Ladies and gentlemen, good day, and welcome to the Q1 FY 2023 earnings conference call of Restaurant Brands Asia Limited, hosted by Edelweiss Securities Limited. As a reminder, all participant lines will be in a 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 touchtone phone. I now hand the conference over to Mr. Nihal Joshi from Edelweiss Securities. Thank you, and over to you, sir. Yes, thank you so much. On behalf of Edelweiss, I would like to welcome you all to the Q1 FY 2023 earnings conference call of Restaurant Brands Asia. From the management today, we have Mr. Rajeev Varman, CEO and Whole-Time Director, Mr. Vaibhav Punj, CEO, Burger King Indonesia, Mr. Sumit Zaveri, Chief Business Officer and Chief Financial Officer, Mr. Kapil Grover, Chief Marketing Officer, and Mr. Prashant Desai, Head of Strategy and Investor Relations. I would now like to hand over the call to Mr. Prashant Desai for his opening remarks. Prashant, over to you. Thank you, Nihal. Thank you everybody for taking the time and joining the call today on a Friday evening. We'll take you through the call. I just wanna wish everybody a very happy 75th Independence Day in advance. Long weekend, so we'll try and wrap this call up in 60 minutes. The way we will do this call is I'll hand it over to Raj first to make his opening remarks, both of the India and the Indonesian business. I'll take you through some slides on the business and operating metrics. Subsequently, I'll hand it over to my colleague, Sumit, to take you through numbers on the pre-Ind AS. Sumit will then hand it over to Kapil to take you through the developments on the marketing side and our strategy from a menu and marketing perspective. Post which I'll take you through the guidance, and then I'll hand it over to Vaibhav Punj to take you through the developments on the Indonesian side of the business. With this, I'll hand it over to Raj to make his opening remarks, both of the India and Indonesia business. Raj? Yes, thank you, Prashant. As well, wish you all a very happy Independence Day as well as Raksha Bandhan. I hope that everyone had a good Raksha Bandhan as well. Good evening, everyone, and thank you for joining and you know, forwarding your evening to us. I'll quickly walk you through the highlights for India and then for Indonesia. On the revenue side, we did INR 336 crore, which is 125% year-over-year growth. Also 25.4% quarter-over-quarter growth. The revenues continue to grow in the right direction. SSSG-wise, we were 66% over the Q1 FY22 ADS, and 21% over the FY22 ADS as a whole. Now, you know, as we have guided a 25% SSSG over last year, I think, you know, we are, you know, seeing these numbers and hopefully, next quarter we will try to better the guidance, as we are seeing some good sales coming our way. On the margins front, gross profit margins improved 122 basis points year-over-year to 66.4 in Q1 of FY 2023, and 30 basis points quarter-over-quarter. This is in spite of all the inflationary, you know, headwinds that we have, we continue to stay disciplined moving our business forward on the gross margin front. Reported restaurant EBITDA, and this is all on post basis, was INR 49.9 crore, 14.8%, for Q1. Improved by 410 basis points year-over-year. Also, the company EBITDA in Q1 we delivered INR 33.2 crore, which is 9.9% for Q1 FY 2023, improved 880 basis point year-over-year. On the development front, we are at 328 restaurants as of June 2022. 13 restaurants opened in this Q1. Today we have 19 restaurants in construction and another 40 restaurants in the pipeline. Last time we had reported 50 restaurants in the pipeline, some of them have moved into construction. Our pipeline continues to be strong and with the number of restaurants in construction plus the pipeline, we are very good to hit our yearly targets. On the BK Café front, the news is also very good. The BK Cafés we continue to build. 31 BK Cafés opened in Q1. A total of 86 BK Cafés are right now open as of June 22. Actually, as you speak today, we have 129 cafés open. Now, all these are very young cafés. Some of them have been opened only for a week or a couple of weeks. This last 43 days, we basically opened a café every day. So that's the kind of speed we have picked up on the cafés. The BK App, this revenue growth is about 13% quarter-over-quarter. Continuously growing this double-digit for the last five quarters. The app downloads and so forth installs 3.7 million, which is a 25% growth over the last quarter that we reported to you. On the Indonesia front and, you know, Sumit will give more color on the Indonesia side, and Prashant will give you some details on the India side as well. On the Indonesian revenues, you know, we were at INR 152 CR, which grew 16.2% quarter-over-quarter. 69% recovery over FY20 ADS. July 2022 ADS recovery. Now as we see it as 78%, so that continues to grow over the 69%. Strong investment in marketing. We have just gone into the market after a break of almost two years to put in a very strong marketing program. Vaibhav Punj will talk about, you know, what we have done there. You've seen the ads here in India with Hrithik Roshan. He will share with you a similar kind of celebrity and the amount of, you know, both the money as well as the strategy we have put behind the communication strategy in Indonesia. Gross margins for Indonesia have improved 140 basis points, FY 2022 over FY 2022, and that's at 69.9. This is again, you know, we are restructuring the menu over there. A lot of work is going on, and this will continue to improve as we move forward. There are a few work streams that are going on in Indonesia. One is menu architecture that, again, Vaibhav Punj will talk about. Introduction of, you know, value strategy, and then build on the other side of a premium menu. All these are in place. You will find some of the work we are doing on Whopper, which he will share with you. All the basic things that will move the business forward there. On the growth and profitability front, you know, growth we are going to continue to build both the brands. I'll talk about Popeyes in a minute over here. We just signed that one, so I'll come to that. Continue to grow the brand. Our focus right now as a brand over there in Indonesia is to first get back to 100% of our pre-COVID sales. Once we kind of get there, then our focus will be to continue building those freestanding drive-through restaurants that were so successful pre-COVID when we were building them there. Now great news on the Popeyes front as I alluded to. We have signed a Master Franchise Agreement for Popeyes in Indonesia. So I congratulate my entire team, especially Sumit Zaveri, who's been instrumental in this negotiation. And that has been completed. We expect to start launching the first restaurants in this calendar year as well on that. The plan on the MFDA that we have signed is 300 restaurants in the first 10 years. So that's... $5 million has been deposited into that account as per, you know, the requirement on the MFDA. We have also appointed leadership to head the brand over there, Popeyes brand over there, Sandeep Dey, who's been with us for over eight years, and who has 20 years of experience in this industry. We call him expert in chicken. We call him Mr. Chicken over here in our business. He's taking over as president, brand president for this business. We wish him well. He's already moved there with his family and has started to work on the menu and architecture of launching the first restaurants. With that said, let me transfer you back to Prashant to carry you through the detailed slides. Over to you, Prashant. Thank you, Raj. Guys, if you'll come to slide number 8. Before I go into the details of slide number 8, a couple of remarks. One, if you will notice, you know, from the Q4 presentation, we've deleted the slide on recovery. Given that the businesses are significantly recovered, we are now back to our pre-COVID SSSG reporting. Hence going forward, I think it's a better metric for all of us to kind of track and measure our progress. Number two, when we were showing the recovery data, we were giving you regional details. From a competitive dynamic perspective, we will not want to share the region-wise ADS data. Just keep these two pieces in mind. I'll first talk about our store opening. As we had last time told you, our target this year is to end the year with about 374. One big change in strategy we spoke last time is unlike the previous years, where a lot of our store openings were bunched up in the third quarter and fourth quarter from starting this year. Our endeavor is to kind of open stores more evenly. To that end, this quarter we opened 13 new stores. Our count, as you know, is 328. One big change from what we spoke last time, we had guided that we will open 200 BK Cafés by end of March. We are now upping that guidance to 250 by end of March 2023 in terms of BK Cafés. If you go to slide 9, ADS trend. We ended July with a run rate of INR 131,000. Very promising growth we are seeing month-on-month. As you guys know, for us, the October, November, December quarter, Jan-March quarter are two very big quarters. Before that, at INR 131,000, looking very promising, which is where Raj mentioned that, you know, give us just one more quarter. Hopefully, when we come back to you with our September results, we will revisit our 25% SSSG growth targets. As of now, if you take April to July, we have, you know, delivered a 23% SSSG. The delivery and the dining mix currently stands at 58-42, almost in line with what you saw last quarter. Our endeavor is, with the great work the marketing team has done, and Kapil will be talking about it. As that effect begins to kind of pay dividends, the idea is to take dine-in closer to 60, between 60 and 65 as we move forward. I'll now hand it over to Sumit to take you through the pre-Ind AS numbers. Sumit. Thank you. Thank you, Prashant. Before I take you through the numbers, just one call-out. During our few calls that we've had in the past, we realized that you would want to see the pre-Ind AS numbers there. Starting from this quarter, we'll be sharing the pre-Ind AS numbers with you as we kind of go along quarter on quarter as part of this call. Raj already covered that we've moved our overall revenue to INR 357 crores. We continue our growth journey on the gross profit side, taking it to 66.4%. Our restaurant EBITDA for the quarter stands at 6.1%. When Kapil will talk about some of the things that we've done on the marketing side this quarter, and that has resulted in some of entire production costs that we incurred for the purpose of development of our Stunner menu ad have got recorded in quarter one, and that has eventually resulted in incremental spend over normal levels by almost 2.2%. Adjusted for that, our EBITDA for quarter would stand at 8.3% at a restaurant level, and at a company level it would be at 3.3%. The amount that we spend effectively shall get evened out in later parts of the later part of the year, as we go along. Moving on to next slide number 11, which kind of really shows the numbers in a tabular form, what we spoke earlier. Our major call-out obviously is this company- level EBITDA at 1.1%. You would see slightly higher employee-related costs, and that is because of some of the investments that we've started doing, in terms of the focus on, I mean, breakfast and an early investment on a couple of the café launches that we are doing. We believe that as we go along, this should kind of start normalizing over next couple of quarters. With that, I'll just hand it over to Kapil to take us through the marketing initiatives that started. Well, thanks Sumit, and good evening, everyone. As Sumit just shared that we've been improving sales and efficiencies across the P&L over the last few quarters. I will talk about our top-line driving initiative that has started to show very good traction of it. We saw our ADS improve from 104 previous quarter to 120, and now trending at 131 in July. We will continue to drive these programs over the next coming years. Moving to slide number 13. This slide outlines the key growth drivers of our business. Our first pillar is Stunner, which will be our long-term play to drive everyday value credentials for brand Burger King. We are on air in quarter one, and that has significantly improved our dine-in traffic. The second pillar is about the menu to promote and build a strong menu that is relevant to our current and potential guests. The third piece is the café menu, which is what, you know, Raj and Sumit spoke about. It started off very well, and we are very confident that it'll be a key driver of incremental occasions and sales in the coming years. The delivery channel remains a very strong business for us, and we've seen strong growth on that channel on third-party platforms and as also on the BK App platform. Finally, the brand that we are building, a very strong relevant brand for the Zillennials. On slide 14, I'll talk a bit about the Stunner menu. Some of you are familiar about, you know, with the Stunner menu, but just for the new people on the call, I'm reiterating that Stunner is an everyday value menu with a range of products at INR 15-70. There's a choice of format and taste for our guests. It's a profitable layer and hence a sustainable layer over time. This was really the first quarter that we promoted the Stunner layer properly. The primary goal is to drive awareness and trials, and we saw significant improvement on that. On slide number 15, we were on air in April 2022 in one of our earlier commercials, which was functionally, you know, delivering the news on Stunner. In June, we produced a new campaign with Hrithik Roshan. Sumit alluded to that cost of additional marketing this quarter, which will normalize over the full year. This is a full-year contract with Hrithik. We went on air with the commercials early June. I'm sure all of you saw the, you know, headlines where it said Burger King hacked Hrithik Roshan. The content went viral on Friday, which was June 10th, and this is when we had not even gone on TV. We aired the three commercials up until early August. The results of this was that we saw about 20% growth in dine-in traffic over pre-campaign period, which is very significant. We leveraged social media platforms of the celebrity digital PR to create massive impressions and awareness about the campaign. Going to slide number 18. We have started to now build a very strong premium layer in our menu. You know, it's led by the Whopper and the relaunch of the Kings Collection. Just to, you know, jog back, we had relaunched the Whopper in November 2020 with a new recipe, which is more liked by the Indian palate. Went on television to promote it in January and February 2021. Continued to keep the innovation right now of limited-time Whoppers, social media engagement over time. Earlier this year in April, we relaunched a whole new Kings Collection with an improved product and new masala buns. Now, this portfolio put together is a very strong premium core menu portfolio. Over these two initiatives, if I compare this to the pre-COVID period, we've more than doubled our volumes in just premium portfolio. These initiatives will help us appeal to a different segment of consumers and also help us drive APCU via very balanced menu offering. Moving to slide number 17. I also wanted to share this, you know, big momentous occasion that happened, you know, early last week, early this week. We have launched the world's first 100% veg Burger King restaurant with no onion and no garlic menu, which we specially developed for our guests in Katra near Vaishno Devi Temple. Now, this menu was a big challenge, so we had to develop the entire menu without onion and without garlic. It took us about three months to develop the whole menu. This makes the Burger King concept so much more relevant to the local audience throughout the year. This is something that we intend to carry forward to other similar locations where consumers may have similar preferences. The third pillar that I'll talk about is the BK Café on the slide number 18. Now, happy to report, as we all mentioned, we've got 129 cafés live as we speak, and we continue to see 7% incremental revenue, which is approximately INR 11,000 on the 86 store base, which is open as of last quarter. We've also started trials of leveraging café for the breakfast day part. We started to open all our café stores, especially the high- street stores, at 7 or 8 A.M., depending on local nuances, and experimenting with a breakfast menu created with coffee and our core menu items paired together. Now, this becomes very relevant as we see changing lifestyles over time as people seek convenience even in this day part. We will keep you updated on how this experiment progresses over time. Given the great results from the café, we now continue to expedite the café expansion and we will be launching 250 cafés by the end of this financial year in the March 31st, FY 2023. Lastly, I wanna talk about how delivery continues to be a large business for us and a growing business for us. We know the consumer habit is changing towards convenience, and we've seen that channel grow for us over 50% in several, you know, quarters over the last, you know, last one year. In addition to the third-party platform, we also continue to grow BK App, which has grown 15% quarter-on-quarter. It is now close to 4 million installs. Slide number 21 talks about how we are building a youthful and differentiated brand relevant to these millennials. Our social media content, our cornerstones like the Sober Whopper that we did on the New Year's Eve. The fact that our menu has no synthetic colors, no artificial flavors, it bases the expectations of these guests, and we will continue to innovate and satisfy their expectations. Just to give another example, the branded activation that we did in quarter one also included the release of NFTs, which was the first ever in this category by any other brand. In summary, great value for our guests, offering differentiated and relevant innovations, establishing and growing BK Café, a strong delivery ecosystem, and a brand that resonates with the youth will be our focus over the next few years. I will hand it over to Prashant to talk you through the future outlook. Thanks, Kapil. As you will see on slide 22, except BK Café, where we've upped the guidance from 200 to 250 stores, we are not changing any other guidance as yet. We believe there is a high probability to change the SSSG guidance. Probably we'll come back to you with the September numbers. The rest of it is absolutely the same. I'll now hand it over to Vaibhav to take you through the Indonesian business update. Over to you, Vaibhav. Thank you, Prashant. Since I'll be speaking to you for the first time, so I wanna give you a little context on Indonesia as a country, but also where we are currently in terms of COVID situation there. The country, it's the fourth largest in the world in terms of population, 270 million people. Big chunk of them are millennials, which is very similar to what we have in India. Very high eating out ratio, so people eat out about 16-17 times in a month. Our business there is about 50% malls and 50% outside of malls, which we call as FSDT. What we have seen over the last 2.5 years is that even during COVID, the FSDT portfolio has continued to perform better than the malls. Currently, where we are in terms of COVID. COVID hits, the Omicron wave hit about a quarter late in Indonesia. We are still in a recovery phase, so to say. All the malls in Indonesia require people to be fully vaccinated to enter the malls. They use the app to track. In fact, in Jakarta Raya, which is the national capital region, you're required to have the third booster to get into the mall. This means that our recovery is a little bit more sort of staggered compared to what we've seen in the India business. We are working towards 100% recovery now. If you look at the slide here, pre-COVID, our average daily sales was at INR 135,000. Which is INR 1.35 lakh. We have seen consistent recovery from the last two quarters. In fact, our July exit was at INR 1.03 lakh. Still work to do, but we are in the right direction. In terms of the number of stores, we are at 175. Like Raj mentioned, our focus right now is to bring the sales back, and post that, you know, we're gonna focus on growth. On the numbers, operating performance, if you go to the next slide, you will see that we ended the quarter with a 16% quarter-on-quarter growth. Ended the quarter at INR 152 crores. Our gross margin improved by 1.4 percentage points. Our restaurant ticket now was at 3.9% compared to 0.5%, the quarter before and our company EBITDA was -2.6% compared to -11.6%, the quarter before. All moving in the right direction. Now what we need to see is or what I want to take you through is what is our go-forward stats, which is important not only for, you know, for the recovery of the business but also to build, a very strong baseline for the business as we go forward. Now, four broad charts, right? One, we wanna make sure that we are the most innovative brand in the country, and that's specifically in Indonesia, where innovation is the key. Intelligence is the key to bring the guests back. Second, which is very relevant to the category, value has to be a strong pillar for our business. Last, we've already made some great inroads on digital where we need to continue to work on. If you go to the next slide. In terms of innovation, there are two parts we are talking about. One is on our core menu. We already have. In fact, in Asia, we were the first market to launch the 100% beef Whopper. We are now sort of reworking, revamping the Whopper to suit the Indonesian taste, and the idea is to have a completely new Whopper launch in the next few months. On the other side, we've been very aggressive in terms of innovation. The pink and the black buns on the right-hand side. These are inspirations from Japan and Korea, two sort of flavor profiles which work very well in Indonesia. We just launched these innovations in social channels. People like to take the pictures first and then they want to taste it. The idea for us is to continue this direction, making sure that the guest has something new to come back to us every quarter. If you go to the next slide. Value, which is gonna be extremely important for this category and for us, in Indonesia, we have two broad value menus. The first value menu is King Feast, which is essentially the cheapest meal deal in the country. You get, you know, a burger, a fry and a drink at IDR 27,000, which is, you know, about 30%-40% cheaper than the competition. Now to promote this meal deal, we've signed up with Raffi Ahmad who is, you know, by far the biggest celebrity in Indonesia. He is, you know, across television, across movies, across reality television. You would see that he has about 63 million followers, which is, you know, one of the top in the world, I would say. He has a YouTube channel with 24 million followers. We've just gone on television with him about 15-20 days back. This is for the first time in 2.5 years that we actually, you know, going back on television, going doing a 360 campaign, and we have a high expectation that this will bring traffic and sales so back for us. The second value layer that we have is what we call Menu Hemat. Currently this is focused on à la carte snacking and entrees. We are now working to make, you know, this even more robust because this drives a lot of value traffic to us. We spoke about, you know, innovation. We spoke about value. The next part I wanna speak to you about was winning across day part. Similar to India, you know, we are working on our breakfast strategy, introducing the BK Café and also opening our stores 24 hours so that we can have the midnight day part which would be a strong growth driver for us. If you go to the next slide. One piece which is actually, you know, I'm extremely proud of the team, what they have done in the last two years, is really building a very solid CRM and digital data stack at the back end. We are one of the only brands, in fact the only QSR brand to have a very evolved loyalty program, we call it the BK Crown. We use CleverTap for our tech stack. We have about 6.4 million data points at this point in time. 1.7 of those are rich data where we know the customers' name, details, phone number, transaction points, and we can retarget them. This is something which we think is gonna be a huge growth driver for us in the future. Again, the four parts, you know, when it comes for us to win, would be extremely strong innovation, extremely strong value, a lot of work on CRM to bring guests back and winning through all the day parts. We do all of this consistently. I have no doubt that, you know, we will be back to a 100% level, the pre-COVID glory, in the next few months. Over to you, Sumit. Thanks. Thanks, Vaibhav, for that. Nihal, we can open up the floor for Q&A now. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone 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 question queue assembles. We have our first question from the line of Chirag from CLSA. Please go ahead. Yeah. Thank you, guys. Thank you for taking my question and good job really on the Indonesia gross profit margin expansion. My question is on Indonesia. If I focus on slide 35 of your presentation, you know, there is a sharp increase in the restaurant EBITDA that you have done sequentially. Now, obviously I do understand that year-on-year numbers are not available because they might not be comparable. Given that there are multiple moving parts on the restaurant EBITDA that we have seen in the last couple of years, what is the trajectory of margins that you see here going forward? And what are the key levers for the improvement in the Indonesia restaurant business, please? Thanks, Chirag, for that question. I'll answer this in two, three manner. One, Chirag has been consistently since IPO trying to educate people that number one strategy at Burger King India and now which includes Burger King Indonesia is to drive traffic. Having you guys have gone through a lot of similar businesses all over the world, this is a business where, you know, it's a very high operating leverage business. Hence, traffic will become a very important driver for us. Today, if you see the business is almost about 78% recovered. We had mentioned this to, you know, all of you last time that we expect this business to make a full recovery by September. Now, Chirag, if you actually go back to the presentation, we had shared with you guys when we, you know, had bid for the Indonesia business. On a LTM 2019 basis, this business had a pre-Ind AS restaurant level operating margin of roughly about 11.6%. Assuming the same, when we hit the September numbers, when we are fully recovered and we do the same number of same restaurant operating margin, that's about 11%. One massive effort that the team has put while the business is taking its own time to recover is to work what Vaibhav mentioned extensively on the menu side, also on the sourcing side. You have seen gross margin significantly expanding. We are now almost touching the 60% kind of a guidance that we want to achieve during the year. When we acquired this business in that same presentation, you will see our gross margins were in that 57.5-57.6% kind of thereabout. If you overlay that another 200 basis points there, you know, currently a 13% restaurant level EBITDA margin on an Indonesian business looks very, very doable. That's the kind of trajectory we can look at, you know, going forward, at least for this year. Sure, Prashant. That's very helpful. Just staying on that point, right? If you look at the two key levers that possibly we are seeing in Indonesia, and correct me if I'm wrong, is one, you know, expansion in gross profit. Then secondly, in operational leverage really kicking in from corporate and general administration expenses not growing as fast as possibly the way the sales growth will grow going forward. So, I'm hoping these are the two levers that you are looking at. In that context, if you can just elaborate a little bit around the fact that there has been a INR 24 crore increase. Sorry, I think these are in million numbers, about 3-4 crore increase in the corporate expenses quarter-over-quarter. Are we seeing the corporate and general expenses stabilizing at this level, or given the expansion it will further increase before we see the operating leverage really kicking in? Hi, Chirag. Chirag, this is Sumit here. Firstly, to your question on corporate general administration expenses, that this is actually the normalized levels that we see to remain for next 3-4 quarters. There could be some marginal adjustments as we kind of add people for the purpose of operating business. If I was to just look at it from the perspective of our Burger King Indonesia business, then these are the steady state level costs. Chirag, if I could add to your first part of the question. One other operating leverage lever you will see is as we continue to grow our FSDTs, you will see as we had explained when we had acquired this business, FSDTs have a significantly better margin profile compared to malls. As we move forward and we open more and more FSDTs, that's where you will see another lever of operating leverage kicking in. Yeah, Chirag, this is Raj. You know, if you look at the mall restaurants over there, their ADS pre-COVID was about INR 1.4 lakhs if you convert into rupees. If you look at the FSDTs, they were at INR 1.8 lakhs. We started building FSDTs towards couple of years before COVID, and we built about 52 in those two years. All these FSDTs, and if you look at the competition over there, the portfolio and the landscape is driven by FSDTs, freestanding drive-through location, FSDT. That's what is the fabric of what QSR is in Indonesia. We are skewed over there by malls because the initial ownership in 2008, when it was owned by a different owner, they were mall operators, so they built all their restaurants in malls. Once you know Punj took it over, Vaibhav Punj, he has been building FSDTs, which are coming at a significantly higher volume. That is lever number one, which is to drive higher volume stores, which are FSDTs. By the way, they come at lower rents as well. That's a double layer of advantage. The second lever that you will see as we go continue to grow in this business is the launch of cafés, right? That's a country of coffee. I mean, this café culture in Indonesia is second to none in the world. You know, we are kind of behind the eight ball on that. As we pick up and start building our cafés over there, that will become an added massive advantage to the ADS levels over there. Now, they have got inherent advantage on their commissions on aggregators. They work on much lower commissions, so that's a big plus. Rents are, you know, at 8.5%, so that's a massive big plus. In fact, FSDTs are between 6%-7% rents, so that's a massive advantage as well. Overall, as we move forward, I think all the effort we are putting around gross margins and trying to move that in the right direction with all the synergies we have between the two countries, I think there's several levers that are there that we can kind of over the next 6 months put in place so that we can move the business not only forward on the top line, but also on the bottom line. Sure. That's super helpful. Thank you so much and all the best, guys. Thanks, Chirag. Thank you. We have our next question from the line of Jaykumar Doshi from Kotak. Please go ahead. Hi, good evening. Thanks for the opportunity. My question is on BK India business and store-level operating leverage. Now, when I look at current quarter numbers, you know, between gross margin and restaurant level EBITDA margin of 8.3% that you state for months and ground level expenses, it's about 57% of sales is the OpEx at the store-level, you know, other than RM cost, 58% I guess. Now, that number was 57% even three years back in 1Q FY 2020 or full year FY 2020. I'm just trying to understand that, you know, with 75% more sales or, versus 1Q FY 2020 and, roughly about, you know, 10% higher ADS around 6,000 ADS, that operating leverage is still not kicking in. You know, at what ADS do you think, you know, this 57%-58% of store-level operating cost will start moderating? Or if you can give us a sense. We understand the gross margin expansion that you will see, you know, with scale and also the corporate overhead leverage. The store-level unit leverage, and when I again compare to Burger King versus KFC or Subway, I think the key difference of 10-15 percentage points of store-level EBITDA margin is largely, you know, because of this cost bucket. Just trying to understand whether this 120 has to go to 150 for you to start seeing those benefits like it is for the other brands, or there are some, you know, opportunities to reduce costs on this front. Sorry for the long question, but just want to understand the math a little bit. No, it's a fair question. Jay, broadly one thing you and everybody listening, you guys need to put a certain context to us when we compare with other brands. One, we are just still a seven-year-old brand, right? If you actually look at our store portfolio, which is 328 stores, so if you actually, you know, go through that slide and do the math, almost 141 stores of this were opened, you know, just around one year prior to COVID and then COVID hit. From that perspective, almost 140 of the 328 stores are just under one year. As they move into either year two, year three, you will see a significant operating leverage kicking in. Also, if you look at our total portfolio today, you know, and we were doing some numbers here internally, the average age of this portfolio is, I'll say, about 3.5 years. This number would be significantly different for all the brands that you are comparing to us. Coming to your question, as you know, I was mentioning to Chirag also on the earnings call, like, this business is all about getting traffic and getting to a decent ADS. What that ADS number is where we will, you know, come closer to the brands that you mentioned, tough to answer. One thing we can tell you is, you know, even going forward one quarter, two quarter, you will see a significant change in the economics that you are seeing. As we had mentioned this last time, we ourselves will be a little surprised if we don't deliver between 6% and 7% pre-interest EBITDA margin at a company level this year. So from that perspective, we are geared in the right direction. More importantly, when we open up 250 cafés this year, the impact of which comes in next year, we will really see a big impact and the closing of the gaps in the brands that you mentioned very soon, starting next year as well. Rajeev Varman, you wanna add anything? Yeah, thanks. Prashant pretty much covered most of the items. Just, you know, again, I just go back. See, this is a brand that is growing. It's not just growing in number of restaurants, it is also a brand that is growing within each restaurant, right? For example, café, why are we speeding up cafés? Because it's adding to the top line, right? Our targets are to move to INR 1.5 lakhs very quickly as ADS, and then continue our journey upwards towards INR 2 lakhs, which is kind of a game plan that is in our minds, right? That's how we think as a company. If you look at our P&L, right? If you go line by line items. Now, when you start looking at the percentage levels, they're very different than when you start looking at the value, the rupee value levels, right? This probably is one of the most efficient P&Ls that you will see in the market, right? We have gone through line by line, and we run a very, very efficient P&L. Once you increase the top line from 120 to 150 or whatever numbers that you want to test on your model, you will find that the numbers on the percentage side will grow rapidly, right? Even today, if you look at our spending On labor, for example, per restaurant, the rupee value of what we spend on labor is significantly lower than most of what you will see out there. Utilities, you will see, we are very efficient in the rupee value that we spend on. As you raise the top lines, the revenue lines, all the percentages will fall in place. While, you know, we spend this time in the COVID years, we perfected, we went through our, you know, we spoke about this a couple of quarters ago. We took a lot of time in building a very efficient P&L. Now we are, you know, with Kapil's plan that he laid out to you with the five pillars, we are set, with café and, you know, the growth and the traffic through our Stunner menu. We are completely set to now move forward with top line, with a very efficient P&L moving forward. Again, please be reminded it's a very young organization. A lot of our restaurants have just recently opened before COVID. In fact, December or between November and December was that 141 number of restaurants. November, December pre-COVID is when those restaurants started opening, and then they closed for COVID. A lot of those restaurants haven't seen a complete 12-month run of a complete, you know, annual run of a business. The other part is the Café business, right? We have just opened 129 cafés. We are running very fast and opening them up because we see some good synergies and good movement in those sites. Once you put all the cafés in place, you'll be set next year with, you know, 250 cafés humming. We will have the Stunner menu that would have been on air for several months. All the other levers that will be in place. These are things that you'll start seeing. You know, if you go back and reflect on the infancy of some of the other brands years ago when, you know, they started, you will see that this is a very, very efficient P&L. Understood. Thank you so much for a very detailed response. Thanks for disclosures on Ind AS 116, resuming those disclosures. Thank you. Thanks, Jay. Thank you. We have our next question from the line of Prateek Poddar from Nippon India Mutual Fund. Please go ahead. Yeah, hi. A couple of questions. One is on the India part, right? I think this is in relation to what Jay was also asking. Look, if I were to look at your business on a quarter-on-quarter basis or maybe even possibly FY 2022 versus Q1 FY 2023, the ADS has increased substantially. Your dynamics has increased substantially, yet I don't see the gross margin expansion which I should have seen, right? Because contribution level margin should align another higher contribution margin. And at the same time, even if I were to adjust for this, the ex-marketing expenses which you have called out, which to my understanding would be only for 20 days, yet margins adjusted for that versus Q3 FY 2022 on a plain basis have not gone up much. The question again is when do I see real operating leverage, which you guys are saying will come out even if the ADS moves from 120 on a portfolio level to 140? What are the line items, maybe if you can help me with that too? Yeah, line items, Prateek, remain the same. Our answer is not very different to what we kind of mentioned to Jay. First I'll give you the big picture answer and then break this piece for you. One, you'll start seeing this probably next quarter or October, November, December quarter, big changes of the way you calculated them, right? Two, as Raj mentioned, we will need to bump up our traffic. Today, if you look at pre-COVID to now, we are short on traffic of about 100-125 customers. Our APC today is about 308-310. Through the marketing campaign that Kapil has done, as this incremental traffic keeps coming to us at the APC that we are doing, you will see a significant jump in ADS. Whether it will happen, when it will happen, I wish everything was in our control. As we move towards that direction, as I mentioned to Jay also, we've spoken last time, you will see a [pre-interest] EBITDA margin of about 6%-7% this year itself in double- digit next year. That trajectory is what we are looking. It's looking like we are absolutely on the right path from that perspective, Prateek. Broadly, not a very different answer to what we mentioned, Prateek, but the levers continue to remain same. Traffic is a lever. As all these restaurants which are currently under a year, almost 140 of them as they get into their first full year, second full year, rent as a percentage of sales will come down. Our corporate overheads, which are now almost fixed, what Sumit mentioned, from that perspective also, if you see there is operating leverage that will come in. When we've been meeting with you guys, we've been saying these are the broad three levers, right? Gross margin, operating leverage on account of rent and third corporate overhead. These three and the traffic continue to remain the four levers. Yeah, Prashant, I understand that, and that's my question, right? That gross margins have not gone up despite dynamics going up. Operating leverage on a quarter-on-quarter basis is high from 104 to 120. I can't see that. That's the question. Why am I not able to see this? Or what am I missing? You're not missing anything, Prateek. One thing, our gross margin on both dine-in and delivery are the same. Gross margin, if you now compare us with all the peers who have reported their numbers, we probably are the only. Maybe I should have said contribution margins, because I understand that that won't be 20% or whatever free commission charges. Restaurant level operating margin, yes, that's what we are saying that is two things. One, it is dependent on the traffic and the ADS that we spoke to you about. As Prateek just mentioned, as these restaurants which are now currently about a year, as they get into higher ADSs, their rent as a percentage of revenue will come down. That is what is going to happen. The way, Prateek, we are looking at this business is very simple. The quality of this business is the quality of the gross margin that we deliver. Our single focus is to get the gross margins where they are. If you see across the board in this quarter, you know, if you look at the margin profile of every single product, gross margin profile, has remained uniform across the basket. Which, if you compare now with all the peers, it's a fairly interesting achievement that we've done. Rest are all math that will fall in place as our ADS improves. As our ADS improves starting next quarter and quarter after that, you will see that math flowing through. The lever is rent, the lever is corporate overhead. That's one. I'll wait for it. Second is just on café. Maybe, you know, anyways, Prashant, second is on café. Maybe if you can give us more context as to, you know, I know it's very early days, but for your early cohort, what kind of you will call out for 7% uplifting ADS, but I don't know what base it is. Maybe some thoughts around what was the base from which you are calling out the 7% increase, and how do you see this part of café moving? Café, as Kapil mentioned, you know, if you look at the incremental ADS that we do on the coffee side is between 10,000 and 11,000 currently on the cafés that we are operating. If you do that 10,000 multiplied by 365 days, you can look at another INR 30-40 lakh in the first year of café coming from each café operating at that incremental 10,000 ADS. Our gross margins are northwards of 75% in coffee. Because there are no significant incremental other costs at a restaurant, you will see the flow through. For example, we were discussing, right, the restaurant operating margin currently as we were mentioning, which is roughly about 8.5, which will go closer to about 11-12% by the end of this year. The coffee restaurant operating margin will be northwards of 30-35%. Then it flows, everything flows into the company level effect. So the contribution of coffee on an ADS side, though it may be incrementally for the café that we opened 10,000, so their contribution on the restaurant level is significantly higher. Also, another thing that Kapil mentioned in his commentary was, interestingly, what we are seeing when we look at stores where we've opened café versus stores where we have still not opened café, and taking out this incremental INR 10,000, we are seeing a 7% increase in the ADS of those. Prateek, again, very early days, right? Again, we experimented with coffee just last November. You know, the insight that we are picking up, talking to all our guys at the store is, it is so positive that we've now, you know, gone in talking of opening about 250 cafés. Not to mention the team is already, you know, working on a breakfast menu. All our high- street restaurants are now open at 7:00 A.M. You will see going into 2024 and 2025, coffee will probably provide a significant differentiator from a margin standpoint. Sorry, sir. When you say 7% ADS uplift, it is ex café, in the sense your organic ADS because of café you're getting a cross-sell opportunity and hence your ADS is up by 7%. Is that what you're trying to say? Now, how much of that 7% is coming largely because we opened café tough to break, but a comparison between a café and a non-café, yes. Okay, cool. Two questions. One is on Indonesia and one for Kapil. On Indonesia, I think you called out in the month of May 85% recovery, but in the month of July it's 30%. I'm not able to get that. That's one. Second, to you Kapil, you talked a lot about targeting millennials, et cetera. But when I look at your social media followership or followers, there are just 71,000 subscribers in BK India. Indonesia had 1.6 million. And you talked about CleverTap, right? I would have thought that, you know, that should have gone up. Why is that not gone up? Good. I can take the India question first. I think one of the things that is a data point on all India followers, that 0, none of those followers are paid followers. All of these are organic loyal fans are working. We spend 0 INR from marketing budget on gaining followers or buying our followers, which is a way you can build a significant follower base over time. That said, the engagements that we get, just to give you a number, I mean, typical engagement rates of social media content in the category average is about 4%-6%. The engagement rates that we get on our content is about 10%-12%. We are able to generate much more impressions because of quality of the content and conversations we have. Follower base is easy to increase. I mean, it's a commercial sense. We don't intend to do that. Our base is a very strong loyal base, and our engagement rates are very high. You had a follow-up question on? On Indonesia, the thing is we've been tracking our recovery, you know, the denominator has been consistent, so it's basically. FY 2020 ADS. May, incidentally in Indonesia is actually, you know, one of the highest sales period because of Lebaran. It moves every year by a few weeks. May, in this case, in this year, was where Lebaran was or Eid was. Sorry, what's Lebaran? I'm not aware. Maybe, sorry, my understanding is limited. Is it like Diwali or is it a seasonal effect, which is why 85% SSSG over there? Yeah, yeah. It's basically the end of Ramadan. After Ramadan there's basically a two-week sort of Okay. Period where everybody goes out and, you know, goes back to family. Yes, the impact is what you will have in Diwali in India. It's very similar. On the trajectory side, you're saying that by September end on an annual basis you would be back to 134,000 of ADS in Indonesia. In the next two months the recovery is very strong, is it? Yes. That's a recovery more than trend, that's the sense that we are getting. As Vaibhav mentioned, right? The fact, some of this is also dependent on policies like, you know, from double vaccination now a third booster is required to get into malls and stuff like that. Yes, as of now, the hope is by September we'll have full recovery. Okay, great. Great. Thanks, and all the best, guys. Thanks, Prateek. Thank you. We have our next question from the line of Percy Panthaki from IIFL. Please go ahead. Hi, everyone. My question is that let's assume what you're saying actually happens. Let's say that you go to 150,000 ADS and you do a 10% pre-interest EBITDA margin. That gives me about INR 55 lakhs per store EBITDA. Let's say post-tax, the profit that the store makes is about INR 45 lakhs. Against this you have an investment of about INR 3 crores, including store-level CapEx, some renovation, corporate CapEx, etc. If I do the math of 45 divided by 3 crores, that gives me a return on capital of about 15%. Even if what you're saying, everything pans out according to that, we are still a 15% ROIC kind of a company. I mean, that's including all the levers that you spoke about. Is there any upside to that number or this is a 15% ROIC company in the medium term? At 150 and at a store-level post-tax, yes. At 150 we don't stop, right, Percy. Because if you look at it, cafés have just started. Café is incrementally higher margin business. The impact of café is going to come we felt first in 2024, then going forward in 2025. All the work that the team is doing, as I mentioned again, I'll repeat, the stores are. The average portfolio is about 3.5 years. So let's say in another 18 months I touch the 150 number. At year 5 I am at 150. You know competition at year 10 where they are. So yeah, at a 150 year 5, weighted average after tax, the math that you did is math. So I can't dispute the math, but the levers are there. We don't stop at 150 in terms of ADS, and number two, we don't stop at 10% in terms of margin. There are certain structural differences, right? Like, the rental costs that you pay are higher than the peers, et cetera. Not just as a percentage of sales, but even on a per square feet basis. I mean, if your direct competition today is let's say at 30%, pre-interest after the advantage of lower rentals, et cetera, how much more do you think we can push over that 10% mark? There is a lot we have to do. You are right, I can't bridge the historical advantage a lot of players have over us because they came 25 years back and signed rentals in those years. If you look at it from our perspective, if you look at our gross margin profile, even without Café Coffee Day again, we are at a gross margin of about 66%+. As Raj has mentioned, directionally we want to go towards 70% gross margin. If you look at our corporate cost as a percentage of revenue with any peer that is listed, we run a frugal operation. That's how Raj's built this organization. We may miss out to a certain extent on the rentals and we can't do much on that. You will see us bridging that gap on the rental side of the corporate oversight. Also, Percy, one other math I would request a lot of you guys to do is one way to look at is the absolute math that we report. If you look at the incremental math that we are doing, I don't think we are worse off than some of the peers that you are comparing to. That is the bigger point. Going forward, our incremental economics is only going to get better because as Raj mentioned, we are still a relatively very young brand compared to a lot of brands. Having said that, to feel that, you know, I top up at 150 in terms of ADS and then I top up at a 10% company level EBITDA margin. I think there is a lot of things to do. At 150, you know, as our last year annual report said, we are just getting started in 150. Yeah, got it. My second question is on Indonesia. Forgive me if you've already answered this question, but can you give some idea as to, let's say on a two-year, three-year kind of horizon? What kind of ADS and what kind of pre-Ind AS EBITDA margin including, I mean, after corporate overheads would we be targeting in Indonesia, let's say by FY 2024 or 2025? Indonesia, Percy, is one place where we will not currently be in a position to kind of guide you. I tell you why, Percy. Since we've kind of you know taken over this business, the team is now spending a lot of time getting a lot of sort of foundational pieces you know from a next 3-5 year in place. As we told you last time when we even launched coffee in India, that we would like to do a few things, see where that's landing, and then kind of come back to you. Even if you go back to you know when we acquired this business on a pre-COVID basis, this business had a 200 basis point better company level pre-Ind AS EBITDA margin than India. Even if you overlay that on what India would be over the next two to three years' time, you'll get that answer. In Indonesia business, there are a lot of moving parts. How many FSDTs we open? How does the new menu do? How does a new campaign do? Where does our gross margin land at that point of time? How does my coffee do? The moment I do free-standing drive-thrus, I will launch my breakfast as a menu. The moving parts on an Indonesian business are a lot more than currently India business. From that perspective, I will refrain from kind of giving you where we see this. It's a great business that we've acquired financially. Now we are trying to see how we can better what we acquired, Percy. Understood. Pre-COVID, what was the pre-Ind AS post-corporate overhead EBITDA margin? Pre-COVID in Indonesia, how much was it? I think about 4.3 or 5. 5.3. 5.3. 5.3%. Okay. Thank you very much. That's all from me. That was also, Percy, at the GP level that was between 56% and 57%. A lot- How much was it? I didn't get you. Yes. Gross margins when we were reporting 5.3, we're giving you that number. Those were at gross margins of 56%-57%. See, last call we mentioned that we will start talking about Indonesia in six months. We are just putting our numbers together. This is a massive, you know, growth story for us there. Because as we started building FSDTs, as Vaibhav started building them two years ago, we realized that the ADS of those restaurant was almost INR 40,000 per day over the mall restaurants. And the rents of those were 6%-7%. We are not building any mall. We hardly— We maybe will pick one or two major malls coming up in the future. This business, as we look around the competition, look at the fabric of what they've built, it is all FSDTs. They're, they have the opportunity to run 24 hours. They have lower rents. They have higher, you know, drive-through business. They are the least affected by COVID. All these, elements that we will start building. We needed the six months time period to sit down, set up a model, investment model, return on investment model, what we are going to build, what is the size, all that stuff. We want to be, you know, effective when we come back and give you guidance on this one. Please- Just one small question. Are you on ADS basis, Indonesia, is it higher than pre-COVID levels yet? No, no. We said we've just recovered 78, right? There is a slight. Percy, when you go into detail in the presentation, we've given that. July, we have recovered about 78%. There was a question earlier on that, you know, in May we had a higher recovery and that was because Ramadan, you know, Ramadan shifts from one year to another year. In that month, you know, due to the festivity recovery was higher because it was against the lower numbers of the previous year. Even on a like-for-like basis, adjusted to festive season, et cetera, we are still below COVID. What's the reason for that? Because now I think as far as mobility, et cetera, is concerned, it's back to normal for most people's lives, right? No. As Vaibhav was outlining before, significant of our business that is existing business has been in the malls. With that, the restrictions are still in effect in the Greater Jakarta area. All the restaurants that we have there, about I think 80-some restaurants we have there, many of them in malls. To go inside the mall you have to have a booster shot in addition to the two shots. Yeah. that you have to show and all those restrictions. You know, we are looking at the industry at large, not just our own restaurants. The recovery is about a quarter behind India. That's why we gave the September guidance. You see yesterday I heard that Delhi has brought back masks mandatory for all day. We, you know, that's why we are always careful in trying to give you forward-looking guidances. If things are, you know, stay the way they are, we are moving in the right direction. We should start recovering some of that sales. This business is a fantastic business. Once it comes back to its original ADS and with the work we are doing on GP and the work we will start introducing the café because most of the café work has already been done here in India. Vaibhav Punj will just have to take that work and apply it to the Indonesian market. We will see bigger and faster success over there than we are seeing here because here we are kind of starting from scratch with less guidance and less information. When he has this information, this experience, and he carries it over to Indonesia, you will find a much rapid, you know, recovery. Very clear. Thank you. Thank you. That's all from me. Thanks and all the best. Thank you for your question. Thank you. I now hand over the call to management for closing comments. Over to you, sir. Thank you so much for taking the time on a Friday evening, everyone. Understand it's late. We really appreciate. We wanted to do this because of extended weekend coming up. We said, you know, let's do the call. Thank you once again. I know we've not been able to take a lot of questions. You guys have my email. If there are any further questions, feel free to reach out to me. I'd be happy to answer all of your questions. Thank you once again and wishing everybody a very happy 75th Independence Day. Thank you. Thank you. On behalf of Edelweiss Securities, that concludes this conference. Thank you for joining us and you may now disconnect your lines.