Ladies and gentlemen, good day and welcome to Devyani International's Earnings Conference Call. As a reminder, all participants lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that the conference is in progress. I would now like to hand the conference over to Mr. Anup Pujari from Devyani India. Thank you, and over to you, sir. Thank you. Good afternoon, everyone, and thank you for joining us from Devyani International's Q1 FY24 Earnings Conference Call. We have with us Mr. Ravi Jaipuria, Non-Executive Chairman of the company; Mr. Viral Joshi, CEO and Whole Time Director; Mr. Manish Tawar, CFO and Whole Time Director; and Mr. Rahul Shinde, CEO and CEO, Yum! Brand and Whole Time Director of the company. We'll initiate the call with opening remarks from the chairman, followed by financial highlights by the CFO. After this, we will open the forum 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 now request Mr. Ravi 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 first quarter of the financial year 2023-2024. I'm pleased to share that we have started the new fiscal year on a healthy note, despite facing challenges from a difficult macro environment and stressed consumer spending. Our commitment to customers first always, driving product innovation and enhancing scalability has been instrumental in supporting our overall consistent performance. DIL consolidated revenues reached a new milestone of INR 847 crore for the quarter, backed by store additions across brands and continued healthy performance from existing stores. On the operational front, our efforts have been marked by the successful opening of 37 net new stores in Q1 2024, each contributing to the growth of our diverse portfolio of brands. Our core brands have a presence of more than 240 cities across India. We are actively seeking opportunities to expand into new trade areas and simultaneously deepen our presence in existing locations. The strategic expansion aims to bring our brands even closer to our value customers and further solidify our foothold in the domestic market. This will also help us to reinforce our position as a key player in the industry. As on June 30, 2023, DIL network was expanded to encompass 1,290 stores across our portfolio of countries and brands. Overall, we are confident of achieving our goal of opening 275-300 stores this fiscal year as we continue working towards our ambitious target of reaching 2,000 stores by 2026. With a dedicated focus on customer satisfaction, innovation, and growth, we are poised for success in the dynamic and evolving QSR landscape. Vaango, our own South Indian cuisine brand, is shaping up nicely. We are bullish on this brand, giving the popularity of South Indian cuisine in the entire country. South Indian food is considered to be a healthy meal option. Therefore it resonates well with the age groups among our target customers. We have opened 52 stores in Vaango so far. Vaango is expected to become an INR 100 crore brand by the end of this fiscal year. The consistent performance and potential of DIL India was acknowledged by Franchise India. DIL has been awarded the prestigious Master Franchisee of the Year award for 2023. In addition to operational excellence, we have successfully introduced a range of new menu additions and innovative campaigns for our core brands. The market response to these new offerings was highly positive, with stronger consumer acceptance. Our innovation pipeline remains healthy and strong. We are eagerly waiting to introduce our new products in the upcoming quarters. High inflation across industries and categories had led to a short-term impact on consumer sentiment and demand in the last few quarters. Despite this, our performance continues to be resilient, and we are committed to invest in the business for long-term growth. To sum up, our store additional strategy stands as a testament of our firm belief in the immense long-term potential of the Indian QSR. By continuously expanding our footprint and staying attuned to emerging opportunities. Along with maintaining the financial discipline and operational excellence. We remain poised to capitalize on this huge opportunity and deliver a sustainable growth and value acceleration to all our shareholders. With this, I would like to conclude my address, and now hand over to Manish for the financial highlights. Thank you. Thank you, Mr. Ravi Jaipuria. Good evening, everyone. A warm welcome and thanks to all of you for your valuable time for attending our Q1 FY24 earnings conference call. Our eighth such call since the listing of DIL in August 2021. In Q1 FY24, we've opened 47 new stores across our brand portfolio. With this, we globally now have a footprint of 1,212 stores across our four brands. This consists of 564 stores for KFC, 525 stores for Pizza Hut, and 123 stores for Costa Coffee in our portfolio as at the end of Q1 FY24. Our metro and non-metro distribution of stores in India continues to remain marginally in favor of non-metro destinations, with 52% of total store accounts in India. We are planning to add 275-300 stores in the current financial year across our portfolio and geographies. Operating revenue for Q1 FY24 stood at INR 847 crore, representing a 12% quarter-on-quarter increase. This was supported by a 4% increase in store footprint and remained as higher throughput led by KFC. Improved gross margins and ABS numbers resulted in better brand contribution margins in Q1 FY24 at 18.2% versus 16.4% in Q4 FY23. Reported EBITDA was INR 173 crore, with margins at 20.5%, versus INR 151 crore in the previous quarter of 15% quarter-on-quarter. Company operating EBITDA on a pre-interest basis was INR 111 crore, versus INR 91 crore in the previous quarter. Operating EBITDA margin at 60.2% was up 110 basis points on a quarter-on-quarter basis. Profit before tax stood at INR 13 crore versus INR 41 crore in the previous quarter. Please note that there has been a very significant devaluation in currency in our Nigerian operations. The devaluation in the month of June is more than 50% on the base official currency rate that prevailed in the country. As a result of this, we've actually decided on account of outstanding USD-denominated liabilities at the local level. This has been accounted for as an exceptional item in the PNL and has impacted our consolidated profit before tax and profit after tax numbers to the extent of INR 47 crore during the quarter. On a normalized basis, therefore, the EBT and PAT would have been INR 60 crores and INR 46 crores respectively. Please note that there is no cash impact because of the aforesaid devaluation impact. Taking the discussion to our core brands, KFC India added 20 net new stores in Q1 FY2024, reaching a total count of 510 stores at the end of the quarter. Average daily sales for Q1 FY2024 was INR 117,000, versus INR 106,000 in the previous quarter on an expanded footprint of stores. Revenue at INR 516 crores grew 16.3% on a quarter-on-quarter basis. Gross margin at 69.7% was higher by 1.1% due to a marginal pricing increase at the beginning of the quarter, along with a stable input material cost regime. Brand contribution margin at 21.1% improved by 3.6% on a quarter-on-quarter basis, mainly due to better leverage. On-premise consumption was 53% versus 62% in the previous quarter. During the quarter, Pizza Hut added 15 stores. Revenues at INR 184 crore was up 8% quarter-on-quarter. ADS was slightly higher at INR 40,000. Gross margins for the quarter came in at 74.9%, with an improvement of 1.6% versus the previous quarter. Brand contribution was INR 18 crore for the quarter, with margins at 10.1%, which was up by 80 basis points on a quarter-on-quarter basis. Costa Coffee, our third core brand, added 11 stores during the quarter, reaching a cumulative store count of 123 stores as at June 30, 2023. There was a slight revenue drop at Costa during the quarter due to lower ADS at INR 33,000. Gross margins were 77.3% because of some mint and coffee bean pricing inflation during the quarter. Q1 FY2024 brand contribution improved by 70 basis points and stood at 28.9%. We are expanding Costa at a rapid pace. You would have noticed that we have more than 20 store count over the last four to five quarters. The new stores take some time to stabilize and reach a maturity level, hence, this has impacted the overall brand performance, we expect this to stabilize as we go along during the course of the financial year. To conclude, I want to reiterate our commitment to our ambitious growth within the Indian QSR market. We have set a target of reaching 2,000 stores by 2026, a milestone that signifies the tremendous potential and demand for our brands. I would like to highlight that the entire CapEx required for the significant expansion is primarily being planned through internal funds. Our ability to self-fund this growth underscores the financial strength of DIL. Furthermore, you would have also noticed that despite our aggressive expansion, we have remained focused on maintaining strong financial performance.... It is noteworthy that our store expansion has not had any significant impact on our operating margins. We have efficiently managed our operations, leading to an accelerated break-even from these stores. Moreover, as we continue to expand, we remain committed to suitably increasing ROEs, reflecting our emphasis on proven financial management and creating long-term value for our shareholders. On that note, I would like to request the moderator to open the forum for any questions or suggestions that you may have. Thank you. Thank you very much. Ladies and gentlemen, we will now begin the question answer session. Anyone who wants to ask a question may press star one on your telephone. If you wish to remove yourself from the question queue, you may press star two. Participants are requested to use handsets while asking your questions. Ladies and gentlemen, we will wait for a moment while the question queue settles. The first question is from the line of Vivek Jain from Jefferies. Please Please go ahead. Hi, good evening, team. A few questions. First, on the demand environment, Manish, what is your sense, you know, how the next few quarters will be? Because last quarter you did highlight that, you know, because of seasonality, IPL, things started looking up. What is your outlook for next three quarters now? Vivek, you would know that quarter two normally is seasonally the lowest quarter. Because we have Sawan also in this quarter, and therefore, lot of focus on vegetarian. We do expect, with now the, the, the input material inflation also stabilizing, because we've seen now, I think for KFC, the input material prices are very stable. Pizza Hut, in the quarter that has gone by, the cheese and milk prices continued to increase, whereas now with good monsoons, and, and if you were to look at some media reports, even the cheese prices and milk prices have started to stabilize. Therefore, we are hoping that the demand environment will start to pick up from quarter three onwards. So let's see how the other things shape up and that is how we are also planning our business. Okay, okay. Manish, I, I did see, you know, the SSS for, let's say, KFC, but when you look at ADS, which is, you know, down quite a bit on a year-over-year basis, that would be a function of SSS plus the incremental stores as well? You're right. Again, Vivek, you also know that last year, quarter one was one of the strongest quarters, and we were riding back on, the wave 2 and wave 3 of COVID, and therefore, the dining was very strong, the overall demand, because people were kind of coming out. Quarter one last year was very strong, and therefore, the comps are, kind of in that zone. If you were to look at, our performance in the current quarter, KFC has 117,000 ADS, fare much better versus 106,000 in the previous quarter. We do believe that, that, that the overall demand is, is coming back, but I guess it will take another one or two quarters, to, to kind of stabilize these numbers. Okay. Okay, got it. On the gross margins, you know, overall, you know, the numbers are also, you know, quite good. The expansion which we have seen in both the, you know, core brands, KFC as well as Pizza Hut, there has been a strong recovery. Can you elaborate on and is this, you know, so basically the worst is behind the gross margin side? Whatever we are reading, hearing about food inflation and all, it seems like, you know, at least looking at your number for this quarter, the worst seems to be behind you. Is that a fair position? Vivek, if you look at... Let me kind of give you the perspective for KFC and Pizza Hut separately, because they both behave very differently given the current situation. If you look at KFC, the, the bigger ingredients are chicken, oil, flour, and packing materials. All of these four materials, which constitutes big material input on KFC, we've seen a stabilization happening. At the same time, if you also remember, we talked about a small pricing increase in the last earnings call that we took, I think sometime in the beginning of April. That has also flown in. At the same time, we also talked about introduction of the value meal layer in KFC, which was slightly margin dilutive, but on a combo meal basis, that kind of gets neutralized. We think if the, if the current situation were to prevail from the input pricing perspective, the worst on the gross margin as well as the KFC concern is behind us. Coming to Pizza Hut, as I talked about earlier, we are hoping that in the current quarter, the beef prices and the cheese prices will start to stabilize because the monsoons have been good. There is a clear supply of milk now in the country, so one point is done. At the same time, we also keep a very, very small pricing on Pizza Hut, just to balance the overall mix and the headwind that we faced from the fun flavor, launched last year, same time, or maybe it was, I think, in the beginning. Pizza Hut, I would not like to kind of say with certainty that the worst is behind us, because we still want to kind of experience what we looked at KFC for the last few quarters. Once, let's say, we have a clear visibility on the cheese prices and milk prices, that's where we will be able to talk from a certainty point of view. At the same time, we have seen in the current quarter the vegetable prices going up, and tomato prices, which again is one of the important ingredients for Pizza Hut brand. That is kind of, taking a huge inflation challenge. Overall, if we were to look at, let's say, from an overall portfolio perspective, I think we are in a good shape. Okay, okay, got it. Couple of more, if I may. One is on staff and expenses. There is a, you know, there is a reasonable, rise on both YoY QoQ basis. Anything to call out on, are these the numbers that we should work with, seasonally adjusted? Vivek, there are two key factors that I think you need to understand as to why the staff cost is behaving the way it is. One is obviously, as you know, we normally affect our increment in the month of April. Therefore, compared to, let's say, last year, the wage bill kind of goes up a little bit, and that impact is coming in. Secondly, we've seen in Q1, there has been some significant minimum wage increases in some of the states. That also kind of tends to take place, although there are some states which kind of go about the minimum wage revision even twice or thrice a year as well. Karnataka is what I would like to kind of call out specifically, where we've seen a huge amount of impact coming in for our business. As you know, Bangalore and Karnataka is a big player for us, and that has also impacted. Then, as you know, last year, from a management perspective, our performance was little behind our internal plans, and therefore, in quarter four, we have reversed some of the variable pay provisions which were not paid. I think it has a combination of these three. As we kind of go along and the business picks up, it will kind of come back to the original levels. Okay, anything on other expenses, Manish? I think other expenses are broadly in line. There's no big, material difference, which is there. I think you can assume those to be in the, in the range we are in. Got it. Last, very small question on Vaango. You have had, you know, detailed, slides this time around. Anything to read into that also? Vivek, we've been kind of continuously getting this feedback from various investors and analysts that you don't share the Vaango numbers and you would like to see things happening on the brand. We as business and as a group remain bullish on the South Indian cuisine opportunity in the country, and that's the reason we started disclosing the Vaango. At the same time, we think, by opening about 52 odd stores, I think we've experimented. We've seen how the brand is performing. We feel confident about the brand. We've stabilized the entire supply chain piece, and that's the reason we started disclosing the numbers specifically for Vaango. We believe by the time we exit this year, which is the Financial Year 2023-2024, we should be seeing a run rate of almost about INR 100 crore for Vaango, which I think was a significant number, and that's the reason we, we thought we will talk about Vaango separately. Nothing else. It is, it is pure good intention. That doesn't signal, signal anything, you know? Although I know it is a very small part of the business, but that doesn't signal anything, you know, in the next few years being a big focus for you. It's more of the same. It's just a disclosure, no change or, no change or let's say, you know, positivity around, around... Incremental positivity compared to where we were until last quarter. We are seeing some incremental positivity, and you will see that in, in the numbers also. Again, given the way KFC and given the way the other core brands are growing, obviously Vaango would remain a small part of the business. Got it. Perfect. Thank you, and wishing you all the best. Thanks so much, Vivek. Thank you. Before we take the next question, I'd like to remind participants to please limit your question to two per participants only. You may rejoin the queue for your follow-up. The next question is from the line of Nihal Jhamtani from Nuvama. Please go ahead. Yes, thank you. Good evening, Manish. The first question was on the gross margins in Pizza Hut, you highlighted how things are looking ahead. In this quarter, there has been a slight improvement. Is it that from this quarter itself, we've already seen the benefits of raw material prices, or was there a mixed impact which you alluded to in the last quarter? Nihal, as I said, we've taken a very small price increase also in Pizza Hut, and plus, I don't know whether you remember, I talked about the premium range of pizzas, in terms of that whole Pizza Hut refreshment and new categories I talked about in the last call, and we were introducing at that point in time. The whole idea was that how do we increase and how do we focus on the premium side so that the value contribution from the value layer that we introduced gets balanced out. Obviously, once that starts to happen, and with the combination of little bit of price increase, you will see the gross margins improving. As far as the raw material prices are concerned, even in Q1 FY2024, we've seen a small hit on the, on the milk and the cheese prices, which we are expecting to stabilize because now they are not going up. We are expecting that milk and cheese prices should start to stabilize from the current quarter. That's helpful. The second question was on the corporate overhead, where there has been a reasonable increase. Is this purely explained by the salary revision or is it some other basket function? Again, I mean, as I was talking to Vivek, the primary reason is the employee cost, and I talked about the reasons for that from increment which is coming in the month of April. We talked about minimum wage revision and so on, so forth. Again, we are hoping to get balanced out as we. Those are the main reasons why the corporate overheads look a little high. Right. The minimum wage could only be applicable to the store employees. The corporate overheads would be more, for the employee base, which will be beyond that, and it will be more the revisions, I would assume. If you look at the employee expenses line, Nihal, in the financials, that line is inclusive of both. Because that is how as we accounting standard, we are supposed to disclose, whether it's in the management presentations, when we come to the brands, obviously, it gets treated a little differently. Sure. Just one final question, Manish. That, Vaango, you know, in our earlier discussion, was at that time, finally, a food court and an airport brand. Does it still stay that way, or is there a change in terms of how things are gonna play out? Between Costa and Vaango, would any of the two actually be bigger up? Vaango, the broad strategy remains the same, because as we've communicated earlier, we still believe that Vaango can do well in the high footfall locations. Therefore, the focus is there. Most the focus is the high footfall locations, like food courts in the mall, it could be hospitals. It is basically the confined environments, where the footfalls is very significant. That is what the strategy is. Once we... Let's say we have a basic brand size, we would like to spend some money on marketing, and that's when we start to get into a little bit of bigger stores on high street and so on, so forth. That journey is to be covered. It's not going to happen on many campuses. Understood, Manish. Thank you so much. Thank you. you. The next question is from the line of Ashish Kanodia from Citi. Please go ahead. Yeah, thank you for the opportunity. Manish, the first question was on the KFC side. From chicken rolls range, you know, can you just highlight in terms of performance, you know, how that is panning out? Is it basically helping you to get more footfalls, or is it, you know, driving, say, higher ticket size? Also from a margin perspective, you know, yeah, is it kind of diluting the overall margin for KFC? Ashish, you're talking about... Sorry, can you just isolate that initial part? Are you talking about the value layer here? I'm talking about the chicken rolls range, right, which, which you launched earlier. Yeah. Got it. Got it. Got it. The entire focus behind this introduction was to how do we utilize the assets that we have. And as you know, KFC works very well towards the evening hours, and, and the lunch hours were muted, and therefore, this whole promotion in terms of the value layer, in terms of a combination for KFC lunch, that whole focus is around the lunch hour, so that we're able to get better daytime utilization for the brand. It is little margin dilution, but if you look at the kind of build combinations around this as KFC lunch, because on a standalone basis, it is little little impact is there. On a combination as KFC lunch, it kind of gets neutralized, so there, there is no dilution when it comes to a lunch combination meal that comes at INR 149. Therefore, we want to build the layer, because as you know, it has been an inflationary environment. During the inflationary environment, people tend to kind of downgrade. We are trying to build a value layer for KFC also, that we are able to kind of focus on the number of transactions, and we're able to get more footfalls into our stores. This will be good for the brand as we go along. Sure. That's helpful. Then, you know, Pizza Hut, you know, I think, the, the brand contribution margin remains weak, right? Just wanted to understand that, when do you expect the overall impact of say the fun flavor, you know, range to kind of taper off and maybe, you know, you minimize on the range refresh to kick in. What I'm trying to understand, assuming that, you know, the gross margin remains stable and you don't see any further, you know, inflationary trends in milk and cheese prices, do you expect this, you know, brand contribution margin to move back to, say, 50% plus kind of range? I guess it'll take a few quarters more, Ashish, because obviously one is, we see from the gross margins and the material cost side, which we are seeing stabilization is happening, and we do expect that the milk and the cheese prices will stabilize in the current quarter. Apart from that, obviously, there is this whole comps issue, because if you remember, the value layer was introduced last year, July, and that is where the dilution started happening. Around the same period, the inflation was also at very high, and therefore, our own consumers kind of downgraded, and the value layer was having an impact on the margins. Now with this whole Pizza Hut menu refresh, which is the premium end of Pizza Hut, we are getting very good response from the consumers. Once that starts to build up, we will see the brand contribution margins are going to be starting to improve. At the same time, we do believe that now with the inflation regime kind of stabilizing, people will start to kind of come back in the next few quarters in terms of what they regular are used to consuming from premium end of pizzas. At the same time, we are going to be kicking in very shortly as far as the media is also concerned, because we are. From a basic product perspective, having done the value layer, having done the premium end refresh, I think we are now talking about a mass communication around that whole thing so that the awareness gets built up and people start to coming into the stores. Obviously there will be some additional funding that will go for the marketing that we are talking about. Overall, you will see that in the next few quarters, the brand contribution will start to increase. Sure, Manish. Just last bit is on the, you know, on the subsidiary, which is Being Global. It fails to hold overseas investments and, you know, related management services. I mean, if you can throw some more light, it's just to, you know, hold your, the Nepal and Nigeria business, or are we looking at something else in, within the subsidiary? As of now, there is nothing there, Ashish. But our view is that whenever, let's say, something were to come up or the expansion happens on an international site, we've set up a, we've set up a legal structure that we are able to kind of use that subsidiary operation. But the whole idea as of now, is to kind of stabilize and, and put Nepal and Nigeria there. That will be the next step. At the same time, you would have noticed that on the corporate restructuring side, we've got the approval from NCLT as far as the two other subsidiary operations are concerned. We are planning to file because we are going to get the certified copy from the court, I think probably in the next one or two weeks, we will file that with ROC. Therefore, those two subsidiary operations will get subsumed into the main parent company. I mean, it's a corporate restructuring exercise that we are undertaking. Sure, sure, thank you so much. Thank you. The next question is from the line of Arnab Mitra from Goldman Sachs. Please go ahead. Yeah, hi, my first question was on- Sir, I'm so sorry to interrupt. This is a conference operator. Could you please speak Could you please speak a bit louder? Audio is not audible. Yeah, hi, is it better now? Yes, sir. You may go ahead. Yeah, my question was on KFC where, you know, while YoY we have a deterioration in the FOM. You mentioned it is possibly due to the competition. From your understanding, between Pizza Hut and KFC, is the demand environment stable largely or has it worsened? We have also added some parts of the value layer, but this has not led to the FCV improving. This. The overall KFC continues to be the number 1 choice as far as the consumers are concerned. There's no issue as far as the KFC brand is concerned. Again, you know that during the inflation time, obviously people were trying to downgrade. We also increased the value at Pizza. We are coming out of strong comps, because if you see, the Q1 of last year was a very strong quarter for KFC. Then because of the inflation and the demand environment, the business got impacted a little bit. We are coming back on that. Overall, we don't see any big issues as far as the consumer sentiment or the demand environment is concerned. It's only temporary in nature. The way to look at it, for example, let's say if this is the kind of environment, you need to build the capacity, on a very judicious and potential basis, and that's the reason we keep on adjusting the store counts between KFC and Pizza Hut. Let's say once, because overall, if we are bullish on the Indian market, we are bullish on the brand, and KFC is a very, has got a very strong leadership position, we will not be able to create that capacity overnight. That reason we have to be agile and we have to be. We could get there a quarter in advance or so, overall, we don't see any larger issues. Understood. My 2nd question was on Pizza Hut. You mentioned you're keeping a small price increase in Pizza Hut also, is it correct? Could you quantify how much it is, and is it only you or has competition also taken a price hike in the category? I would not say it was a price increase. I would say it was more of a price adjustment, which has had a positive impact on us, and that's the reason I called it out specifically. On an overall basis, you can say it is little under 1%. As far as pricing was concerned, because we were trying to resolve in terms of some bit on the delivery option versus the dine-in option, and, and, and, and some bit of reorganization on the fun flavor range. It's just had a, some... It's just had a positive impact. Okay, understood. My last question was on, again, on Pizza Hut. Given the very deep kind of everybody in the Pizza industry has been giving, you've already obviously slowed down the expansion little bit. The merit from further slowing down Pizza Hut expansion, till the category kind of shows some stability, in current environment? We continuously evaluate, what you're saying, and therefore, as I said, I mean, earlier we used to talk about, 100+ Pizza Hut stores in a year. We are talking about close to 70-75 stores now. Let's see how the next few quarters go, and if need be, we will, we will consider about this. Okay, thanks. All the best. Thanks so much. Thank you. The next question is from the line of Percy Panthaki from IIFL. Before that, I'd like to remind all participants to please limit your questions to one question only. Thank you. Over to you, Percy. Yeah, Manish, since we don't have a very long, listed history on a quarterly basis, I just wanted to understand pre-COVID, because looking at your numbers post-COVID on a quarterly basis really is throwing up a lot of noise. Pre-COVID, what was normally the sequential increase in ADS in Pizza Hut for Q1? Q1 versus the preceding quarter of Q4, what did generally Pizza Hut see as a sequential increase in sales per store, percentage-wise? Sure, even if I were to give you the numbers, the numbers would not make sense, because as you know, just before COVID, we had started restructuring the brand. So Pizza Hut earlier was focused on dine-in, large format stores, and then we were working on small format, delivery-focused stores. At the same time, we kind of shut a lot of large format dine-in stores during that period. And obviously, the ADS was a little higher when that time was there. But if you were to look at on a prospective basis, on Pizza Hut, we are much more efficient versus where we used to be, both from top line and bottom line perspective if you were to, let's say, go back to the, to, to, let's say, pre-COVID kind of history, Pizza Hut was a loss-making bank. I tell you where I'm coming from, Manish. If I look at Domino's, where we have the data, and look at three-four years, Q1 before COVID, the general trend is that Q1 sales first floor was about 7%-9% higher than Q4. Okay? Now, this quarter, again Domino's, Q1 this quarter versus the immediately preceding quarter, the growth is only 3%. We have seen similar outcomes for Pizza Hut from Sapphire, Pizza Hut from Devyani. They're all up QOQ in this 3%-4% band, versus a historic trend of about 7%-8%. What I want to ask is that, is it just on a YoY basis that we are seeing a slowdown, or is it even incrementally on a sequential basis, the numbers seem to suggest that we are seeing incremental slowdown because the normal quarterly jump on a sales per store, which should come in a Q1, is not coming. Percy, if you go back, let's say, pre-COVID, which is where your starting point was, therefore, let me kind of answer from rather than a pre-COVID, post-COVID. Let me just take a scenario of, let's say, if you were to go back to three to five years. Now, three to five years back, if you look at the Indian QSR industry, it was equivalent to only pizza, right? Whereas, take, let's say, last five years, the other formats have rapidly expanded. KFC is much bigger compared to where we used to be earlier. McDonald's has expanded a lot. Burger King was very small at that point in time. Therefore, from a, from a consumer perspective, there are a lot of additional choices which are available, what, what used to happen, say, pre-COVID. Obviously, let's say once once that starts to happen, the demand also gets shifted to some extent. I would say to more of that, there is nothing fundamentally wrong with the pizza market as such, because the pizza market is still growing, despite the fact that it is the largest QSR segment in the, in the, in the country. It is just kind of the demand getting balanced out, with the other choices available, with other brands available, and the fact that all of the other brands are also now expanding very rapidly and very aggressively. I agree with that, Manish. Here we are just talking about a short period of three months. The fact that other options were available was there even in Q4 FY 2023, versus that a normal seasonal uptick in Q1 FY 2024 is expected, and that has come lower than expected. You understand what I'm saying, right, Manish? Yeah, yeah, I agree with you. And, and that is what I said. For example, if you, if you remember my earlier comments, I mean, within the QSR category, pizza is one of the most expensive categories, right? Whenever, let's say, there is high inflation, and it could be impacted depending on which region, wherever you are, and people tend to bounce it. And, and, and that is what is happening. There are let's say cheaper QSR and key options available, and people have shifted there. Coupled with that, in terms of the additional, the brands which are available, the additional choices which are available to consumers, so that kind of tends to get impacted. Understood. My second question is on pricing versus the input cost. So if let's say the input cost, you are saying the input cost is stabilized, right? Now, in a scenario where hypothetically, the input cost see some amount of deflation, what do you think you would pass this on either in terms of additional offers or anything else? Or would you like the benefits to flow through the EBITDA? And you can answer this separately for KFC and Pizza Hut? Look, our fundamental philosophy is that we would not like to kind of reduce the headline pricing, because, I don't think, I mean, if you look at as of now, things are only stabilizing. There's not a symptom of inflation, which is kind of happening within our categories or within the economy. What was the hyperinflation in a way, or let's say, high inflation scenario, it has started to stabilize. At the same time, our focus always remains that we should have more and more transactions, more population coverage, more footfalls in our store, more consumers coming into the QSR value. Therefore, we try and give it back in, in some shape and form, and that could be additional offers, that could be some promos, that could be some value meals, and that is where we, we introduced the Pizza Hut value layer. That is where we introduced the KFC value layer also. That is the whole idea, that how do we continue to expand the footprint as well as the newer footprint? We continuously done that. Right. Right. Yeah, that's all from me. Thanks a lot. Thanks so much, Percy. Thank you. The next question is from the line of Kaustubh Pawaskar from Sharekhan. Please go ahead. Yeah, good evening, good evening. Thanks for giving me this opportunity. My question is, as on the competition front, as you just mentioned that during the inflationary environment, we normally see downscaling happening to the other, you know, value brands available in the market. In that context, what kind of strategies you are trying to implement? Because we have seen competition launching, you know, pizza in the mid-price range. On menu, are you also looking, you know, to have, you know, such type of, you know, gap feature going ahead or, you know, something which will help to those brands which are available at a lower price on other platforms? As I just said, I mean, we've also done pretty much similar things. If you remember last year, around Q2, we had infused a value layer in Pizza Hut, which we call Fun Flavor Pizza. Fun Flavor Pizza, we've seen going very, very strongly and very well with the consumers. It helps us to build the transactions also. At the same time, on KFC also, we've recently launched a KFC Snacker Range, which starts at INR 99. As I've also talked about that, we have a focus on KFC Lunch, which starts at INR 149 as a meal combo. We are also doing the same thing, and that is the best way to kind of expand the market. That is the best way to kind of get the consumers, into the stores. Therefore, that's what we are doing. On the KFC value meal, it was supposed to be launched in fewer stores earlier, so how is the situation now? Is this product available in plan yet? We've done the test market. We've rolled it out to the stores, and now we are going to be aggressively pushing that, and therefore, it'll become widely available. Okay, thank you. Thank you so much. Thank you. The next question is from Deven Shah from Motilal Oswal Asset Management. Please go ahead. Yeah, thanks for the opportunity. I have some questions. One is, on the aggregate side, has there been a price increase in this quarter? If yes, what will be the function for that? The second is, when you look at expanding some, you know, stores, whether it is the heart of KFC, do you think human resource availability becomes a challenge after a time when you want to grow at this stage? Hi, Deven. Deven, we took a KFC pricing fees, around April month, and that was little under 6%, from, from a brand perspective. Obviously, we kind of, compensated that pricing fees with the value there, from a whole perspective, from the Snacker range and lunch and so on and so forth. Therefore, we did try to give, some portion of that back to the consumers so that we are able to build the transactions, and we are able to get additional footfalls, into our stores. We've done the same thing for Pizza Hut. Pizza Hut, as I said, the pricing fees, was somewhere in the later part of April, and that was, more of a price adjustment rather than the pricing fee. The overall impact was under 1%. To your other question and challenge in terms of the expansion of stores and the availability of staff, obviously, as you know, I mean, this business is people-intensive business. As we open the stores, we need more and more people, but our HR engine is working very, very well. It's a well-oiled machine, and therefore, that whole piece kind of we've never faced any difficulties. We've never had any issues. We've never had to kind of delay our store opening because the staff was not available or the trained staff was not available. Yum! also have their processes in place because in terms of training of new employees, in terms of upskilling of the existing employees, they control that piece very, very closely. That, that kind of makes sure that we are well-disciplined, and we are not taking any short-term calls. Therefore, this, this side of the business kind of works very well as a well-oiled machine. Deven. Deven, there's a lot of- Your audio is not audible requesting. Please speak somewhat more. Yeah. My question was more from an aggregator standpoint, pricing. Have you given a price increase to the aggregator, like Zomato and Swiggy? That was actually my question over there. We've always had, Deven, some set of pricing scheme for, for, for the orders that flow in from Zomato and Swiggy, and that has continued. There is nothing different that we've done recently. Okay, got it. Okay. Thank you so much. Okay. Thank you. The next question is from Sabyasachi Mukherjee from Bajaj Finserv. Please go ahead. Yeah, hi. Thanks for the opportunity. My first question is on the competition- Sabyasachi, can you speak a little loudly, please? Yeah. Am I okay? Hello. Yeah. Yeah, you're better. My first question is on the competition in, on the KFC chicken part of the business. You know, in some geographies, we have seen, actually, in the urban market, we have seen, you know, McD and, you know, there is other competition that has come up. In terms of, you know, specific impact, what is your thoughts in terms of the chicken business? We welcome competition in the category. As you know, India is a large non-vegetarian market. 70% of the population is non-vegetarian, and within that, almost, 80%-85% of the people, chicken is the, is the medium of choice as far as the non-vegetarian food is concerned. Therefore, the kind of potential that the country has from a, from a chicken QSR brand perspective, we don't think that a single brand will be able to do the business. Therefore, as the new brands come in, the market will get expanded, the noise will be there, the marketing efforts will be there, the recruitment of consumers will be there. Which is as, as a market leader, we are well positioned, we are in a good shape. Therefore, if at all it'll start to... It'll even hit us also. Competition, and a healthy competition is the only way the market will get expanded, and India will be able to reach the potential that we've seen. For example, let's say, I'm not saying that India is China, but as you know, in China, there are 10,000 KFC stores. It's not going to happen overnight in India, but, but the competition and, and the, and the new brands that come in will help to open the consumer preferences and choices, and it helps us expand KFC also. Right. coming to your store addition guidance of, you know, 275-300 stores, per year. you know, Pizza Hut, I believe we are talking about somewhere around 100 stores, couple of years back, but now that has kind of trimmed down to 70-75. Costa Coffee is another 60-70, that much. you know, KFC store opening, is it a, a fair assessment that probably we are looking at a number of 120-125 store opening additions, per year going ahead? Yeah, you're right. Okay. Lastly, on the marketing campaign, for Pizza Hut, to increase the awareness, what kind of budget we are looking at and how long will it continue? See, overall, from a brand perspective, we spend about 6% of the top line on the brand marketing and the local store promotions. Whenever we launch new products or whenever we take some initiatives, we do spend some additional money. They are also putting the additional money from their side. Therefore, on an overall basis, we try and balance it out. While, for example, in the near-term quarters, we will see that the additional monies are being spent on Pizza Hut, on the menu fresh. That whole assessment is currently on. We can come back to you once we've fixed live the overall plan. Sure. Thanks. That's all from my side. Thank you so much. Thank you. The next question is from the line of Tejas Shah from Spark Capital Advisors. Hi, thanks for the opportunity. Manish, you touched upon sluggishness in Pizza category from the customer behavior dimension. Just wanted to know, did you achieve it a bit of higher sluggishness in this category versus others, because of very high intensity of organized regional competition that you have seen? I, I, I don't think I talked about sluggishness in the category. What I said was that Pizza is the largest category for QSR in the country. It is still growing on an overall category basis. It's just that there's a, there's a very aggressive expansion which is happening from the other brands, and therefore, from the availability perspective, the consumers have much wider choice available today. Therefore, there is some bit of rebalancing which is happening. At the same time, if you see, and I'm not saying that this is going to happen in India. Globally, burger is the biggest category as far as QSR is concerned, whereas in India, it has always been pizza because it got started very differently. Obviously, there will be some rebalancing which will happen in this category, because there are other choices available and, and, and there are other brands also which are expanding very rapidly. Otherwise, there's nothing wrong with the pizza category as such. Cool. Great, yeah. Second and last question, which is to Costa. Let me see. Just wanted to understand the interplay between EBS gross margin and margin here. When we see that last quarter, we were at 36,000 ABS, with 78% gross margin and 20% EBITDA. This quarter we had less ABS, lesser gross margin, but our EBITDA was higher. Just wanted to understand how the interplay works out. Considering that we have such good dynamics here, why are we not expanding this format much more rapidly than what we are doing in the current, current phase? See, one is, obviously the gross margin line behaves very differently to the EBITDA because that is all about input material. The gross margin is a little lower because, as I said, there has been some pricing fees during the quarter on milk, and plus we've seen some pricing fees on the coffee beans also. That is what has impacted the gross margins on the on the Costa Coffee side. As far as the brand contribution is concerned, because as we've, we want to take some rapid expansion, and therefore typically, let's say, once the store is in the maturity phase, the rent-to-revenue ratio, for this business is high, and that kind of gets stabilized as the ABS, starts to be for the new stores. That's the reason why you are saying that the IOT, that the brand contribution is behaving a little differently, because there have been some old store openings where the ABS has started to stabilize, and therefore the rent-to-revenue ratio is getting better. Sure. I think we have six months. Sorry? Sorry. Sorry. Go ahead. Please go ahead. Go Go ahead. No issues. On the rapid expansion, because when we are seeing brands like Third Wave Coffee and they are like growing very rapidly. Just wanted to know, what is our kind of... Do you want to accelerate the pace here or, or we are comfortable with what we are doing? We are talking about, Costa expansion at about, say, 50-70 stores every year. We are comfortable with that pace, and, and therefore, that kind of gives us a great opportunity to, to sell this brand. That is how we are looking at it. To be honest, I'm not privy to the, the Third Wave Coffee, plans, and therefore I will not be able to compare Costa to that. Okay. That's all from my side. Thanks. Sure. Thank you so much. Thank you. The next question is from the line of Devanshu Bansal from AT Global. Please go ahead. Hi, thanks for the opportunity. Manish, I just wanted to understand, the demand situation- Want to check whether footfalls have been challenged, bill size is low, due to tighter wallets or there are some other trends. Could you break the efficacy for Pizza Hut and KFC into the restaurant bill size? Pizza Hut, if you look at, Devanshu, I mean, as we said, that the farm flavor range was launched last year in the month of July, and that in fact hit the APC, which is a, which is a ticket size. The transactions have continued to build, and that is what is kind of helping and hopefully helping the brand in the long term. Similarly, on KFC side also with the, with the value layer, with the thicker range, with the KFC rolls, KFC lunch menu, we are building the transactions, and therefore, there is a small impact on the, on the APC side. Going things, both are positive and whatever negative attributes, due to the bill size that will be aligned using that. Right. Yeah, absolutely. Our priority is to get I mean, more and more footfalls into, into the store. Our priority is to build the transactions, and therefore, wherever, there are some menu gaps and product gaps, and we've, we've, we've managed to find the right product, we are going to be launching that. Great, sir. For Q1 and coming Q2 quarter, can we expect the ABS seasonality that you did last year continue this year as well? No forward-looking statements, Devanshu. No. Just to put it that way, last year was a, I would say, a common seasonality or was there any one-off that you would like to highlight? Last year, I mean, apart from the seasonality and all, there was a huge amount of inflation also, which we were seeing, and therefore obviously that was getting impacted, that was impacting the consumer demand also. Let's see, this year also the other seasonality that we are seeing, you must have heard about this Sawan seasonality. Right. This, this Sawan typically is a period where a part of the non-vegetarian population become vegetarian. This year, typically it's an extended Sawan period, too early to say, but that could impact impact the numbers to some extent. Got it. Last question from my end. Both KFC, Pizza Hut, the magnitude of increase is different, in terms of sequential ADS, but for Costa Coffee, it's a dip. Can you explain, as in, why, why the difference? Costa Coffee, as I talked about Devanshu earlier, is mainly on account of the new store openings, because new stores typically tend to open at a lower ADS and then they mature over a period of time. If you look at, let's say even for the current quarter, the triple ADS for Costa Coffee is sitting at almost about 9, 9.5%. Right. Even Manish, on a sequential basis, that changed. I was asking more from a sequential basis. I mean, we are opening, the stores rapidly, so it does impact on a, on a, on a, on a sequential basis also. Got it. thanks, thanks. Thanks so much, Devanshu. Thank you. The next question is from the line of Shirish Pardeshi from Centrum Broking. Please go ahead. Yeah. Hi, Manish and team. Thanks for the opportunity. I have one fundamental question. If I look at the journey over last 15 months of Pizza Hut, we have done the pricing adjustments, we have introduced a value layer, and in last quarter, we've introduced 10 new pizzas and some about 3 quarters before we have fun flavor. Maybe, if you or Rahul can address this, if the competition is one angle we, we are seeing, and you have alluded saying that there is a value layer which is picking up. Fundamentally, what is the consumer behavior telling us? That's why I wanted to pick brain from Rahul. If he can give us what exactly happening in Pizza, because this is a battle for me. When we look at things that last two, three quarters, the burger guys are doing well. Is there a permanent reset which is happening from the consumer point? As you said, there, there is more options, which is open up to go with. See, the reset is happening, as I said, there's nothing wrong with the pizza market. The reset is happening because, for example, there are additional choices, there are additional brands which are available to the consumers, right? Therefore, in that scenario, they need to kind of continue to do the right things. I mean, after we restructured the Pizza Hut brand, post-COVID time, our objective was how do we kind of build the ADS of the brand? For building the ADS, it was very important that we have a strong value layer so that we are able to... Because Pizza Hut, as you know, has always been considered as a, as a premium brand, and we need to kind of balance that piece out by, by giving the value there. The value layer, timing was a little unfortunate because by the time we introduced, we were in for high inflation scenario. Therefore, there was this down scaling which kind of happened very rapidly, and that's where we kind of decided to refresh the premium side of the range. We've done that. In any case, it was due, and therefore, we kind of pushed us into, into making a faster decision, and we introduced that. We balanced the portfolio now. We are going to be building the awareness around that whole piece, and that's how the Pizza Hut journey has been. I mean, from a loss-making brand, Pizza Hut is a, is a, is a positive brand today. The consumer demand is there, the stores are, the store expansion is happening, the consumer awareness is there, the consumer choice is there. Therefore, I mean, we are confident about this brand. Thank you, Manish. Just one follow-up here. I mean, hypothetically, if you had not done these actions, what would have happened to SSC? I mean, in hindsight, because there have been so many variables, it would be difficult to just kind of, remove, one hypothesis and build on the other, because, I mean, the markets are different, the competition is different. We've done multiple things with each brand, so it will not be right for me to kind of just remove one variable and hypothesize it. Okay. my second question on KFC. I'm looking at slide 17. will you be able to manage the gross margin? Because when I look at the brand contribution margin, which has declined on a YoY basis, 130 basis points. I do understand there is a chicken inflation setting in this, and you have taken about 3% price increase. But what should we zoom into, going forward? If this decline will get resolved and we look at the margin expansion, or there are some more inflation elements setting in this quarter, and that will also have the impact in the next quarter. What is the base you are taking for your comparison? On slide 17, I'm looking at the comparison. Last year, Q1, we had a gross margin was 69% in KFC. Yeah. which now moved to 69.7%. Yeah. Understandably, there is a price element which is there. When I look at the brand contribution margin, which is 22.4, has now become 21.1. There is a very strong element of leverage in this business, as you know. If you look at, last year, same quarter, the, the ADS number was 127,000, right? Yeah. That 127,000 had come down to 166 in the previous quarter, and therefore, there was a significant dip as far as the brand contribution is concerned. Now with, let's say, the ADS numbers going back to 117, we've managed to recover on the brand contribution piece also. So therefore, I mean, that is the other thing you need to kind of keep that in mind, that there is a strong leverage which is there. Okay. Apart from that, there is an element of, as I said, we discussed about the employee expenses and the minimum wage revision in some of the states, where Karnataka kind of stands out, and KFC has a very strong presence in, in, in Bangalore. That has also impacted. We, we need to kind of bear these things in mind. As we kind of continue to build the brand, the ADS improves. We are, we are very positive that we will be able to get the brand contributions back to where they were for KFC. I got that. That's helpful. Just one little more follow-up on KFC. When you say, and when we want to deconstruct the SSG, which as a company which has been flat or margin initiative, but since we have more dominance and, we are seeing the benefit in, semi metros we are going, is this SSG in semi metros or Tier 1 towns is better than metros, or this phenomenon is pulling down the SSG more in the metros? We've seen the consumer behaviors are pretty uniform, whether it is metro or a non-metro or a small town or a large town. Because remember that SSG is also dependent and linked to the kind of store expansion strategy that we are following. If you look at, for example, in the current quarter, we've not grown the number of cities coverage. That has remained the same. Therefore, that kind of tends to impact the SSG a little bit. If, let's say, I go to a completely new town and I don't open any additional store in my existing city, that will not impact the SSG numbers. There are some other variables also. Thank you very much. Ladies and gentlemen, that's the last question for today. I would now like to hand the conference back to the management for closing comments. Thank you so much. Thank you, Chairman, and all the investors, analysts who've been on the call. We do hope that we've managed to respond to your questions to your satisfaction. Should you need any further clarifications or would like to know more about our company, please feel free to contact the investor relations team. Thank you once again for all your time today and joining us on the call and participating in our growth journey. Many, many thanks. Thank you. On behalf of Devyani International, that concludes this conference. Thank you all for joining. 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