marketing communication not possible in other territories currently. (Sanjay Purohit)
- Question: What changes post-CCI approval for the merger? (Gaurav Jogani)
- Answer: While full merger takes 12 months, CCI approval allows closer strategic coordination on Pizza Hut territory overlaps within 3-6 months. (Vijay Jain)
Channel Dynamics
- Question: Why is delivery SSSG struggling while aggregators report growth? (Percy Panthaki)
- Answer: Delivery growth has slowed as past tailwinds (late-night occasions, limited mall supply) are now fully baked into the base. We are proactively focusing on Dine-in/Takeaway value to bridge the gap. (Vijay Jain)
Key Takeaway
Sapphire Foods delivered a resilient Q3 FY26, characterized by a significant recovery in KFC profitability, with restaurant EBITDA reaching 18.8%. While consolidated revenue grew 7% to ₹811 crores, the performance remained a “tale of two brands”: KFC saw positive SSSG (+1%) and margin expansion through smarter value engineering, whereas Pizza Hut India faced a 12% SSSG decline due to competitive deadlock in non-exclusive territories. Management successfully piloted a ₹99 KFC meal to drive transaction volumes, which has led to improved momentum in January. Strategically, the company is prioritizing brand revival over expansion for Pizza Hut, while maintaining steady growth in the high-performing Sri Lanka segment. With the merger process underway, the company expects better operational synergy in the medium term, though it remains cautious about wage inflation and delivery channel maturation. The outlook depends on the successful scaling of the KFC value platform and resolving marketing alignment for Pizza Hut post-regulatory approvals.
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