Ladies and gentlemen, good day, and welcome to Sapphire Foods India Limited Q4 FY23 earnings conference call organized by Orient Capital. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then 0 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, and over to you, Mr. Kale. Yeah, thanks. Hello, good evening, everyone. Welcome to the Q4 and FY23 earnings con call of Sapphire Foods India Private Limited. Representing the management on call, we have with us Mr. Sanjay Purohit, Group CEO and full-time director, accompanied by Mr. Vijay Jain, CFO. I hope everyone had a chance to go through the results and the investor presentation, which was uploaded on the exchange earlier today. Before we proceed, a reminder that this call may contain some forward-looking statements, which do not guarantee future performance and involve unforeseen risks. A detailed disclaimer has also been published in the presentation. I would now like to hand over the call to Mr. Sanjay Purohit to take over. Over to you. Good evening, all of you. Thank you for joining this call. This is our second annual results presentation since the IPO. Therefore, firstly, we wanted to place our two-year scorecard in front of you, and then we will talk about the quarter four performance. I'm referring to page number 6 on our deck. FY23 has seen our best ever annual performance. We delivered our highest revenue and in a growing company, I understand we will always deliver ever highest revenue, every single year. INR 22.6 billion is the revenue that we delivered for the full year. Also from an adjusted EBITDA sense, we delivered INR 2.6 billion and our highest margin of 11.7%. The same thing is with respect to our adjusted PAT, and we had a deferred tax credit of INR 125 crores this quarter. Removing that, we delivered our highest ever adjusted PAT of INR 1.4 billion at 6.2% PAT margin. We also had our highest ever new restaurants addition of 164 new restaurants, KFC, Pizza Hut, and in Sri Lanka. It was the best ever year for KFC and Pizza Hut India, both from a revenue and from a restaurant EBITDA percentage. Even in Sri Lanka, despite all the challenges that the country has faced, we were able to grow revenue in LKR terms by 48%. Despite 100% inflation, our restaurant EBITDA remained flat in LKR terms. Today, we re-continue to remain the number one QSR brand in the country. Talking about our Q4 numbers. Our Q4 consolidated sales of INR 5.59 billion, we grew it by 13% year-on-year. India restaurant sales within that grew robustly at 23%, therefore, the Lanka business contributed to the gap between 23% and 13%. Same-Store Sales were, however, challenged, as we have continued to experience post-Diwali 2022. You would have read that our GDP growth rate dropped from 7%+ in April in the first half to 4.4% in October-December. I'm quoting these numbers just to indicate that at a macro level, demand conditions were tough. We believe that such conditions are actually opportunities for us. What do I mean by that? Generally, consumers revert to trusted brands in a tough macroeconomic condition. We believe that the two power brands that we have got, KFC and Pizza Hut, we can gain differential momentum if we launch a robust marketing and activation calendar. Starting April itself, both brands have launched both a strong product innovation as well as increased marketing investments, and I'll talk about that in a minute or two. Consolidated restaurant EBITDA remained flat year-on-year in absolute terms. Margin was 16.2%, down 210 basis points over last year. Primarily due to the adverse Sri Lanka impact. India restaurant EBITDA grew in absolute terms by 19% and margin was 16.5% down 50 basis points, primarily due to Pizza Hut. Our Consolid EBITDA post-index was INR 1.03 billion or 18.4%, and that declined Y on Y by 1%, down 260 basis points. Our consolidated adjusted EBITDA was INR 56 crores or 10.1%, which declined year-on-year by 11%, largely on account of the Sri Lanka impact. Consolid PAT came in at INR 136 crores or 24.2%, due to a deferred tax credit of INR 125 crores in this quarter. Consolidated adjusted PAT before this deferred tax credit is INR 187 million or INR 19 crores, 3.3% in quarter four of FY23. While consumer demand, like I said in India, has remained little muted over the last few months, we believe that this is a near-term concern only. We have continued our pace of expansion in Q4 FY23 with a total addition of 28 restaurants, 16 KFC and 12 Pizza Hut and none in Sri Lanka, where we are adopting a more cautious approach on our new restaurant expansion in the next 12 months. We will cover the business or the performance of our 3 business verticals, and I'll first start off with KFC. I'm referring to slide number 20, where we wanted to give you an idea of what are the brand priorities that we are driving. Firstly, I'd like to say that these are the brand priorities that we drive jointly with Yum!. Our first priority is to enhance fried chicken category relevance. While KFC is synonymous with fried chicken, we would like to grow its relevance with Indian consumers, and this is largely a marketing and communication task. Among all related QSR brands, KFC scores the highest on taste, and therefore enhancing our what we internally call cravable taste credentials is an important priority. While core product innovation remains the largest contributor, we also look at other innovations, and I'll give you examples that we have run through the day. CHEEEEEEEZZA is a core innovation, whereas we have done chicken popcorn with Maggi or Popcorn Nachos in the year that has gone by. Thirdly, value is absolutely key in the QSR industry, both entry value and abundant value. While our bucket options offer the consumer abundant value, we are very, very excited with the launch of Chicken Rolls in April. This price point starts from INR 99 onwards. We have seen very good traction behind this launch in April. We are sure that it'll contribute to driving transactions on the brand and increasing our snacking day part. The fourth priority is to ensure that the customer has as frictionless an experience as possible. We are making a big play with our digital kiosks that we piloted in about 16 restaurants last year. This year we will be upping that significantly. I have spoken about our operational excellence initiative of 7 minutes or free chicken. Our scores are in the high nineties here, which means that we are and this is an important driver of customer satisfaction. Finally, we believe that accessibility is also critical to driving demand, and we continue to implement towards our ambition of doubling the store count in three to four years' time. This year we have opened a record 78 stores of KFC in the year. Vijay Jain, our CFO, will now take us through the KFC numbers. Yep. I'm starting on page 28. With SSSG of 2% in quarter four, it was partly impacted by the soft demand conditions which continued post-Diwali, and also partly by the fact that Navaratri festival this time shifted to March vis-à-vis last year was in April. This 2% in SSSG has also come on the back or with additions of 70 or 78 additions in restaurant count, that is 30% additions in last one year. Overall revenue grew by 24% to INR 369 crores. Annually we delivered approximately INR 1,450 crore revenue on the brand, which is growth of 40%. Gross margin for the quarter, while it dropped by 110 basis points, there was a sequential improvement of 30 basis points on gross margin. If you compare to quarter two of this financial year, the total gain sequentially has been 120 basis points on gross margin. Definitely we have seen some cooling off on inflation and that improvement in gross margin over last six months shows it. Restaurant EBITDA was at 19.1% despite a low SSSG of 2%. This is on back of cost efficiencies that we were able to deliver 10 basis points improvement vis-a-vis last year. Overall on KFC, we had the best ever year with 78 store additions. That's highest ever. Revenue growth of 40% and highest ever EBITDA percentage of 19.4%, which is up by 70 basis points. Going now forward to Pizza Hut. We had an excellent first half on Pizza Hut, with the slowdown that we've seen post-Diwali, perhaps it impacted Pizza Hut slightly more. Our SSSG is negative. However, importantly, our SSTG same-store transaction growth is positive because we believe because of the big value play that we have made. I'll talk about that in a minute or so. I think importantly, when we look Ladies and gentlemen, please stay connected. The line for the management role. Participants, please stay connected while we rejoin the management back to the call. Ladies and gentlemen, please stay connected. Please stay connected while we join the management back to the call. Thank you for your patience. We have the line for the management reconnected. Sir, you may go ahead. Yeah. Can I go ahead? Yes, sir. I was saying we had an excellent first half on Pizza Hut. We believe that we've got all the levers of the consumer proposition on Pizza Hut in place. The brand competes well in the category. While the last six months have been slow, we are quite confident about the prospects of this brand. Our first task on Pizza Hut is to build top-of-mind awareness. We find that, so apart from digital advertising, we have first time we are on mass entertainment television also, and we intend to sustain this marketing presence for the, we intend to sustain this marketing presence going forward. The marketing campaign, which you can see in slide number 35, employing two celebrities, Saif Ali Khan and Shehnaaz Gill, broke on April 20th with the launch of our 10 new pizzas. That's the second priority that I wanted to talk about, that Pizza Hut has taste leadership in this category. With the rise of competition, I think it's extremely important to reinforce what a great pizza tastes like. Therefore, the launch of 10 new pan pizzas in April, 2 new pastas. We have expanded our garlic bread range with a Keema Garlic Bread also. The new pizzas are very flavorful, very moist, and again, consumer reactions are positive on this. Value, like I said earlier, is also important, and Flavor Fun continues to do well. Today, we today, Pizza Hut offers as good, if not the best value in the pizza category. Therefore it goes back to with taste leadership and value, it goes back to the first priority that we have to enhance the top-of-mind awareness of the brand, as we go forward and invest in both television, digital and higher marketing spends. Frictionless customer experience is our next priority. Apart from the native Pizza Hut app launch, which happened earlier in earlier in FY22, we also launched a self-ordering QR code-based dine-in digital solution, which has also got good response from consumers. Operational excellence is our fifth priority, and we are using technology to simplify our back-end operations. We have invested in two technologies, DragonTail and HutBot, to help us drive operational excellence. Like on KFC, accessibility is very important. We are on track to double our store count every three or four years. What is going to aid us in this process is the launch of our 1,000 sq ft model with the same number of covers as a 1,200 sq ft model, which means that we have tightened the back end. This, we believe, can work to increasing density of our stores in the larger towns. I'll hand it over to Vijay for the Pizza Hut numbers. Yeah. I'm on slide 42 on average daily sales. SSSG was -4% for the quarter. As Sanjay mentioned, the SSTG, the same-store transition growth continued to remain positive. That's the heartening part. 67 store additions in the last 1 year, that's 30% on our previous year's base. Overall revenue grew by 18%, to INR 122 crores for the quarter. Gross margins dropped by 50 basis points. That's also a sequential drop of 10 basis points. Our restaurant EBITDA came at 8.6%, which is a drop of 290 basis points over previous year. This was largely on account of the negative leverage or the operating deleverage we get because of the lower or negative SSSG. Having said that, the overall year, while H1 was great for Pizza Hut. H2 was slightly softer. Overall, we still had the best ever year for Pizza Hut, with highest ever store additions of 67, revenue growth of 41% and highest ever restaurant EBITDA margin of 13.3%, which is up by 190 basis points over last year. A quick note on the Sri Lanka business. Today, operational constraints are few and far between in Sri Lanka. From an ability to import cheese to availability of utilities, all operating conditions have largely normalized. The economy has also gained because of the IMF loan being sanctioned, India rolling over credit. Things have stabilized in the country. Actually, the Sri Lankan rupee has also appreciated marginally versus the dollar. It used to operate at 360 to a dollar. Now it's operating anywhere between 320 and 330. The signs on Sri Lanka are positive from that perspective. However, the impact has been very high on customer wallets, and we are seeing big transaction drops on the brand. We have lost transactions definitely. With our omni-channel presence, with our delivery capabilities, with the kind of stores footprint that we have got, we continue to be the number one QSR brand in the country. Vijay will now quickly take us through the Sri Lanka financials. Slide 49. SSSG for the quarter was -3%. We had 19 store additions in last 1 year. That's 20% on the previous year's base. Overall revenue grew by 10% in LKR. In INR, on translation effect, it declined by 27% for the quarter. The gross margin dropped by 390 basis points year-on-year. And overall restaurant EBITDA was 14.2%. While the SSSG has been challenging, what you can see the settling down of the restaurant EBITDA in and around that 14% mark over the last 3 quarters, which makes us feel that this is probably the bottom what we are seeing in that, in that country on the business performance at the restaurant EBITDA level. From here onwards, we hope that over a period of time, we should be able to go somewhere around that 20% restaurant EBITDA mark, which we used to get a year back. Hopefully over 12 months' time to 24 months' time, we should be able to go back to that particular level. Overall, 48% revenue growth in Lankan rupees. In spite of all the challenges which Sanjay spoke about, the Lanka EBITDA in absolute terms has remained largely flat, year-over-year. That's the heartening side. We continue to remain the number one QSR player in that particular country. While closing, I want to say that we've had a tough last six months, but this is what the entire industry has seen, and there are overall weak consumer demand conditions. In the past, I have noticed that consumer behavior in such conditions always favors the trusted large brands, and they tend to do better in these conditions. Therefore, actually, we are looking at this situation as an opportunity. Both KFC and Pizza Hut are quite well placed to perform differentially in this environment. All our consumer proposition levers are in place. We have doubled down on both innovation as well as on marketing starting end of March and in April. The launch of Chicken Rolls for KFC and the launch of 10 new pizzas and appetizers, along with Flavour Fun and the television campaign, is really an indicator as to how we believe that we can perform well even in market conditions like this. That's all from us. We will now open it up to questions. Thank you so much. 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 touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question. The first question is from the line of Jaykumar Doshi from Kotak Securities Limited. Please go ahead. Hi, good afternoon. Thanks for the opportunity. Sanjay, my first question is on, you know, this weakness we are seeing in pizza category. In the past cycles, we have not seen the kind of divergence between different QSR categories that we are seeing this time, between KFC, Pizza Hut, maybe even Domino's and Burger. What is your reading? What do you think is, you know, the problem with the category or... While the SSSGs are different, KFC is 2% SSSG and Pizza Hut is negative. From a transaction perspective, actually it is a little opposite, where KFC is negative transaction and Pizza Hut is positive. I'm not sure whether that is, that hypothesis actually bears out, Jay, that pizza category is doing either worse off or other categories are doing better off. We don't know what the other pizza brands will come in at. At this moment, I think it is a largely secular slowdown that we believe is happening. When you factor in new store additions across different QSR brands, if you see the total system growth also you have to compare, because if one brand has perhaps opened less number of stores, it'll be impact positively on same-store sales growth. In our case, over our base of last year, we have opened nearly 30% more stores, and therefore we've always called out that our SSSG ambitions would be in the region of 5%-7%. I think it's not that pizza is doing worse off than other categories is my submission. Okay, let me ask you one more on the same thing. What do you pick up when you talk to, you know, the food aggregators? You know, Yum! being the largest partner for both Zomato and Swiggy, I believe you would be getting some color or intelligence on, you know, overall what they are seeing for this category on their platform. Yeah. The idea is there a similar level of, sort of, weakness or softness on food aggregator platforms also? Do you think there is some, competitive, you know, change in competitive landscape with a lot of new brands, eating into? In general, there is a softness that we see even on the aggregator platform and on aggregator deliveries. In general, we see that. Specifically, there might be some brands with a higher level of discounting that might do a little better in the short term. If we are consistent on our discounting, then there might be a little up and down. I think again, we are seeing this softness even with our aggregator partners. Is that for Pizza Hut brand or is that, you're referring to softness for the entire category? At least on both our brands we see that. Understood. One bookkeeping question there. You know what percentage of your delivery orders are now delivered within 30 minutes? Can you give some color around it in terms of your how delivery metrics have improved over time? Yeah. Right now, for Pizza Hut, right, 85%, around 85% of our orders gets delivered within the 30 minutes time. About 93%, 94% gets delivered under 40. Understood. That's pretty impressive. Second question is, can you call out, give us some color on your store opening guidance for FY24 and CapEx guidance as well? Again, Jay, we are refrained from giving annual store opening guidance. As we have called out previously, we could double the count on the base of December 2021 over 3 to 4 years. That remains. We are on track, which converts to annual number of anywhere between 130 to 160 per year. We are on track for that particular number. As Sanjay said previously that we believe the softening is near term, so expansion plans continue. If we see that this softer demand continues for a longer time or a longer period, at that point in time, we'll definitely recalibrate our approach. At this point in time, we are on the track for that 130 to 160 range. What will be the CapEx for the year? Again, as I said, we have not given out the total CapEx guidance for the next year. For a per store basis, KFC is in the range of INR 2 crore. It used to be INR 1.9 crore. With the inflation, it's now more around INR 2 crore for KFC. Pizza Hut used to be around INR 1.4 crore. Now it's more around INR 1.5 crore per store. Correct. When I look at your FY23 numbers and the store additions versus overall CapEx of 380 crore, ballpark, I get that about 70-80 crore is spent on refurbishment or some upgradations. Is that sort of a higher number than the normalized number, or is that something that we should expect every year? Roughly, and again, I'm giving approximate number, roughly 40 odd crore INR would have got spent on the refurbishment and the resizing, and there would be included some major refurbishments as well. The balance will also be, the maintenance CapEx as well as the IT CapEx which we would incur and even the warehouse CapEx. It's through the combination of all those, but the refurbishment CapEx would be in the range of 40 odd crore INR. Understood. Is this something that we should model in or bake in every year or was FY23 a year where this number was a bit high? I think the next couple of years, probably yes, because these are the refurbishment CapEx of our legacy stores, some of the old stores which were sized in the range of 2,500 to 3,000 sq ft. Post that, we have been opening the tighter format stores. We expect as we move around two years, three years down the line, the per store refurbishment CapEx will certainly come down, yeah. Jay, our legacy stores are much older stores and they have come up for their major refurbishment after 10 years, and that's why perhaps our per store costs are slightly higher. Our newer stores, we will see this cycle a minor refurbishment cycle, which is much lower in terms of CapEx per store, you know, as we go forward. I think in the next one or two years, there is also a significant. Once you do a significant upgrade, there is also an upgrade that you get on sales. It does pay for itself over a period of time. Thank you. Sorry to interrupt you, Jay. I request you to join the queue again for a follow-up question. A request to all the participants to please restrict to two questions per participant so the management can answer all the questions. The next question is from the line of Tejas Shah from Spark Capital. Please go ahead. Hi. Thanks for the opportunity. A couple of questions from my side. Sanjay, you spoke about the divergence on trend between KFC and Pizza Hut, and you said that there's nothing specific to consumer sentiment. When we just look at a very broader number, like a country in Sri Lanka, country in distress like Sri Lanka, having an SSSG of -3% and India having -4%. Obviously, on a low base, Sri Lanka is there. Still, don't you think that somewhere either the resilience of our brand in pizza in Sri Lanka is much better or perhaps the distress that we are seeing on pizza as a category is much louder in India? How do you read that? Sri Lanka, the first half of Sri Lanka because of the pricing that we got was, you know. Inflation. Because of pricing that we took. We would have taken nearly 50%-60% pricing in response to inflation, which was about 90%, therefore SSSG is minus 3%. Transaction decline is in high double digits. I don't think the parallels that you're drawing between Sri Lanka and India exist. The Sri Lanka business has got impacted much more significantly from a, you know, from a transaction basis than India. Very clear. You spoke about SSSG being negative in Pizza Hut, but our STG has been in positive territory. Does it mean that down trading has actually played a very major role? You briefly touched upon that, but if you can elaborate, how should we think about that dynamic playing out in FY24 going ahead? Correct. I think this has been one of the key pillars of the Pizza Hut strategy, which was to pivot towards QSR kind of pricing. It first started off by us stopping our high-low discounting strategy in April 29, going to everyday value, then to meal options, finally culminating in the launch of Flavour Fun. Today, the kind of pricing and the average order value that we see on Pizza Hut is what we expect to continue as we, you know, as we go forward. Yeah. If this trend has to continue, So you spoke about that perhaps if this weakness continues for a longer period, you will revisit your store expansion guidance. How long will it be that the monitoring period, will it be 6 months or 1 year or will you like, will you respond a bit earlier on the store expansion guidance? It is important to note, Tejas, that the machinery on new stores is not a switch on, switch off machinery. Many of the calls that we take have been baked in earlier, and hence we are saying that we have to project calmness in this scenario. I think over the next 6 to 9 months is when we would take a call on what we need to do from a, you know, store addition perspective. Tejas, the current marketing plan and the new launches which we have done, will start playing out the results or we can start seeing the results over next three to four months. I think that's the time that how those marketing initiatives and the new product initiatives has gone through. That's the time if the softness is still remains, that's the time to probably rethink. Very clear. Thanks and all the best. Thank you. A request to all the participants, please restrict to two questions per participant. The next question is from the line of Nihal Jham from Nuvama. Please go ahead. Yes, thank you so much. good evening, Sanjay and Vijay. two questions. First was on the Pizza Hut and KFC. You highlighted that while you've seen transaction growth in Pizza Hut, there has obviously been a fall in the average bill value, and it's the opposite way which has played out for KFC, and you've taken price hikes of around 9%-10%. As things improve or revive, which of these two would end up catching up faster or reviving further? Which of these two from. Revive faster. SSSG or transaction? SSSG perspective overall. There is a divergence in terms of how the SSSG has played out for the two formats. It's different. One has seen a fall in the footfalls, whereas the other one has seen a fall in the transaction value. Yeah. If you look at, the answer to that lies in the kind of price increases that we expect, from going forward from here. On both the brands, we are seeing inflation having cooled off, and therefore pricing today will be very modest. I think from here onwards, both SSSG and transactions will start to go in the same direction. In KFC also, the launch of our value entry, value innovation, which is Chicken Rolls, will help us in our transaction growth. I mean, one simple adage that we try and follow is that transaction growth finally is the important barometer for a brand. It's not only same-store transaction growth, but overall transaction growth also because our number of stores that we have, that we have opened also is quite high. As long as transactions are growing, brands are in good health. Going forward with inflation cooling off, pricing then reverting to the kind that we have had in the past, I think both will start to see upward trajectory. Just one follow-up there, Sanjay, that in case of KFC, as there are launches maybe at the value end with the INR 99 roll launch and all that. Going forward, is there a case where the transactions come back and maybe similar to Pizza Hut, the ADS maybe contracts a little and maybe the SSSG stays flat irrespective of how the market trends up? Yeah. I think it's, you've got to do both, Nihal. You've got to have innovations that are aimed at the brand loyalist, and therefore things like CHEEEEEEEZZA worked with the brand loyalist, and you have to look at, customer acquisition innovation. Chicken Rolls perhaps do a bit of both. They talk to the brand loyalists and give them one more reason to come to KFC, but also because of their attractive price points, so they will, they'll attract a new consumer. I think the, we should see both SSSG and TG move up now through this launch. It's not one versus the other. Thanks. Just one final question was on the store sizes for Pizza Hut. Ideally, we used to target 1,500 sq ft kind of omni store sizes. Are these 1,000 sq ft sizes, despite, say, the lower space on kitchens, still serving the purpose in terms of giving the omni experience, which in a way differentiated us, say, from our sister brand, sorry, our sister company, which is opening more delivery-focused stores? Yeah. We are not doing 1,500 sq ft stores, Nihal. First of all, we have done 1,200 sq ft stores right across. This 1,000 sq ft format does not compromise one bit on the front of house dine-in experience. What we have seen is that because in the larger cities, through increased delivery cycles, we are able to crunch the back of house kitchen, and a large portion of the back of house kitchen goes into storage, both chilled as well as frozen as well as dry. That we are able to crunch because we are in the large cities. This format won't work if you're going to a slightly more remote city. This is only to enable us to increase density. Got that. I'll come back. Okay. Thank you so much. Thank you, Nihal. Thank you. Next question is from the line of Percy Panthaki from India Infoline. Please go ahead. Hi, sir. First question on innovations. These innovations which you have written in terms of popcorn pizza, sorry, chicken popcorn with Maggi Popcorn Nachos and CHEEEEEEEZZA. These few months or weeks back were visible on Zomato, but now they are not. Have you withdrawn these launches, and if so, why? Percy first, hello. Secondly, to answer your question, these are limited time offers typically, Percy. There are some innovations that come and stay as part of our menu forever, and there are innovations that we run for a limited period of time. Chicken popcorn with Maggi and nachos was a limited time offer. For example, Chicken Roll is a permanent addition to the menu. There are LTOs, as is what we call internally. LTOs are the limited time offers, and there are some permanent additions to the menu. Yeah. Chicken Rolls is a permanent addition to the menu. What parameters or metrics do you use to determine whether it will be a permanent or a limited time offering? Yeah. During the process of new product innovation, we would have tested with consumers and there are parameters that we use for acceptability, is there a new occasion of consumption, you know, what need does it serve? After looking at much of these parameters, then we decide whether it is a limited time offer or a permanent offer. Finally, also importantly is while we will do all of this testing, performance in the marketplace is really important. We might... That's the final determinant. Okay. Also on the same topic of innovation, just something I noticed was that a company like McDonald's, most of the innovations in recent times are towards the premium and their gourmet burger variants are actually what is driving the SSSG in a meaningful way now. Whereas I see that our innovations are largely towards democratization, affordable price points like Chicken Roll at INR 99, Flavour Fun Pizza, et cetera. Just wanted to understand why the differential thought process and does this really help in this kind of an environment where, for example, Flavour Fun Pizza, whatever gain you've got in terms of attracting new users or transactions, the detriment in terms of down trading has actually more than offset that. That explains the negative SSSG at a net level. Just wanted to understand if probably this could have been launched at some other time when the situation was more normal and not stressed like this. First of all, Percy, innovation is a long game, this is not a quarter-on-quarter game. At a period of time, you are seeing both our brands launching value innovation. This is coincidental. This is, like I said, a period of time that you have seen, you've seen these innovations. There is no, there's no grand plan that either both of these brands will only launch value innovation. That's the first thing that I want to say. In fact, the April innovations on Pizza Hut, it's just not a topping. I mean, I'd invite you to go and try the product out, mouthfeel, et cetera, has substantially improved. There's much more moistness in the pizzas. While we are saying 10 new pizzas, actually this is our core range that has got completely, you know, completely redone. Again, brands have different objectives at different times. Largely, you are trying to appeal to the brand loyalists. When you're appealing to the brand loyalists, premiumization is an important factor. CHEEEEEEEEZZA, for example, does really well with the premiumization, you know, aspect that we want to drive with the KFC brand loyalists. At times, you also want to expand the consumer base and therefore, rolls plays a good role. It also plays a very important role in expanding the usage occasions for the same KFC brand loyalists. Give him or her an occasion to come, say, between 3 and 6 and snack on our products and so on. Right. Got it. Finally, just wanted to get some idea on this Pizza Hut margins. This time we had a negative 4% SSSG and the margins is around sort of 8.5%. Assuming that, I mean, in the near term for the next 2-3 quarters, if, let's say our SSSG comes to a 0% kind of a level, what kind of margin range we'll be looking at? Will be like 10%-11% will be a fair number to look at for the next 2-3 quarters under assumption of 0% SSSG? Again, Percy, I would not comment on the next two or three quarters%. Yes, if your negative SSSG comes to flat or starts going to positive, we should come back to double-digit restaurant EBITDA. It's also a factor of ADS, Percy, that, it went down to 50 ADS. It's also a factor of that. Yeah, SSSG becomes neutral or positive, it will be on the last year's SSSG in H1, which was pretty healthy, pretty healthy ADS. You are right. If you are able to get it neutral or positive, it will come back to the double-digit restaurant EBITDA levels. Right. Right. That's all from me. Thanks and all the best. Thank you. Thank you, Percy. Thank you. Next question is from the line of Saurabh Kundan from Goldman Sachs. Please go ahead. Hello. Thanks for the opportunity. So when you set out into this quarter or maybe were in the middle of the quarter, were your expectations lower than what you've actually delivered, especially on the Pizza Hut side? In other words, has March, despite the difficult base, has March surprised you slightly positively? If you could also comment on how 1Q has been till now, that would be very helpful. I don't think March was any better or any worse on Pizza Hut. I think it continued in the same tradition in the same manner. Quarter one generally sees an uplift in absolute terms from the Jan-March quarter, and we've seen an uplift. I'm not going to, it's really too early to talk about quarter one. The general movement that we see from Jan, March into April, May, June is what we have noticed this year. On the base that we were delivering in, we are delivering in April, May, June. In the case of KFC, March was muted because Navratra, nine days of Navratra and Ramadan all impacted us in March significantly. Right. Second very quick question. What is the non-cash component of corporate overheads this time or for the whole year? Sorry, just repeat that. What is the ESOP part of the corporate overheads this quarter or for the whole year? ESOP cost for the year would be anywhere between 0.7%-0.8% of revenue. Right. Just a last one, if I can squeeze one in. Another QSR player reported, and although the raw material profile is different, but they reported, like, a very large expansion in gross margin. Can you comment on what drives this difference? For both your formats, you've seen a drop in gross margin year-over-year versus, like, 300 basis points plus increase for the other player. Sequentially, KFC has improved. On Pizza Hut also, the only pressure is on dairy right now. Again, the both the key components of each of our brands. One is chicken for KFC, saw the highest ever inflation in H1 in particular. Since then, we have seen some cooling off and some recovery. Again, oil is a very big component for us and chicken. On Pizza Hut, dairy probably amongst all commodities, and not just for pizza as a category, but dairy amongst all commodities has seen highest ever inflation. That's probably the reason for why are both the brands who have seen a negative or a drop in gross margins. Having said that, in spite of a drop in gross margins, as we said, we have reported an improvement in restaurant EBITDA margins year-on-year for both the brands. On the other side, while I should not comment on the other competitor, but we believe their cafe business would be high. Typically, a cafe business is a high gross margin business, and that could be a mix which would be a play. Also, I heard in the commentary that there was some reclassification by them on some processing charges from the cost of goods sold to other expense line. Again, very difficult to comment on their side. Sure. Thank you very much. Thank you. Thank you, Saurabh. Next question is from the line of Devanshu Bansal from Emkay Global. Please go ahead. Yes, sir. Hi, thanks for the opportunity and, congrats on, big menu revamp and associated marketing. For KFC, last year ADS was about INR 145,000, and we have exited Q4 with about INR 127. Similar trends go for Pizza Hut as well. Is it correct to assume that, the SSSG outlook that you have mentioned is a combination of declining first half followed up by a strong turnaround in second half? You're referring to which outlook? I think you're referring to the 5%-7% comment which Sanjan. Yes. Yes. Yes. has made. Yes. But that's a comment we would have said you would have heard Sanjiv or me saying over a long term 3-4 years scenario. That's what we expect with the kind of growth ambitions we have in terms of store additions, which is doubling the count over 3-4 years. We believe a 5%-7% SSG over a 3-4 year period is a reasonable assumption to go. This does not indicate in any way what the next or immediate quarter is going to look like. No. I just want some sense as in, last year for Q1 it was INR 145,000 and, Q4 exit is at INR 127,000. Is this largely because of seasonality or, we can see, you know, on a sequential basis such kind of a pickup in this quarter which is going on? ADS 1, there's 2 parts to it. One is seasonality, definitely. Also, with the new store additions, typically a new store for us would start anywhere at 75%-80% of the overall brand average in year 1, and then take 3-4 years to scale up towards brand average. As you keep adding more and more new stores, which starts at 75%-80% of the brand average, it impacts the overall ADS. That's the reason what you have seen. Having said that, Q4, apart from seasonality, has also been impacted by Navaratri in March quarter. In March. What is the typical Q4 to Q1 since these are closer home quarters? I guess, what is the typical pickup in Q1 that you see after Q4? Unfortunately, these movements in festival periods can make it very difficult to predict that what has been the exact. Apart, other than festivals over last 3 years, the COVID impacts from 1 quarter to other quarter means that there is no specific trend which you can rely upon. However, generally we could see anywhere between 5%-15% upliftment in Q1 to Q4. I'm giving you a very broad range and a big range as well. Difficult to say because of the last 3 years trend been marked by various incidents or various reasons. This applies for Pizza Hut as well, Vijay? Yes. Yes. Okay. Although Pizza Hut gets slightly less impacted by festival movements, unlike KFC. Yes, you see upliftment in even Pizza Hut in quarter one compared to quarter four. Okay. From a gross margin perspective, I just wanted to understand it better. If you could call out on an overall basket basis. You indicated that dairy is up while others are down. On an overall basket basis, what is the current level of inflation that you're seeing in Q1? We believe the Q4 levels on gross margins, we should be able to sustain on those levels in the near future because the inflation has settled down on both for the raw materials for both the brands, KFC as well as Pizza Hut. I don't see any further impact on the gross margins in the near future. What we are seeing is inflation in the range of 3%-5%, but that we should be able to take care manage either through a price increase or other cost efficiencies. Hence we should be able to sustain these gross margin levels in the immediate future. Okay. Have we taken so far any price increase in store? In KFC, starting this financial year, we have taken a roughly 3.5% price increase, starting April. Got it. Sir, last small bookkeeping question. These growth investments toward marketing in this Pizza Hut menu revamp, can this also lead to some margin impact or this is handled by the master franchisee? We are definitely increasing the level of in-marketing investment from the current levels. However, whether this would impact the restaurant EBITDA, we believe, if typically the increase in sales should pay by itself. Yeah. Devanshu, you said master franchisee. I'm sure you meant Yum!, right? Yeah, yeah. Yeah. Yum!. Yeah, yeah. Okay. They're not the, they're the brand owners. Yep. Yeah, sorry. My bad. They're the master franchisee. Yep. Yeah. Can we move to Shirish? Thank you. If you're through, Devanshu. Did we answer Devanshu's question? Devanshu. Did we answer your question, Devanshu? I'm sorry. No, it was incomplete, sir. Sorry. It was incomplete. I'm sorry. Let us answer it again. You will see increased level of investments, Devanshu. Again, it's a combination where both the brand owners, the Yum! and franchisee comes together and will co-invest the increased amount on that marketing front. Having said that, we believe this should pay for itself with the increase in the revenue. Again, it's not a short term. You have to sustain it over a period of time. While immediately you may or may not see result, but if you are able to sustain it over two, three, four quarters, we believe this should pay for itself. Got it, sir. Thanks a lot. Thank you, Devanshu. I hope that was clear. Thank you. A request to all the participants, please restrict to two questions per participant. Next question is from the line of Shirish Pardeshi from Centrum Broking. Please go ahead. Yeah. Hi. Good evening, Sanjay and Vijay. Thanks for the opportunity. Just two questions very quickly. Does that INR 99 Chicken Roll is driven by the scaling up competition and down trading? Is it that it was pre-planned and this is one of the one more ammunition to expand the transaction growth? No, this was in the pipeline for quite some time. See, typically our innovation pipelines are anywhere between 12 and 15 months long because there's a quite a robust process of consumer checks, operational checks, then test marketing, operationally test marketing it in a particular area, and then only going national. Here again, there might be new ingredients at play. Lining up the supplier base for new ingredients is also important. In this case, the sort of, I'm just using an Indian term, the paratha that goes with the roll required a new ingredient and required us to put up a new supply base. It's been in the offing for some time. Just to follow up on this. This INR 99 KFC Chicken Roll has gone in all 341 restaurants across India. If you can share quick, I am not saying the growth, but your aspiration is transaction growth. Has it materially changed in the month of May since the time it is introduced Yeah. I'm not able to give you specifics on this. Let's just say that it is done better than what we've expected. The launch is a national launch, so it's not only restricted to our 341 stores, but all KFCs across the country. No, I'm referring because it has. Including online. The point, Vijay, what I'm asking, is that gone with the other partner also? Because you mentioned that you will start advertising. Is that the thing which is, I wanted to check? Yeah, yeah. All in fact, not just this product launch. Any product launch which happens on KFC happens with other even sister franchisee as well. Both the partners do a launch. It's always a pan-India launch. Because that's where the scale in terms of supply chain, in terms of operational feasibility, in terms of marketing plays a role. It's always a pan-India launch. Okay. My second and last question on the deferred tax credit, what we have utilized. Is there anything which is balanced and we will utilize the same in FY24 also? We have not utilized as such. We have taken the deferred tax credit. It goes on to our balance sheet. It will get utilized in the future when we out of future profits, we will not require to pay taxes. To the extent of INR 125 crore tax, there will be no cash outflow in the future. Okay. All right. Thank you, sir, and all the best. Thank you. Thank you. A reminder to- Question from- Yes, sir. A reminder to all the participants, you may press star and one to ask a question. Next question is from the line of Amruta from Wealth Managers India. Please go ahead. Hello. Thank you for the opportunity. My question is regarding where you mentioned about the store size to be around 1,000 sq ft now. Earlier we had around 1,200-1,400 sq ft stores. Are we planning to change all those stores step-by-step procedure to 1,000 sq ft? This is for KFC or Pizza Hut or both? I'll explain, Amruta. We've, we use on Pizza Hut, our legacy stores are 2,500 sq ft, but over a period of time, we have shrunk both the back of house and optimized the front of house, and we were opening 1,200 sq ft stores. These 1,200 sq ft Pizza Hut stores, we believe in the large cities, 5 or 6 large cities where we've got warehousing facilities close to the stores can be further crunched to 1,000 sq ft. Because we've got shorter delivery schedules to these to these stores, and hence a 1,000 sq ft store with the same number of covers is still able to work. Perhaps anywhere between 10% and 15% of our total store base going forward will be in this size. It does not mean that we are going to convert our old stores into this. This is only for the Pizza Hut stores? This is only for Pizza Hut stores, and this is only for stores going forward. Okay. Okay. Like, what kind of benefit, operating wise do we expect from reduction in these sizes? Is it in the margins? Again, I would not comment on specific on margins because while we have launched this last year, 7 stores we have piloted last year. H2 was a soft period for Pizza Hut. We will wait till I comment on the margins of this. From a CapEx point of view, this could give us anywhere between 5%-8% CapEx reduction. The KFC stores are around 1,200 sq ft, right? That will remain the same. KFC were always in the range of 1,500 odd sq ft, so it would remain in the 1,500-1,600 sq ft range. Okay. My second question is regarding as in, what is the strategy going ahead for the Sri Lanka business? Our Sri Lanka business, as we mentioned, the operating conditions have stabilized. Which means the Forex availability, the power and fuel availability, the raw material availability, the supply chain, everything is stabilized from that point of view. Yes, while the demand conditions have impacted the transition growth, we believe we are at the bottom of it. Hopefully, we believe over the next 12 months, we should start seeing some small amount of recoveries where we can gain our restaurant EBITDA margins back up by a few basis points, if not more. Hopefully post 12 months, we expect going back towards that 20% restaurant EBITDA margins. That could happen from a 12-24 months journey point of view on Sri Lanka business. From a store expansion point of view, we believe the next 12 months, we would be taking a cautious approach, and we'll revisit the situation every quarter on how the conditions are improving, whether we are able to pull back our restaurant EBITDA margins. As we start seeing positive movements, we'll start opening few stores. That's the strategy on Sri Lanka for next 12-24 months. Thank you. Thank you. Thank you very much. I now hand the conference over to the management for closing comments. Yeah. Like I said, while closing our earnings presentation, the last 6 months have been tough, we are seeing this general toughness in the macroeconomic demand conditions. In such conditions, I want to reiterate and underline, large trusted brands have the potential of doing better differentially. The marketing program, the product innovation program that we have put on both KFC as well as Pizza Hut, backed with our operational execution excellence, we believe will give us dividends even in such market, even in such condition. We remain quite optimistic and bullish about both the brands and the future of the QSR category. Thank you very much, everyone for participating. Stay safe. Thank you very much. On behalf of Sapphire Foods India Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.