Ladies, and gentlemen, good day and welcome to Q3 and Nine- Months FY 2023 Earnings Conference Call of Sapphire Foods India Limited, organized by Orient Capital. 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. Please note that this conference is being recorded. I now hand the conference over to Mr. Nachiket Kale from Orient Capital. Thank you. Over to you, sir. Thanks, Faizal. Hi, good evening, everyone. Welcome to the earnings con call for Q3 and Nine-M onths FY 2023 for Sapphire Foods India Limited. From the management we have today Sanjay Purohit, Group CEO and Whole Time Director, accompanied by Vijay Jain, CFO. I hope everyone had a chance to go through the results and the investment presentations on the exchange. Before we begin, just a reminder that this call may contain some forward-looking statements which do not guarantee future performance and involves unforeseen risks. A detailed disclaimer has also been published in the presentation. I'd now love to hand over to Sanjay Purohit to take further call. Good afternoon, ladies, and gentlemen. Welcome to the Sapphire Foods Quarter Three and Nine-Month FY 2023 Investor Conference Call. Happy New Year to all of you all. This is the first time that we are meeting in the new year. I hope the new year has started well for all of you all. Before we start, I always like to reiterate the Sapphire story. We are a new company, new to the public market. It is important to understand what we are trying to drive from a long-term basis. Our aspiration has been to become a platform player in the QSR business, which means to be able to operate multiple brands. Today we operate two highly successful brands, KFC and Pizza Hut, both of which have got scale, have profitability, and we are building the capability to add more. The whole company is built on our focus on executional excellence, so great customer metrics and the back end to support great customer service. We want to improve accessibility of our brands therefore expansion is an important part of our strategy. If we have to expand, we've got to earn the license to expand as I've spoken about earlier therefore the right new store business model is key. We've arrived at an optimal size restaurant for both KFC as well as Pizza Hut, which is omni-channel. Here is a distinct organization culture that values excellence, accountability and governance and during the presentation we will talk about us launching our first ESG report also as a indicator of our focus on governance. Let me now get to the Q3 highlights. It was a difficult quarter for us and our brands did face challenging demand post-Diwali. While October was good, November and December were challenging. Our consolidated revenue for Q3 at INR 594 crores grew by 17%. In this the India business revenue grew by 24%, whereas Sri Lanka, while it grew in LKR terms by 39%, in translation terms it actually declined by 15%. India grew 24, Lanka declined by 15%, in INR terms and therefore consolidated revenue grew at 17%. For our EBITDA comparison, I'd like to follow consistent practices. Last year, which is Q3 FY 2022, we had called out that we had received additional incentives from Yum for that year specifically, and hence had normalized our profitability numbers by removing these additional incentives. Now I'll compare our profit numbers for FY 2023 against these normalized numbers for Q3 FY 2022. Our consolidated restaurant EBITDA grew Y-on-Y by 5%, and it came at 18.1%. This was down by 210 basis points, primarily due to the adverse Sri Lanka impact. Whereas the India restaurant EBITDA of this 210 basis points, India restaurant EBITDA actually grew Y-on-Y by 19%, but declined on a percentage basis by 90 basis points. This pattern you will see now repeating itself right through our Adjusted EBITDA, our EBITDA. In both the numbers also you'll see it repeating. Our consolidated EBITDA, which was at INR 106 million, INR 117 million, this grew Y- on- Y. At 19.6%, it was down by 170 basis points. Our consolidated Adjusted EBITDA, which came in at INR 73.8 crores or INR 74 crores, was flat year on year. At 12.4%, it was down 220 basis points versus our normalized EBITDA for last year. Our consolidated PAT at INR 33 crores declined Y- on- Y by 22% and at 5.5% it declined by 280 basis points. Specific brand level numbers, Vijay will talk about in a minute. Before that, let me give you an update on our restaurant expansion. We continued our pace of new restaurants expansion. We added 57 restaurants in quarter three, FY 2023. We added 24 KFC, 25 Pizza Hut in India, six Pizza Hut and two Taco Bell in Sri Lanka. Our cumulative numbers for FY 2023, for the three quarters is now at 136 stores. We opened 62 KFC, 55 Pizza Hut and 17 Pizza Hut in Sri Lanka, and two Taco Bell. In this presentation, we've also given a revenue and Adjusted EBITDA trend over four years, which is on page number 12. Over the last 5 quarters, I'm sure each of you all will be able to take a look at this. I'll now hand it over to Vijay Jain. Vijay is our CFO, and he'll talk us through the specific three businesses' performance: KFC, Pizza Hut India, and then our Sri Lanka business. Over to you, Vijay. Good evening, everyone. We start with KFC India business performance. On page 18, you can see channel-wise contribution, which has remained largely the same current quarter versus last year, same quarter. Delivery contributing 36% mix. Slide 16, 17, 18 gives you glimpse of various branding and promotion activities which the brand carried out during the quarter. Celebration buckets, key outdoor campaigns and so on. Moving to slide 19, it shows you pictures of new restaurant launches in Q3. One thing which I would like to bring out over here is 85% of our store openings are in cities which are having population greater than 1 million, and that's standard across both the brands, KFC as well as Pizza Hut. Moving to slide 20, on SSSG and ADS. As mentioned by Sanjay, post-Diwali, we have seen softening of demand on both the brands. Perhaps a reflection of increasing prices taken at the beginning of financial year in response to our inflation. Our SSSG was low at 3% for KFC. Another point to highlight is we added 75 restaurants in last one calendar year, which is roughly 30% store additions. With this level of growth, we typically expect SSSGs to be in the range of 5%-7%. Certainly 3% is a bit below par. Moving on to overall revenue growth, slide 21. The business grew by 26% for the quarter with a revenue of INR 381 crore. Gross margins dropped by 150 basis points year-on-year. However, sequentially our gross margins improved on KFC by 90 basis points. Certainly we have seen some cooling of inflation, especially for the KFC brand. This, combined with cost control, meant that we delivered a healthy EBITDA of 20.2% for the quarter. Slide 23 gives you the picture of the last three years' performance on the KFC brand as well as five quarter performance. The three year performance clearly shows the improvement and the growth which we have seen over last three years. As a result, today we believe KFC is in a very strong position with the overall restaurant EBITDA in the range of 20- odd%. Moving to slide 24, Pizza Hut India business performance. Page 25, you can see the channel mix. Just like KFC, even here the contribution, the channel-wise mix has remained largely the same as last year and similar to even YTD nine months, with delivery now contributing 50% of the sales for the brand. Slide 26, 27, 28 gives you glimpse of various branding and promotions we have carried out during the quarter. A lot of it was focused on even Flavour Fun, which is our sub 100 rupee Pizza Hut range launch during Q2. Slide 29 gives you pictures of few of our new restaurant launches. As mentioned, 85% of our new restaurant openings are in towns with 10 million population. Moving on to SSSGs and ADS, slide number 30. We have seen a bit more acute impact in case of Pizza Hut post-Diwali on the consumer demand as compared to KFC and seen a SSSG of -4%. We have added 65 restaurants in last one calendar year, which is again roughly 30% store additions. Typically, the new store additions come at a 75%-80% average ADS of the brand level, which is reflected in our overall ADS now coming to 58,000 for Q3. Overall revenue, on Slide 31, grew by 20% for the brand, with revenue at INR 136 crore. Gross margins dropped 100 basis points compared to last year. However, sequentially also, we have seen inflationary pressure, and with a drop of 60 basis points sequentially on gross margin for Pizza Hut. This, combined with negative leverage, meant that we dropped on a restaurant EBITDA by 80 basis points over last year, and the restaurant EBITDA came at 14.1% for us. Slide 33. You can see the last three year performance for the Pizza Hut brand. As can be seen, we have made significant and clear progress on the brand. We believe overall brand proposition is in a good place. All the key elements with omnichannel, product range, value layer, better format, more compact size, customer experience, and now improving accessibility. All the right elements are in place. Perhaps one of the thing we would focus going forward is do additional spends on marketing, which will actually help us improve our visibility in a highly competitive environment in pizza category. Slide 34, we will move to Sri Lanka business performance. Channel-wise contribution, the branding has come back strongly with contributing 35% mix in the quarter versus 15% last year. Slide 36 gives you pictures of branding and promotions. Slide 37, new product launches. Moving to 38, some of the pictures of new restaurant launch in Sri Lanka for Pizza Hut. Slide 39, moving on to the pictures of Taco Bell new restaurant launches. With this two store launch on Taco Bell, the total count now moves to nine stores on Taco Bell, which gives us reasonable ways to understand and improve upon the business model. It gives us a bare minimum size to work with the business model, and this could potentially be a second leg for us in our Lanka business. Yes, some, still some time to go. Moving on to SSSG and ADS. We've seen SSSG of 18% in Lankan rupees. Yes, we have seen transaction decline, especially because while the overall conditions, operating conditions have stabilized in the country, what we have seen is impact on consumer wallets on account of high inflation and high taxes. Overall revenue grew by 39% in LKR. On translation in INR, it has declined by 15%. Moving to slide 42 on gross margins, it has seen a dip of 990 basis points on account of inflation, similar to what we have seen in H1 of this financial year. This is reflecting in a drop of restaurant EBITDA down to 14.6%. If we move to slide 43, it gives a three year trajectory for the business. The business was hovering around 20% restaurant EBITDA mark. Last three quarters can be seen coming down to 15% mark because of the macro factors. We remain quite positive about the business in the long run. However, short-term profitability is surely challenged. Having said that, the mix of Sri Lanka business in EBITDA contribution has come down to 10% which was 25% last year. Slide 44 on ESG. Here I was on Sri Lanka business, slide 43. I will just repeat that. If you look at three-year performance, we were hovering around 20% restaurant EBITDA mark. But if you look at the last three quarters, we have come down to 15%. This is on account of the macro factors which we are experiencing. While we remain bullish on the long term prospects, short term profitability is challenged. However, the contribution, EBITDA contribution of Sri Lanka business to overall profitability has come down to 10%. Moving on to slide 44, very happy to announce that Sapphire Foods has launched its first ESG report, first in the Indian QSR industry as well, aligned with GRI, SASB, and BRSR standards. I invite you to go through the report. It's uploaded on our website as well. Slide 45 talks about the material assessment which we have done through a survey with internal and external stakeholders. We have come out with 12 broad themes under the heads food, people, planet and governance. Going forward, all our goals, action plans and our monitoring would be under these broad 12 themes. Thank you. We can open the session for Q&A. 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 your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets when asking a question. Ladies, and gentlemen, we will wait for a moment for the question queue assessments. Reminder to participants, anyone who wishes to ask a question, press star and one. The first question is from the line of Percy Panthaki from IIFL. Please go ahead. Hi, sir. Just wanted to know, you have in the past given, store addition targets on a longer term view, three to four years, kind of a view. However, now we are very close to the start of FY 2024. It's quite essential for us to know at least, what are your plans over the next 12 months for FY 2024 in terms of store openings. If you can guide, something on that, it would be great. Yeah. Percy, hello, Sanjay here. Again, we'll refrain from guiding very specifically over 12 months. I think, we still hold on to what we had said, at the beginning of 2022, that we will double our store count of 550, over the next three to four years. It means about 130-160 stores per year. That is the kind of range. We might toggle little up or little down. At this moment, we still hold on to that overall doubling the store count in three to four years. Right. Secondly, any kind of flavor you can give on your corporate overheads. Basically here I'm looking at the overall company margin versus the brand margin differential, both in pre and post accounting, so that the differential is only the corporate overheads. If I look at it that way, your corporate overheads as a percentage of sales is still pretty high compared to your sister franchisee who's this quarter of 3.5%, but even adjusted for any one-offs, carrying the range of about 4.5% of sales. If you could just give an idea as to why we are on the higher side and what we can do to bring this down and what we should expect this to be a couple of years from now. Percy, yes. First of all, our corporate overheads over last three years have come down as a percentage to sales considerably. Currently ending at 5.7%. You are right, it's the difference between restaurant EBITDA and Adjusted EBITDA. Within 5.7%, almost currently 0.8% would be contributed by ESOP cost, which probably would may or may not be there with the competition. That's one principal contributor to the corporate cost. We expect the ESOP cost to start coming down from these levels and move towards 0.5% or so. 5%. 0.5% of revenue. The ESOP cost in 0.5% of revenue over next two years. That should help with bringing it down. Further, the revenue at which the other sister concern operates at is 25% higher than us. Definitely they would be enjoying slightly better leverage. As we keep growing, we will also have a leverage benefit, which will make this 5.7% come down as we move forward. Okay, sir. That's all from me. Thanks and all the best. Thank you. The next question is from the line of Shirish Pardeshi from Centrum Broking. Please go ahead. Yeah. Hi, good evening, Sanjay and team. Thanks for the opportunity. I have two questions, sir. Can I refer to slide 20 on KFC? We have read the ADSs now at 136 and SSSG 3%. While our benefit is that I was listening to the competition call sometime back. They also referred equal to similar SSSG and the thing. Just wanted to have your candid view, is the competition is the angle one should look at or if this consumption is really not inching up. Because there was this surprise Q3 is a strong quarter. Sanjay, you did mention that November was flat. How do things are planning maybe the end of December, early January? Is the trend similar or if there is an improvement? Maybe your qualitative comments on that. Yeah. From a competitor perspective, who are you referring to, Shirish? In the last call, Devyani mentioned that there are QSR, the QSR players is also getting into chicken segment. Is that affecting or is that the worry for you and for us? Yeah. There will be competitive pressures right across, but I'm not too sure whether that has a significant impact on this quarter numbers. The competitive pressure has been there earlier also. It's not that it has increased dramatically right now. Clearly right now there's a consumption growth reduction that has happened. I want to be clear here. It's a softening of demand conditions that we are seeing right now, which continues into, you know, to some extent into January and February also. I think there's just one call-out that I'd like to make here, Shirish, that which we have again done consistently. If you look at our rate of store expansion is close to about 30% on a year-on-year basis. We've added about 30% stores. We have said that from a same store sales growth perspective, we should be in the region of 5%-7% is what we intend over the next three to four years. Clearly 3% is a little lower than what we would have anticipated. At this moment, when I look around, most consumer goods, whether in FMCG or otherwise, do seem to be facing some pressure on demand softness. I think it is that at this moment more than anything else. If you just look at it from an inflation perspective, we've never had this kind of inflation for a long time, and therefore the price increase also that has been taken are higher than what we have. We had called out in Q1 and Q2 also. Let's not be, let's not think ahead of ourselves. Actual demand conditions we'll understand in perhaps, you know, over the next couple of quarters. There is a softening of demand at this moment. From a competitive pressure perspective, it's not that it is increased significantly in the last quarter. Sanjay, that is helpful. I do agree with your view. When you compare with CPG companies, I think CPG companies are struggling because the whole rural consumption, when they saw the full inflation, there is a struggle which is happening. Largely, you represent maybe top 10 metros and Tier 1 cities. What I wanted to hint at is the price correction is required or maybe we need to get the value format more aggressive. Any comments on that? Where is the struggle and if this trend, 3% SSSG, which is not healthy for this sector? We have seen only one quarter of the 3%, Shirish. I think when we look at it, we have to just see it over a little longer term horizon. Ups and downs are part and parcel of any consumer business, so I don't think I'll make very major long-term trend projection on the basis of either this quarter or the next quarter. I think we have to just stay in there. Like Vijay was talking about on both brands, we feel that our input metrics are in good shape. From a value perspective also, we've done, we've, you know, both the brands have strong layers on value, so we are ticking all the boxes there. This up and down is now being more than three decades in this consumer industry, we... I've seen this happen. There's no long-term cause for concern. Indeed you will find quarters where we will do fantastically well. That time also there's no need to get overly exuberant also. I got that, Sanjay. Just a little harp on that point. Was this trend reversal is seen in last 35 days? No, no, I don't think we are seeing a reversal of the trend. I think we are still continuing to see some softening or this level of demand continuing in this year also, in this calendar year also. Okay. My last question on slide 30, where you have given the details from Pizza Hut. Again, the SSG decline was 4%. I'm looking for the answer that is the competition angle also is prevailing here or it's purely these two bottom lines, the consumption is still not come back to the full speed despite the really strong season? Yeah. I think softening of demand impacts different brands in different ways. Certainly KFC is a far stronger brand and it has far stronger consumer appeal, and therefore perhaps the impact has been to some extent lower than it has been on Pizza Hut. Actually on Q2, for example, was one of our best quarters on Pizza Hut, when our ADS was at 64, 65 level. It has undoubtedly the impact has been a little more on Pizza Hut. Again, when you look at what we are trying to do from an overall consumer perspective, we are ticking the boxes. I think we have to just stay the course here and ride this little rough period. Okay. That's helpful. Thank you, Sanjay, and best to you. Thank you, Shirish. Thank you, Shirish. Thank you. Reminder to participants, anyone who wishes to ask a question, you press star then one. The next question is on the line of Christian Tucker from Fidelity. Please go ahead. Mr. Tucker- Yes, Christian. Are you in talk mode, please go ahead with your question. Mr. Tucker, please unmute your line from your side if muted. Still there's no response from the participant. Hello? Hello, am I on? Yes, you're on. Sorry. I was just saying, you know, good shown on the margin side, especially in, you know, KFC. I just wanted to understand, you know, going through some of the earlier calls that you had, you were talking about, you know, seasonally Q3 being stronger and then Q4 mean reverting to some of the annual averages. Given that, where we are in the cycle where consumption is weak, how should we be thinking about our seasonality in Q4? I'm not looking for a guidance, I'm just trying to establish what's the base case. So that we can, you know, three months from now when we do Q4, know if trend line was maintained, but there was a further deterioration. That was sort of broad question one. Question two was, you know, on gross margin front in KFC and in Pizza Hut in India, incrementally, how should we be thinking about, you know, those line items versus the current levels? You know, we can double-click on either cost inflation or pricing interventions that you are taking to achieve that. Those two questions had a follow-up. I'll wait for the answers on these. Yeah. No, we got the question. Actually, you are asking us to give accurate Q4 guidance without asking us to give us guidance. First, what is the general seasonality? I'm just trying to establish a baseline on maybe KFC and in Pizza Hut. On gross margins, yes, I'm sort of, that's more in your control. How you think about gross margins there, I'm looking at the data. Typically Q4 is in somewhat similar to Q2, or so, which is generally higher. Yes, this year we are seeing even in the first quarter days some soften, softening of demand. Not further softening, but the softening continues or the softer demand condition continues. Coming to gross margin levels, on KFC and Pizza Hut. On KFC, we had mentioned earlier that we believe the cooling of inflation will happen in Q3, and we should be able to pull back some margins. That's what has happened. We believe it should remain at these levels, generally, largely going forward for KFC. On Pizza Hut, we are seeing inflationary pressures continue to remain, and we keep hearing every other day increasing milk prices, and cheese being a prime commodity. Very difficult to predict the exact impact on the gross margins. Yes, Pizza Hut gross margins are likely to be going slightly further down from the current levels as we move forward. Okay, thanks. sort of the second question that I had was around store competition. you know, you've been pretty strong in Q3. would we be looking to revise your full year sort of estimates? you know, one would have thought you do maybe 60 or 67 KFC, but looks like you do more similarly in Pizza Hut. Generally, only a few months are left. How are you thinking about store additions in India at least? Typically, while you are looking for a quarter-on-quarter basis, we look at the numbers on an annual basis because it's very difficult to tell quarter-on-quarter on the store opening pattern. Again, on an annual basis, Sanjay has just mentioned that this is our guidance on three years. This is three to four years doubling of count. Average would come to 130 to 160 restaurants per year. Now, as mentioned, we will toggle between that number slightly up or down. It largely remains on course. At least so far it remains on course. Got it. I guess just one very last one. You had said, you know, demand is slowing down and gross margins are flat to down across your key brands. How are we generally approaching, you know, the cost side? I see employee cost this quarter was under control. Generally, anything at all that you institute on the cost side? Yeah. Thanks. Again, as we mentioned previously, while gross margin is a factor, typically, we'll try and look at the overall shape of the P&L. We've seen in the last few quarters, while we have dropped on gross margins across both the brands, largely we've been able to retain the shape of the P&L and improve the margins. Even on YTD basis, KFC we have seen improvement on restaurant margins. On YTD basis, we have seen even improvement on Pizza Hut restaurant margins. Currently, we have mentioned where KFC stands in and around 20% mark. I think we are quite comfortable on KFC in that particular range. Over next two to three year scenario with the kind of growth we are expecting on KFC, because the new store additions comes at a slightly lower rate of restaurant level EBITDA. Holding on to that particular range in and around 20% would be key. Cost efficiencies and the cost controls will continue, which will help, which should help us deliver in that particular range, over two to three year period. On Pizza Hut, first key is the SSSG, because it is high operating leverage business of Pizza Hut. Having SSSG would be key that how much we can hold on to the margin and how much we can expand the margins. The long run horizon, we have said over three to four years, this mid-single level of margins we should be able to take it upward in the, in the long run because the new restaurant additions come at a better margin compared to the stores which we had from legacy. Of course, the pre-18 stores, they generally deliver higher margins compared to the overall brand average because of the benefit from omni-channel format. That's the long run perspective. In short run, if the SSSGs don't come back immediately, there will surely be margin pressures. However, it's two months or three months, very difficult to call out. Hello, hello. Does that answer you? Yes. Thank you so much. Okay. Thank you. Thank you to the participants. Anyone who wishes to ask a question may press star then one. The next question is from line of Jignesh Kamani from GMO. Please go ahead. Hi, am i audible? Yeah, Jignesh. How are you? Yeah, good. Thanks. This is from Pizza Hut. We have a nearly 4% SSS decline. If you think about we launched some Flavour Fun Pizza, and I think it's the second quarter right now. I'm just sure which I can say roughly around 15% or 20% kind of you can say revenue less volume on that. I just want to know is more, Flavour Fun is coming more from a down trading and the acquisition of new customers still not happening or just want to understand on that. Like I said again earlier, this is early days on Flavour Fun. It will require such big innovations, at least for the brand, will require a certain amount of time for it to stabilize. I mean, it's typically a year, two years that you look at Flavour Fun. Having said that, to answer your question in some manner, undoubtedly it is increasing our level of transactions. Those new transactions will come in at a lower APC. At this moment, our negative SSSG, I don't think is reflection of Flavour Fun trying to cannibalize our, you know, our regular sales, but it is more, I would say, from a demand softening impact rather than Flavour Fun being the, you know, being the negative cause of this. Got you. Contribution right now in terms of flavor volume with Flavour Fun. Again, we have avoided giving any specific numbers on Flavour Fun. Just allow us maybe two more quarters. At least let it pass one year before we give out contribution numbers, the margin impact. Please, please bear with us for a couple of more quarters. Sure. Okay. Thanks, sir. Thank you. Next question is from the line of Kapil Jagasia from Nuvama Wealth Research. Please go ahead. Thank you for taking my question. My question is again on KFC Same Store Sales Growth. You indicated earlier in the presentation that price hikes taken in the start of the year impacted Same Store Sales Growth over here. I mean, if price hike happened six to seven months back, why would it take consumer wallet share in last two quarters if KFC Same Store Sales Growth has been quite healthy? My question is it more because of aggressive store openings, which are taking a bit longer to mature, which is affecting this? What I, what I meant or what I indicated was that, price increases, which not just KFC would have taken, across the economy, there's been price increases at the beginning of the year. At times it could take probably a couple of quarters to have an impact on consumer wallets, and that's probably causing a softening of demand, not just for KFC, but probably across the consumer sector. That's what I, what I meant or indicated. In terms of our store opening plan, I think the new stores which are coming at, the kind of TBS which we said is coming at 70%-75% of the brand average, they are hitting those benchmarks. We are quite comfortable with the progress of our new stores and the revenue the new stores are generating. No cause of concern from a new store additions point of view. Just, you know, to see a scenario where the store opening run rate kind of maintains of this year and the inflation purchase indicates that 5%-7% same-store sales growth is KFC. Would that be possible or we would be at the lower end probably? It's important to understand what when you say store run rate in terms of count, in terms of percentage, it could mean very two different things, because in terms of percentage, this year addition has been 30% at new year additions. I don't think we are guiding 30% store additions. We always mention that doubling over three to five years, that effectively means 17%-18% store additions, store additions CAGR over three to four years. That along with 5%-7% SSSG is possible, which would take the overall brand CAGR anywhere between 23%-25%. That's the broad guidance over three to four years, and we believe that's achievable. Looking at, you know, previous history and the trends, I think that's quite possible. Okay. Thank you for that. My next question is, some of your competitors have launched premium offerings, be it in Burger or Pizza. Are you also looking at introducing a premium product to improve our gross margins and to be available at higher price points? Well, I'm not able to specifically, for example, if you look at Chizza, which is a launch which we have had in this quarter, I mean, you could call it a premium product. I think from a innovation perspective, we toggle between core innovation. Most of our core innovation would come at some kind of a premium to our average, you know, price across the menu. We toggle at core innovation and we toggle with entry-level entry value innovation also. Both things are done simultaneously over a, you know, over the year. Yes. I was listening to Burger King and both brands also previously, and they have introduced their gourmet burgers. Even Domino's introducing gourmet pizza. Even they could be at the highest price point, so. Actually, if you look at other way around, I think both the names which you called out, they typically operate at entry-level price points, and they are more known towards value. I think our positioning has not been just value. We actually introduced value in case of Pizza Hut. In case of KFC, we have that INR 99 burger and all those stuff. I think it's for them to do a positioning other way around where they can actually bring in premium. I think we have been playing across all the layers, be it value layer, be it core layer, be it premium layer, right from day one. Yeah. Short answer, Kapil, is I don't think we look at gourmet or so. I think we look at innovation across the spectrum from core innovation, to add-ons to entry value innovation. I think that's how we look at it. Got it. Just last question from myself, like, how are things panning out in Sri Lanka currently? Like, have things improved over there and any further hikes planned in that geography? From a operating conditions, what I mean by operating conditions is in terms of availability of raw materials, the supply chain, the power, fuel outages, I think all those have stabilized, the Forex availability. The operating conditions have largely stabilized in the last quarter. However, what we are seeing from a demand impact is finally the consumer wallet's taking a hit on account of high inflation as well as high taxes. The taxes have almost doubled over there, so it's definitely impacting the consumer wallet and the demand. That's the impact we are seeing on our revenue and on our transactions in Sri Lanka. So like- What was the other part of your question? The part of your question on Sri Lanka. I believe there would be no further price hikes in that region for now. On price hike, please. While the inflation has slowed down, it has not saturated yet. We keep seeing inflation. Over the years, we have taken several price increases. Over the years, we have taken several price increases in Sri Lanka. While the inflation has hovered around, let's say, 80%, we would have taken price increase in the range of 50- odd%. Even more recently, last quarter also, we took small amount of price increase in Sri Lanka as well. Going forward, if the inflation continues, we would have to take small amount of price increase. As we have said, we will continue to take price increases which is lower than the inflation, so that we don't outprice ourselves and transactions don't take a bigger hit. Thank you for answering my questions. The next question is from the line of Devanshu Bansal from Emkay Global Financial Services. Please go ahead. Yes, sir. Hi. Thanks for the opportunity. I wanted to check, as in what is giving you confidence, with lower SG&A due to a demand slowdown and not due to some sort of a fatigue for our formats, as the other revenues of food consumption have opened up post-COVID. Just repeat that. Is on due to slowdown or and not due to what, Devanshu? Some sort of a fatigue. We were, like, omnipresent during the pandemic and consumers were left with few options. Now that other revenues of food consumption have also opened, are you also sensing there is some sort of a fatigue for our formats? I'm not sure how to specifically answer that. If I just look across the spectrum to other brands and to other consumer categories, they seem to be in a similar place. If I look at retail also, I can see similar. If there's fatigue, it is fatigue across a broad spectrum of consumer brands and categories. Whether you call it fatigue or softening of demand, perhaps it's more of that rather than, you know, rather than fatigue with a specific brand. Okay, sir. I also wanted to understand if we can, from our side, take any supply side initiatives to bring back consumers back over stores under current environment. Are there things that you plan to do over the next few months and quarters? On both the brands, the focus first of all is ensuring through product innovation, there is enough excitement that the consumer has. That's one. Number two, how do we step up overall marketing investment? That's important in a competitive category. There's a significant focus on executional excellence and improving customer scores. Finally, the emphasis on team and team training. We have got to consistently up the ante on the focus on training efforts and ensuring that customer service is, you know, as good as it could get. There's enough and more in the pipeline on the new product innovation. While we can't call out the exact innovation, but there's a full calendar for the next 12 months on both the brands where there's enough and new launches in the pipeline to create and keep the excitement going for the consumers. Yeah. Got it, sir. Last one from my end. There was a general belief that we have a portfolio of more dining-focused stores as well in the Pizza Hut segment. Dine-in recovery for other formats with McDonald's has been really strong. That sort of didn't reflect in our relatively better performance of Pizza Hut this quarter. What, according to you, were the reasons then why dine-in didn't help for us when we had a relatively better dine-in focus earlier? First off, just clarification. I don't think we said we have dining-focused stores in Pizza Hut. What we inherited were large-sized stores. I think you're referring to those older estate models, large-sized stores which have been subsequently converted to omni-channel. They do dining, delivery and takeaway, all three. What we called out that these stores are large in size. As a result, while subsequently converted to omni, they are inefficient in terms of the cost which we have to incur to operate these stores. As a result, they would deliver slightly lower than the brand average at a EBITDA level. That's what we meant, and not that we are operating dining-focused. We operate all our stores are omni-channel focused stores. No, I get that point, sir. My reference was like in all of our stores, we have 60, 50 minimum, right? Versus other players, pizza players, they may be having a lower dining, compared to stores. My reference was from that perspective. According to you, when people sort of, other dine-in focused stores, they see some good traction, what were the reasons why we were not able to see that traction? Relatively, dine-in in this, -4% is little better than delivery. If I look at dine-in across KFC and Pizza Hut, it's at a similar level, Devanshu. I can't comment on how we have done versus, say, you know, a competitor brand. This is generally what we have seen. Dine-in slightly better, overall, in any case, a little stressed. I think again, I want to reiterate, our guidance has been 5%-7% SSSG with this kind of store additions that we are doing. On KFC, we are slightly lower at 3%. In the case of Pizza Hut, undoubtedly lower than that at -4%. I think you have to just when we look at all the work that we are doing on the consumer front from a product perspective, customer front, partnering with delivery aggregators, I think most of that work is, you know, is the work that we need to continue to do and just ride this tough phase out. Got it, sir. We've got three minutes more. Nachiket and Faizal, how do we handle this? We'll take the last question from the line of Ashish Kumar from Infinity Alternatives. Thank you, sir. While we discuss about India, a little bit in terms of Sri Lanka and slightly more longer term, how do you think building what could be a plan to come back to our pre-economic crisis margins on that business? How do you see that business as it were two years? Internally, we take it quarter to quarter. I think the good part that has happened is that operating conditions have stabilized. We anticipated that this high level of inflation will have a impact on and with taxes increasing et cetera, discretionary spends will start to come down. Already we are seeing inflation levels starting to taper off. I would think after doing analogous mapping with or with mapping with analogous situations like this in the past, I would think for the next, say, six to nine months, will be perhaps muted in Sri Lanka. Towards the end of this calendar year, the economy should start to look up. Sure. Do you see that there could be an issue to kind of go slow down your growth because given the fact that there's some amount of uncertainty as to how long this would continue, and obviously it's dependent on a lot of other macro factors? Are you planning to slow down fresh CapEx out there so that you can use the capital more profitably where your RoCs are higher in short term? You will certainly not see this kind of expansion what you've seen over last two years. Last two years put together, we would have added 30 restaurants in last two calendar years, 40 Pizza Hut restaurants. 20 per year. You will not see certainly 20 restaurant additions going forward. Yes, we are going to be slightly more calibrated over next six to nine months. As Sanjay said, it's a quarter on quarter how things work out. Yes, you will not see the kind of additions what you have seen over last 24 months in Sri Lanka. A bit more calibrated approach over next six to nine months. Second one was, the question from what we hear CapEx for this year is estimated to be three year. See, again, we are not giving out a specific number in terms of any guidance for you. That's why I'm saying we're not giving out specific number. What we have called out previously is that our KFC CapEx is in the range of INR 1.92 crore per store. Pizza Hut CapEx is in the range of INR 1.5 crore rupees per store. Next quarter anyway, the numbers will be out including the balance sheet, so we can discuss the annual number probably on the next call. This is a broad range which we have always indicated these numbers to be with. Yeah. Okay. Thank you, sir. Thank you. Should we take the last question? Yes, we have one more question from the line of Manish Sharma, an Individual Investor. Please go ahead. Yeah. Hi. Am I audible? Yes. Am I audible? Yes, Manish. Good evening. Good evening, sir. My question is, you know, with respect to the all-day part meal occasion which we have as compared to the other competitor brand wherein, you know, let's say they have a breakfast, then they have a meal, then they have a snack day part. How do we place our both the brands here? Manish, just repeat your question. It was not very clear, Manish. You You are not very clear. Okay. Am I audible now? You are audible, but it wasn't clear, so just repeat it. I'm asking as you know, we see the other competitor wherein they are in the same segment offering all day meal part of, you know, occasions. Compared to they have a breakfast range, they have a meal range, and they have a snack range for the evening. How do you place Pizza Hut as well as KFC in that segment wherein we throughout the day customers can, you know, visit our outlets and have those type of, you know, meal options so that the volume of businesses remain, you know, as per the SSSG which we anticipated. Yeah. Except for breakfast, lunch, snack... You've got meal and snack options for the rest of the day and late into night. Breakfast is the only thing that I would say, right now that we don't have in our portfolio, Manish. Is there any plan going forward that we are going to get into breakfast with? Also we have a volume of transactions there. Sorry to interrupt Manish, your audio is breaking from your end, sir. Please check. Yeah. Yeah. I'll answer Manish's question. At this moment, there's no plans to introduce immediate breakfast line. I must reiterate, and I must emphasize out here that both KFC and Pizza Hut are first meal brands and then strong snack brands also. That reflects through the average check size of our of our both the brands, the volume of business that we do both in lunch and dinner and then also late night. We offer, like I said, both meals as well as snacks on both the brands. To add to that, other way of creating efficiency in terms of store utilization is what we have done over last five years by bringing down our store sizes from 2,500 sq ft to 1,200 for Pizza Hut and 1,500- odd sq ft for KFC. It actually allows us to be more efficient in terms of the space which we carry, compared to the competition where the store sizes continues to remain large. That's another way of efficiently utilizing the assets. All right. Thank you. Thanks so very much. Thank you. As there are no further questions from the participants, I now hand the conference over to the management for closing comments. Thank you everyone for joining our quarter three conference call. While the last couple of months have seen some softening of demand, the India sales performance has still been robust at 24%. Sri Lanka also grew at 39% in local currency terms, but in translation terms declined. Both the businesses have got healthy consumer propositions. In the last quarter despite the SSSGs, we have still been able to maintain margins. I believe that this is a general softening of, you know, consumer discretionary spends perhaps that we are seeing. We are quite confident with the strength of both the brands that we should be able to ride this out. We've got to focus on what is in our control, the customer experience, product innovation, focus on our teams and training and so on. With that, thank you so much, and I'll see you again when we announce the full year results. Thank you very much. Thank you. Ladies, and gentlemen, on behalf of Sapphire Foods India Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.