Good day, and welcome to Devyani International's earnings conference call. As a reminder, all participant lines will be in the listen only mode. Anyone who wishes to ask a question may enter star and one on their touchtone phone. To remove yourself from the queue, please enter star and two. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. 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. Thank you. Good afternoon, everyone, and thank you for joining us on Devyani International's Q4 and FY 2023 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, Mr. Manish Dawar, CFO and Whole-time Director, and Mr. Rahul Shinde, CEO, Yum! Brands and Whole-time Director of the company. We will initiate the call with opening remarks from the management. Afterwards, we'll have the forum open for a question and answer session. Before we begin, I would like to point out that some statements made in today's call will 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 his opening remarks. Good afternoon, everyone. I warmly welcome you all to our earnings conference call to discuss the business performance for the fourth quarter and the year ending March 31st, 2023. In our first full year of performance post-listing, DIL demonstrated strong growth momentum, and we have crossed some very significant milestones. Our consolidated revenues have reached close to INR 3,000 crores, backed by store additions across brands and continued healthy performance from existing stores. We now operate 1,243 stores across our portfolio of countries and brands. We have managed to more than double our store count over the last three years. Despite this being a largely pandemic impacted period, both KFC and Pizza Hut crossed important store milestones of 500 stores each, and Costa Coffee has crossed 100 stores as of March 31st, 2023. This phenomenal growth performance by DIL India was acknowledged and facilitated by Yum! at the International Franchise Conference held in Singapore earlier this year, where DIL India was awarded the exclusive Restaurant Growth Award. Innovative product development through our Yum! partnership, along with execution rigor, has been a major factor in helping us grow. As we continue to expand our footprint across the breadth of the country, we believe our foray into the value offerings should lead to long-term benefits. The launch of KFC Lunch and rolls that provide great value to our esteemed customers have seen a strong initial traction. Premium products like the Chizza and the Peri Peri chicken at KFC were equally well received. In Pizza Hut, we have seen enthusiastic response to the Fun Flavours range, our value layer. We've also recently launched a fresh refresh of the PH menu consisting of 10 new pizzas and new size, which is being welcomed by our patrons. High inflation across industries and categories led to a short-term impact on consumer sentiment and demand in the second half of the current financial year. Despite this, our performance has been resilient, and we have continued to invest in the business to ensure long-term growth. I'm pleased to share that we opened 305 net new stores across our portfolio in FY 2023, with 66 of the net new stores getting added in Q4 full year 2023 itself. We continue to actively pursue new trade areas in metro cities and upcoming locations. This will help us take our brand closure to our customers and give them better experience, thus solidifying our presence in the domestic markets. Looking ahead, the confidence in our brands and the Indian market remains strong. We are seeing initial signs of inflation stabilizing, which gives us hope that a rebound in consumer spending in second half of the coming fiscal. By maintaining the financial discipline and operational excellence, we are well positioned to emerge stronger and capture growth opportunities in the future. We remain firmly committed to our objective of creating sustainable long-term value for all our stakeholders. With this, I would like to conclude my address and now hand over to Manish for his comments. Thank you. Thank you, Mr. Jaipuria. Good evening, everyone. A warm welcome and thanks to all of you for your valuable time for attending our Quarter Four and FY 2023 earnings conference call. Our seventh such call since the listing of DIL, back in August 2021. We closed the year with 1,243 restaurants, more than double the 610 restaurants that we had three years ago. In FY 2023, we opened 305 new stores across our brand portfolio, with 66 of these coming in quarter four. With this, globally, we now have 543 stores for KFC, 510 stores for Pizza Hut, and 112 stores for Costa Coffee in our portfolio as at the end of FY 2023. Our metro and non-metro distribution of stores in India continue to shift in favor of non-metro destinations, with 53% of the core brand stores in India now in non-metro locations. The potential for QSR sector lies in Bharat. While metros currently account for a significant share of consumer spending, we firmly believe that the upcoming towns will be the engine of growth in the coming decade. This will really help QSR in gaining real momentum in the country and playing to its potential of being a mass market play. Operating revenue for FY 2023 stood at INR 2,998 crores, representing a 44% year-on-year increase. This was supported by a 33% increase in store footprint. All around inflation and input costs led to a slightly lower gross margins at 70% versus 71.2% in the previous year. Despite a combination of changes in product mix and investments made in our businesses, brand contribution margins moved in line with the gross margins, but still at healthy 18.7%. Rigorous cost control limited the impact on operating EBITDA, which on a pre-interest basis was INR 435 crores versus INR 299 crores for the full year last year. Operating EBITDA margin at 14.5% was 10 basis points up on a year-on-year basis. Reported EBITDA, which is post-indebts, was INR 655 crores for the year, with margins at 21.9% versus INR 476 crores a year ago, almost a 38% growth. Profit before tax stood at INR 242 crores versus INR 123 crores last year, which is almost a 97% jump on a year-on-year basis. For the quarter, operating revenue stood at INR 765 crores, growing 28% on a year-on-year basis. Gross margins came in at 69.6% due to labor costs during the quarter. Brand contribution at INR 124 crores and margins at 16.4% were lower due to deleverage and the higher store operating costs. These include the recognition of full year's ESOP bonus and higher spending on local store promotions in the second half to drive the consumer sentiment in our favor across all our brands. Operating EBITDA was INR 91 crores, representing a 12.1% margin. KFC in India added 126 net new stores in FY 2023, reaching a total count of 490 stores as at the end of the year. Average daily sales for FY 2023 was INR 117,000 versus INR 113,000 for the previous year on an expanded footprint of stores. Annual SSSG was healthy at 16%. KFC India revenue was INR 1,771 crores, which grew 45% on a year-on-year basis. Gross margins at 68.3% were lower by 100 basis points compared to previous year due to sustained inflation in raw chicken prices and some of the other raw materials. This has impacted the brand contribution margins, which at 20.2% is slightly lower on a year-on-year basis. On-premise consumption remains steady at 62% during the current year. For the quarter, KFC India added 29 net new stores. Revenue at INR 440 crores are higher by 26% on a year-on-year basis. The sequential impact is due to weak consumer demand as a result of shift in the timings of key festivals and fewer number of operating days in the quarter. ADS came in at 106,000, net SSSG at 1.9%. Gross margins for the quarter stood at 68.3%. Deleverage due to lower ADS and the higher store operating costs led to brand contribution margin of 17.5% in the quarter. Pizza Hut in India added 93 net new stores this year to surpass the 500 store mark, as pointed out by Mr. Jaipuria earlier, and it reached a count of 506 stores. ADS for the year was 42,000. Revenues came in at INR 700 crores, growing 32% year-over-year, and SSSG was 4.4% for the year. Cheese prices continue to trend higher. As a result of this and the product mix changes, gross margins came in at slightly lower at 74.4% in FY 2023 versus 75.66% during the previous year. Brand contribution margin saw a small dip to 14.5% versus 16.3% last year because we saw that the milk prices continued to escalate during the year, and we did not pass that on via the pricing fees during the back end of the year. Product mix changes because of introduction of value layer and investment in the brand helped with the on-premise consumption, keeping it steady at 44%. During the quarter, Pizza Hut India added 23 net new stores. Revenue was at INR 170 crores, which was 16% up year-over-year. ADS was marginally lower at 39,000, with a negative SSSG of -3.2%. Gross margin was steady at 73.3%. Brand contribution margin during the quarter was 9.2%. We believe that the introduction of the value layer is a good initiative to drive organic volume growth in the medium to long term. However, in the short term, it has led to a little dilution in sales and ADS. We are proactively working on improving the performance of the brand, including the margins on the value layer brand. One of the recent initiatives have been to refresh the menu and the launch of 10 new pizzas recently in the month of April. The new pizza focus on contemporary palate and are designed to appeal to the youth. In conjunction with the launch of Your Mood, Your Pizza campaign, we have also brought gamification to the whole pizza ordering experience by offering personalized pizza recommendations based on customer moods. We have marginally increased the marketing spends as well. Costa Coffee crossed the 100 store milestone in FY 2023. We have added 57 stores during the year to develop footprint and to reach a total of 112 stores. Revenue also crossed INR 800 crore mark, with ADS for the brand improving to INR 35,000 versus INR 29,000 for the previous year. Gross margin was slightly lower at 79% because we saw the inflation in coffee and milk prices in Costa also. Due to investments required in the rapid expansion and sustained input inflation, FY 2023 brand contribution was a little lower at 23% for the full year. We believe that the input inflation should bottom out over the next few quarters. Hence, we expect the consumer sentiment to improve. The food services market is evolving rapidly with newer technologies and platforms like ONDC. While still early days, we believe that these have the potential to benefit all the stakeholders in the industry. We have already onboarded Pizza Hut on the ONDC platform. We are working on integrating all of our other brands on these new platforms to ensure that we are available wherever our customers desire. 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. Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star then one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the questions queue assembles. We have the first question from the line of Vivek from Jefferies. Please go ahead. Hi, good evening, everyone. A few questions. First, Manish on SSS, what is the outlook as we head into, let's say, first half or first quarter this year? I mean, the exit has been, let's say, -3% to +1%. What are your thoughts? How are you seeing macro on the ground right now? Vivek, the way we look at it, from a trilogy perspective, I mean, our medium to long term outlook on both the main brands has not changed. If you remember, we talked about KFC as being 5%-6% and for Pizza Hut we talked at 7%-8%. We are not changing any outlook, from a medium term perspective, but as you know, I mean, from a quarter to quarter perspective, there could be some headwinds, there could be some tailwinds, so therefore we don't comment on a quarter on quarter basis, but otherwise we are not changing any of the guidance. I understand that, Manish, but, you know, given how quarter has, you know, trended in the second half, do you think we are closer to the bottom right now or, you know, things you expect can get worse before start improving in the second half? The real base, you know, gets the lower base starts to improve only from second quarter. Sure. Vivek, we believe that we are towards the bottom end of the cycle because we started. If you see, I mean, on a macro basis, this sector typically follows consumer staples, and let's say when there was a downside coming, we saw the similar trend. We started seeing some recovery on the consumer staples, and therefore that gives us the confidence that this sector also will follow from a recovery perspective. Second, if you were to look at the input prices, the chicken prices have started to fall. We've seen, and you will see that in the numbers in the next quarter. Oil prices have already kind of tapered off from the peaks they were at. Similarly, if you were to look at the wheat flour prices, they are slightly lower. Even on the packaging material side also we are seeing that the paper prices have started to kind of come down a little bit. The only piece which remains a concern is therefore the milk prices and the cheese prices. We've all seen the commentary because there are multiple commentaries in public domain. We are hoping that also should start to stabilize in about six months' time. With this, therefore, we do feel that we are towards the bottom end of the cycle and things should start to recover from here. Okay, that's quite interesting. Manish, secondly, any, you know, update on how we are thinking about FY 2024 store addition, in both the key brands? In the past we've talked about 250-300 stores. If you look at our actual performance, it's close to 305. We are maintaining the same for next year also. We will be on an overall basis close to 300 store addition for FY 2024 as well. With a broad split of, you can say 100+ for KFC, 100- for Pizza Hut, another 60-70 stores for Costa, and the rest will be some of our smaller brands. Got it. Second, on gross margins in case of KFC, there is a 100 basis point margin expansion quarter-on-quarter. Is this entirely led by lower chicken price or there has been, you know, product price hikes as well? In the quarter four, there was no product pricing. It was primarily led by the chicken, and then there were some other benefits from oil and all. Chicken also the full benefit has not flown because we are sitting on the inventory, and that'll take another couple of months to kind of taper off. Therefore we are seeing that all the new contracting, new deals that we are getting is at a lower price, so. Okay, got it. You know, in case, you know, and hopefully so, input prices, you know, cool off even further, what are your thoughts on product pricing strategy at that point in time? Because your gross margins still are lower than, let's say, where the peaks were, but the consumer sentiments are also weak. How do you intend to, you know, manage the equilibrium in terms of sales versus margins? Vivek, the if you look at the product pricing or the consumer pricing, it is not just related to the input pricing. There are multiple other factors also. As you know, on KFC, we've taken a slight price increase in the month of April, which was just the last month. That is to take into account what is the outlook we have for the year. We also kind of need to balance our overall portfolio from a top line and the margins perspective. You would have also noticed that in KFC we introduced a value layer by way of the rolls and the KFC lunch. Therefore, there are a lot of other inputs also that go into the pricing decisions. But just to kind of give you the reassurance, I mean, KFC, if you remember our peak margin performance was 69.5%. We should see that coming back over the next few quarters. Sure. just to follow, Manish, even with the bit, you know, given how consumer sentiments are, and I understand, I hear you know, in terms of, we, you know, probably closing quarter now, but do you not think, you know, taking a product crisis at this point of time can be a bit constructive? I mean, we are cognizant of the category and the brand. For example, if you were to ask me the same question for Pizza Hut, my answer will be different. Pizza Hut, despite the fact that the milk and cheese prices continued to go up throughout the year, we did not take a price increase during the past quarters. Therefore, we have taken a hit on the margins. Even now also we've not taken any pricing on Pizza Hut. Therefore, pizza as a category is a different category. KFC is a different category. We try and compensate the consumers by way of deals, by way of offerings, by way of new value layers, just kind of compensate from a consumer perspective. Perfect. Last question, if I may. Manish, you mentioned about ONDC. There's a fair amount of debate going on, you know, everywhere in terms of, the product that ONDC has versus, you know, the incumbents, the discovery part and, you know, so many other aspects. Can you just elaborate a bit on your take on this ONDC phenomenon? Vivek, we've also seen the same thing as you have, and that's the reason we kind of participated in ONDC. It's yet to gain traction, yet to gain momentum. We already there. We are working on KFC to come on ONDC, but that is still under evaluation. Pizza Hut is already there. We would like to participate if it kind of gains traction and that's how we've started testing waters with Pizza Hut. Got it. Got it. Thank you, Manish, as always, and wish you all the best. Thank you so much, Vivek. Thank you. The next question is from the line of Percy Panthaki from IIFL Securities. Please go ahead. Hi team. Good afternoon. My first question is on Costa Coffee. Basically, if I just compare the size of Costa Coffee revenues versus the market leader here, it's around one-tenth of the market leader. I see significant sort of growth opportunity and a catch up possible here. Just wanted to understand, like Starbucks has reached this journey of INR 1,000 crore plus over the last decade. What are your ambitions and what are your thoughts on Costa as a brand and cafes as a format? Looking slightly medium term, what kind of growth aspirations and what kind of sort of turnover aspirations do you have from this category? Percy, it's a great category because coffee is a very, very aspirational category from a youth perspective. That's the reason, if you see why kind of Costa was, I mean, we really kind of activated the brand post-IPO because there were some concerns with respect to our agreement after Coke acquisition of Costa. Post that, we've really kind of expanded the brand. Versus last year, if you look at we've more than doubled the store count. We were at a 55 store count last year. We are close to 112. Our revenues have grown up by almost 140%, 150%. Therefore, we are absolutely there. We are expanding the brand. The consumer feedback for our coffee is very positive. They believe that the Costa Coffee taste is excellent, the flavor, and the aroma is above par. All of those things are positive. We are positive on the brand, but this will not be a mass play like a KFC or a Pizza Hut, because coffee as a phenomenon is right now majorly in metros and the tier one cities. We are focused. We want to expand, we want to play in that category which is growing. I've already indicated in my previous response that we are looking at about 60-70 store additions for Costa for the next year, and that will also grow as we see the response to the brand. Any kind of light you would like to throw in terms of that INR 1,000 crore kind of benchmark, how many years do you think you can take to go to that level? No, I would not like to risk it. Sorry. Okay, sure. next question on KFC. also Vivek has asked this as still sort of a goal if you could go into this. you've taken close to 3.5%-4% pricing on KFC in April. That's what Sapphire said, and I'm assuming that it's a pan-India phenomenon. Yeah. Right. Basically, this is on the back of close to 10% kind of pricing taken about 12-15 months ago. If I look at it like on a 15-month basis, the total price increase is close to about 13, 14. I understand there's a box effect, etc. It doesn't really translate to a 14%. What we've seen in categories like Pizza, and not just recently, but even like Jubilant have been listed since 10 years, so we have long data history, etc. Whenever we've seen high price increases in QSR categories, we have seen that the price elasticity of demand actually goes greater than -1. What I mean to say is that if you're taking a, the 3% price increase, the number of transactions or volumes might fall by more than 3%. This doesn't always happen, but it happens after a certain inflection point. How do you judge this, and how do you sort of? Are you sort of pushing the envelope a little bit? I think it's a risky move, especially because the key ingredient, which is chicken, is now going into a YoY deflation kind of a scenario. In this kind of a scenario, was this really warranted? Are you trying to sort of balance overall company margins because Pizza Hut is not doing that, so why not sort of earn a little more in KFC? What is the thought process behind this price increase? Sure, Percy. That is not the objective. We don't want to kind of balance the company margins through KFC. We are absolutely cognizant and careful on every and each brand, of course, and we want to kind of make sure that we nurture all these brands in that. Because as you know, we've kind of elaborated this in the past that at a brand level, we have separate CEOs, there are separate teams, and they don't allow us to kind of take those kind of leverages. Therefore, that is not the case. Having said that, as I responded to Vivek, that is the overall portfolio call. It is not just the chicken prices. For example, there is labor also, there is flour also, there are other overheads, there are store running expenses. At the same time, on top of that, as you know, we've launched a value layer to attract the new consumers in and to ensure that the existing consumers also can draw benefit from that. Therefore, we have to balance out the entire portfolio. Therefore, if you look at, for example, the response that we've seen to our growth and the KFC launch is phenomenal. We think that could become a very strong leg as we go forward. At the same time, we also because we have much more granular data available, we think the earlier price increase has got absorbed. If you see this recent price increase in April, we've taken after a gap of 12 months. Our last pricing was in April of last year. Throughout the year there was no pricing for KFC. Now after 12 months, we've taken about 3.5% kind of pricing. That's how it is. Whereas Pizza Hut, if you remember, it was a different pricing strategy. We took pricing in small bouts. It was almost throughout the year. Therefore it's a different strategy depending on the brand and so on and so forth. You have to balance the portfolio from various manifestations. Right. Right. basically you're saying in spite of this price increase, it's not as if the margins will sort of, go higher than what they used to be a year ago or something like that? No, no. That's the reason I said. I mean, we will come back to our old margins, but we want to expand the category, we want to grow the consumer base, we want to attract the new consumers into the, into the category, and that is what we are trying to play with these kind of balances. Last question from my side. This gap between SSSG and ADS growth. SSSG growth is 2% for KFC. ADS has declined 6%. There's an 800 basis points gap between these two. My understanding is, and correct me if I'm wrong, you would need approximately a flat kind of ADS so that you don't bear the negative impacts of operating deleverage because sorry, the cost per store will increase at a particular rate. From that point of view, just wanted to understand that to get this flat ADS, what kind of SSSG would you require going ahead? In case my basic assumption itself is wrong, that to avoid deleverage you will need a flat ADS, then correct me on that. Percy, there's a very strong third element which I think you've missed to mention, and that is at what pace are you adding the new stores? Sure. Right? For example, if you are expanding, say 10% year on year in terms of store additions, it will be a different equation. Versus let's say if you're adding a 30% store addition, it'll be a different equation versus let's say a brand which is adding 100% will be a completely different equation. It is dependent on how soon you are expanding, and therefore that variable plays a very important role when we try and balance out the ADS and SSG. Yeah. If for that variable you already know what your expansion plans are for FY 2024, 2025. Those actual numbers and maybe on those basis you can sort of answer the question. We can work that out and connect offline. That is not something we can do here. Sure. Sure. Okay. Okay. That's all from me. Thanks, and all the best. Sure. Thanks, Percy. Thank you. The next question is from the line of Nihal Mahesh Jham from Nuvama. Please go ahead. Thank you so much, good evening to the management. Manish, you made a comment about the value layer in Pizza Hut. It's the Fun Flavours range, as I assume. Is there a case where you believe that... I know you mentioned that longer term it will get more customers into the fold. Was there a case that X of this launch, maybe the ADS or the SSG of Pizza Hut would have been significantly different? Nihal, hi. We can get to various hypotheses. But the point is, for example, let's say when you, when you want to draw a newer category of consumers in, it takes a much longer time period to be able to protect your existing consumers and get the new category of consumers in. Now, with when we launched the Fun Flavours pizza category, that was the time we saw hyperinflation also. Therefore, while the new, newer consumers took time, our existing consumers started downgrading and rather than lapsing out of the brand or lapsing out of the category. Therefore, from that point of view, it has been a good initiative that we've been able to protect our existing consumer set, and this will help us in the long term. Now, obviously, we can all argue that, for example, if let's say this was not there, the numbers would have been different. Again, I mean, there is no because that was not the case. Now, for example, the new innovation that we've launched from a menu refresh perspective is going to kind of help us and compensate. We are going to mask media as far as the new range is concerned. That is at the top end, top end of the category. We are taking initiatives from a gamification perspective because that kind of draws the youth in. Therefore, we are balancing again the portfolio from both sides. Therefore, that piece is already kind of... That initiative is taken. We've already launched this in April. It's already started. Point taken on that. There was a related question that if I look at the intensity of launches in Pizza Hut, it has been significantly higher than a lot of other brands, including KFC. But say if you look at within your own brand, the performance of PH has been lacking. So is this a category issue in pizzas, you think? Because I know the price points have been lower in PH. So what do you think is the reason maybe the SSG profile of PH has been lower than a Pizza Hut over the last couple of quarters? Apologies, PH has been lower than KFC. Sure. Nihal, our hypothesis, if you look at pizza as a category, it's a very price-sensitive category. Traditionally, if you look at, I mean, pizza category, there used to be a very high volume of discounting, high volume of deals, offerings, and so on and so forth. KFC from that perspective, the brand has been built very differently and therefore, the consumer expectation is very different. So obviously it will take some time to correct the pizza piece, and that is what we are trying to do. Very well. Cool. Cool. One final question, Manish, was that on the chicken side, you mentioned there are some benefits which will play out given, you're sitting on some inventory. In case of Pizza Hut, is it the case that maybe, the raw materials we use ahead are at higher price, or how will that play out in the coming quarters? Nihal, if you remember, when we entered the inflation scenario, our margins took a hit after a gap because we normally hold a higher inventory. Similarly, now when the benefits are coming, it'll take a little while, maybe another couple of months, by that time you start to see those numbers in. Otherwise, from an ordering perspective, we've already started locking in the orders, and therefore we know and we are certain that the chicken prices will come down. Sure. I was asking for cheese actually, more from a Pizza Hut perspective, that, if the incremental usage of RM gonna be, say, gross margin dilutive or it's not gonna have an impact. Yeah. If it, if let's say the cheese prices continue to go up, it will be gross margin dilutive. Understood. Thank you so much, Manish. I wish you all the best. Thanks, Nihal. Thank you. The next question is from the line of Peter Shaw from Avendus Capital. Please go ahead. Hi. Good evening. Thanks for the opportunity. First question is, last quarter looking at good traction in KFC compared to sluggishness in Pizza. We had indicated or made a comment that we might accelerate our KFC expansion and kind of the split it to become PH. In this quarter's expansion, I see PH has increased and KFC has decreased compared to Q4. There is not much difference from our past numbers. Just wanted to know is there a rethink on that comment or that was just an observation on that front? Tejas, as you know, I mean, we talk about our guidance from a store count perspective, on a yearly basis and not on a quarterly basis. Definitely depending on the property availability, depending on portfolio, depending on what is our priority on a given location and so on and so forth, obviously, the quarter-to-quarter movement can take place. If you were to look at the full year numbers, KFC, we opened almost 126 stores, and for Pizza Hut we've opened almost 93 stores. Therefore, during the year when we said that KFC will be 100 plus and Pizza Hut will be 100 minus. The numbers are as per that. In quarter three, if you were to look at, KFC, store addition was twice the PH addition. It was Pizza Hut in quarter three was 17% and KFC was 38%. Therefore, on a yearly basis is what we kind of manage our portfolio. Right. Very Very clear. Second Manish on employee cost growth, both sequentially and YoY it is, there is an increase in there. Even if I adjust for store expansion and if I do calculation on store basis also there's a 2% increase in there. Just wanted to understand, how should we think about employee cost growth and certainly runoff in this particular quarter? Yeah, there is a runoff. As I said earlier in my opening remarks, we provided for a statutory bonus in quarter four for the full year, which is, as you know, under Payment of Bonus Act, you are supposed to calculate the allocable surplus, and that calculation is done on a yearly basis once your audits and all the numbers are finalized. So that is a one-time impact which is there. Going forward, we will be providing at that number. Therefore, that is the reason why quarter four employee cost also looks elevated. Yeah. On annual basis, this is a one-time Yes. Okay. Last one, on, especially on the KFC International enterprise, just wanted to know, what's the, what's the vision that you have at this point? What are we planning to do with the overseas market? How does the consolidation overseas investment for us? Yeah. That is what we are planning to do. Plus, let's say if we were to kind of expand overseas in future, we've enabled as a company to be able to kind of have that subsidy. Otherwise there is nothing concrete as of now. If there is something we will come back to you guys. Thanks, Manish, and all the best. Thanks, Ritesh. Thank you. The next question is from the line of Ashish Kanodia from Citigroup. Please go ahead. Hi, Manish. The first question is on Pizza Hut, right? If I look at the brand contribution margin on a year-over-year basis, it was, you know, almost half, and, you know, the gross margin has not come down drastically. Even SSSG is down 3%. You know, I mean, apart from just impact of negative operating leverage because of negative SSSG, is there any other reason why the brand contribution has declined so steeply? Ashish, as you know, there are multiple factors playing out. There are multiple factors which are playing out there. As I said, during the current quarter we've provided for the statutory bonus, and that has kind of gone impacted all of our brands. It's KFC, Pizza Hut, Costa. It's come anyway. Second, if you see, over a period of time, towards the back end of the year, we've not been able to take a pricing piece on pizza, and that was a conscious decision despite the milk prices and the cheese prices going up, which kind of impacted the gross margins a little bit. The period that you are referring to, in that period the gross margins have also got impacted. That is the other. Third, there is some bit of deleverage coming in because of the ADS, because we are expanding the portfolio. It. For the new stores, it takes some time to mature. That is the other piece which kind of goes and impacts. Therefore there are multiple things at play. Then we also talked about the Fun Flavours pizza that we launched, which kind of impacted the pricing piece. Therefore there are things which are kind of there and we think these initiatives are good from a long-term perspective. We've taken immediate steps to kind of correct that also. As you know, I've talked about this menu refresh. We've talked about gamification in reordering of the pizza. All of those initiatives have been taken so that we are able to kind of come back. Sure. I think on your opening remarks you also talked about increased marketing spends. If I look at both Pizza Hut and KFC, there's a new product launches. I understand maybe in the longer, long run it will not have significant impact, but maybe from next two quarter perspective, do you see why on gross margins you are taking some initiative, but purely because of marketing spends, there could be some impact on the brand contribution margin purely because of higher marketing spends? It's a marginal uptake on the marketing side. Obviously, the marketing guys and the brand CEOs take that call given what the launch is, what is the priority, and so on and so forth. Therefore, it's kind of balancing depending on if, let's say, there are some major new initiatives in a quarter, we go and support it and Yum! also helps us there. Eventually it'll kind of come back and settle at the normal levels. Sure. Just the last one is, you know, I think on the inventory bit, I mean, see, when I look at the balance sheet, right, the inventory levels are fairly very low, compared to, you know, the scale. When you say, you know, carrying high cost inventory, does that mean it's basically the contract which, you already have, right? There's a, there's no contract for the next two months, three months, and that is why you still have high cost inventory? Yeah, it's a combination of some bit of forward cover, some bit of physical inventory that we hold because as you know, we are present across the country and we have our own warehouses, we have our own stores, so we cannot risk the stocks running out. Therefore that inventory has to flush out by the time the new prices start to impact. The same thing holds true when we were entering into the inflation scenario. Our gross margins kind of got affected towards the end of the category. Sure. Sure. Just, on the overall demand, I mean, you know, I hear your thoughts that, you know, maybe, you know, we are reaching the bottom and I'm not looking at it specifically for numbers, but just, you know, some commentary in terms of how the last 45 days demand trend has been, what is, you know, adjusting for the seasonality, right? Q1 Q2 adjusting for the seasonality. If you look at the last 45 days, do you see the sentiments kind of improving? Look, we've seen some sentiments improving, but again, there are multiple other factors also. As you know, there is IPL going on, there is summer holiday season also. I mean, there were some festivals also in between, like over the weekend there was Mother's Day and all that, all of that. Therefore, I mean, but otherwise we are seeing improvement in the last 45 days. Sure. Sure, Manish. Thank you so much. Thank you. The next question is from the line of Jaykumar Doshi. Please go ahead. Yeah. Hi, thanks for the opportunity. you know, just a follow-up on the previous answer and your comment on, you know, the demand has bottomed out. Usually we see a 8-10% increase, sequential increase in ADS for most QSR brands in June quarter versus March. That's the usual seasonality. if you sort of, are you suggesting by your comment of bottoming out that you are seeing a similar seasonal uptick this year as you normally see every year? Or is the seasonal uptick still lower than the usual seasonality? Jay, what you are saying is right, and that used to hold, those trends used to hold very strongly pre-COVID. During COVID, we saw major disruption in terms of these trends and obviously we've seen some shift in quarters, depending on whether restrictions were there, whether people are working from home, they are going to office and so on and so forth. We'll have to kind of wait and watch for another few quarters so that we are able to comment that whatever was happening in the past is kind of coming back. When we say that we think, probably the demand is bottoming out or, sorry, the inflation seems to be bottoming out, that is more from the input prices that we are seeing, and therefore it is not just in our category, that is across various categories and various industries. With that, the disposable income for the consumer grows and therefore that should kind of come back into the consumption category. That is the whole analogy when we say that it thinks that the downturn is or seems to be bottoming out. That's very clear. Thank you. Second question is if you were to, you know, impact those, or if you were to provision for bonus across the 4 quarters, what would have been your KFC brand contribution margin in this quarter? Just trying to understand 17.5% fringe has, you know, bonus associated with them into the entire year. When I look at your overall numbers, your employee cost is up 200 basis points YoY. Just want to understand what will be the underlying margin. There is almost a 1% impact because of this. Therefore, that has kind of not just impacted the KFC, it impacted the other brands as well. Understood. Just a quick follow-up there. When I look at KFC, gross margin is down 70 basis points YoY. EBITDA margin, client EBITDA margin is down 430 basis points YoY. 350 basis points YoY decline, of that 100 basis points is attributable to this one time for bonus provisioning. Are the remaining 250-350 basis points attributable to operating leverage? Is this the right understanding or is there any one-off? Was there any one-off in the base quarter as well? As I said, we kind of took some initiatives on the local marketing. That is also kind of going and impacting the brand contribution margins. There is G leverage which is there on the again, I mean on KFC and Pizza Hut both. It's a combination of multiple factors. Thank you so much and wish you the very best for the financial. Thanks Jay. Thank you. The next question is from the line of Avi Mehta from Macquarie. Please go ahead. Hi Manish. Thanks a lot. First I wanted to kind of appreciate the competitive intense. Please could you give us some update on how it's happening in KFC and in Pizza Hut again? By such increase is it similar, and you know, broadly on that? Thank you. I would say it is more or less at the same level. If you were to look at, let me talk about the KFC first. You know that Popeyes got launched last year. They are expanding. We believe the competition will expand the chicken consumption, will help grow the category, will help the brand. Therefore it's a good thing. On Pizza we've seen, there's a lot of local competition which has started to come up post the COVID because during COVID time, there were a lot of small scale players who did not renew their licenses or they shut the shops because of financial difficulties and all. Now things getting normalized. There are a lot of smaller, either let's say, within the city there are some brands available, the local competition is there, the local brands are there. Some of that is coming back, and therefore that is where the competition intensity is going. Let's say if you were to ask me on a national level, any other very strong brand which is kind of emerging, we've not seen that yet. Otherwise, it's kind of we believe that if the competition intensity is there, it's good for the brands because there's much more noise in the market. People tend to kind of consume more. Therefore, it's a good thing. Okay. No, where I was coming from, Manish, was essentially on the, you know, marketing intensity or cost intensity, pricing competition as well, if there's any change. Because we have really kind of upped the ante on marketing. Does that simply mean our share of voice has gone up? Is that how I should read it, or what I was trying to parse. Yeah. Because for example, let's say right now, given where the consumer sentiment is, given the inflation scenario, it is more to kind of protect the environment and to come back, rather than becoming too aggressive, so. Okay. Okay. Second, I just wanted to kind of pick up on the last question. I'm sorry I missed that. You said it's bottomed out, the seasonality. If you could just re-explain that. I'm sorry I didn't quite catch that part. That's all from my side. The question was, do you think the consumer sentiment or demand, or let's say this inflation has bottomed out? Correct. Correct. That is where the whole piece was. Therefore, I was trying to link at the end of the day, it's inflation which kind of impacted the entire demand in the first place. That is the starting point where we are seeing the signs that inflation is bottoming out, and therefore we think that there would be revival in the consumer demand as well. Okay. That's all from my side. Thank you very much. Okay. Thanks. Thank you. The next question is from the line of Shirish Pardeshi from Centrum Broking. Please go ahead. Hi. Good evening. Thanks for the opportunity and congratulations, sir. Just two questions. If I draw the attention on slide 16, where ADS has declined from a peak of 127 to 106, and you partially mentioned that it is a function of SSG. My whole question is that when you say that the value piece is growing much faster in Pizza, can you give some more qualitative comments that what kind of SSG and the impact which has come because of the competition also? Sure, Shirish. Shirish, if you look at slide 16, this is what you're alluding to. That is a KFC slide. Yes. It is not Pizza Hut. No, no, I gave the example of Pizza Hut because your competition from local side is more on Pizza and not KFC. Sure. No issues. I will come to Pizza Hut also. If you look at, it is not just the SSG, which is where I talked to Vivek and Percy earlier. There is a strong element of how rapidly you're expanding your stores as well. For example, in a given vicinity, if you have 1 store and you end up having another store, let's say, whatever, 1 kilometer away, it kind of gets the demand divided. For example, if you go to a new city for a new store, obviously nothing happens. It is not just, let's say, what is the count, what is the location, what is the vicinity. There are multiple factors which kind of play out there. ADS is a combination of how many new stores are opening, what is the location of the new store, how is your SSG doing. All of that kind of thing eventually gets reflected in the average numbers. I got that, Manish. The explanation is helpful. If I say that, if you have a store which is open for, let's say, three years before, and if I look at the SSG, would that be a significant number which will be higher on SSG and even ADS? We don't bifurcate the stores and disclose those numbers. We disclose it on one set of population. And the definition of SSG is that whatever stores where we are measuring this out of that set of stores, whatever stores are present in the comparable period last year. Similar comments on Pizza? Therefore, that could also include some of the stores which got opened very recently, in that period. That would also include some of the stores which were very old in that period. Therefore, the maturity curve, even though it is one-year prior number, would be very, very different. Okay. on the new offering, like 10 new pizzas which has been launched by Yum! and also the INR 190 crores Chicken Rolls, over the last 45-50 days, what is the response? I mean, is it that consumers are going to get down-trading, and that's one of the thing which we are trying, like Fun Flavours pizza, what we tried during the COVID time? If you see, the new pizza that we've talked about, it's a refresh. That's not in the Fun Flavours range. That is on the premium pizzas that we have. It's only got launched towards the end of April, so it's too early to give any read. We thought that, therefore, number one, in the quarter four results, it has no impact. Secondly, we wanted to kind of keep all of you updated on the new initiatives we are taking. That's the reason we talked about it. As far as the KFC Lunch and the rolls are concerned, we first experimented with that in Bangalore and Gurgaon. We got the response and then we expanded nationally. That also the full quarter read is still not there because, I mean, this happened in phases. Otherwise, whatever numbers are we are seeing, on KFC Lunch and the rolls, the response is excellent. Okay. Just a quick word on the international business, Nigeria and Nepal, because not much of a discussion has happened so far. That's a small business, as you know. If you look at Nepal, we have KFC stores. We have four of Pizza Hut stores. It's about 22 store count. We have 37 KFC stores in Nigeria. We are not making any fresh investment in Nigeria, as we've stated in the past, because of currency issues. Whatever profits we generate locally, we kind of invest that back into the business. Both the businesses on a brand contribution level and EBITDA level are positive. They kind of sustain the CapEx momentum that they have. It's completely self-sufficient business. The whole objective is that continue to kind of grow the business out of whatever they are generating, then over a period of time, we will take the business out of that. Any comments on the owned brand beyond KFC, Pizza Hut, and Costa? Vaango is doing well. We crossed a store count of 50. Again, since these numbers are very small in the overall context, that's the reason we don't talk about it. Otherwise we can talk about Vaango in detail, we can talk about Nepal, Nigeria, Food Street. Overall, all of these businesses put together would be single digit of the total business, so. I agree. When you bring the annual number, at least one slide could have helped us how we should look at it. Because you've given a lot of commentary on KFC and how the growth is going to plan out towards 25. That's why I was looking some quantitative comments, how growth we should be building in these numbers. Sure. We can look at it, going forward. Your suggestion is valid, that at least on a full-year basis. Yes. We can do that. It's a very, very valid suggestion. Just last question on slide 34, where I look at the other income has moved from INR 161 million last year to INR 326 million. What is the nature and what is it that happened that it has grown 2x? What should we be looking going forward? Sorry, can you just repeat the question? The other income has moved from INR 16 crore last year to INR 33 crore this year. What is the nature and how this growth has happened? It's primarily because of the store expansion fees what we are drawing from Yum! or is something more sitting in it? No, no, there's nothing that. If you see, there is this Ind AS adjustment which we are supposed to do. There is some element of Ind AS adjustment which kind of goes and, sits in this, category as well. That is the main reason. Okay. All good. Thank you, Manish. Thanks for your time. Thanks a lot. Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you, sir. Thank you very much. Thank you, Mr. Chairman. Thank you, colleagues. Thanks to all the investors, analysts whoever participated in this call. I do hope that we have managed to respond to all your questions effectively. Should you need any further clarification or would like to know more about our company, please feel free to contact our investor relations team. Thank you once again for your time. Great you joined us on this call and participate in our growth journey. Thanks. Thank you, sir. On behalf of Devyani International Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.