Ladies and gentlemen, good day, and welcome to the Sapphire Foods India Limited Q2 and H1 FY 2025 earnings conference call hosted 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 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 Ms. Shivani Karwat from Orient Capital. Thank you, and over to you, ma'am. Good evening, everyone. Welcome to the Q2 and H1 FY25 earnings conference call for Sapphire Foods India Limited. From the management, we have with us Mr. Sanjay Purohit, Group CEO and whole-time Director, Mr. Vijay Jain, CFO, and Mr. Kaushik Vankadkar, Head Investor Relations. I hope everybody 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 performances and involve unforeseen risk. A detailed disclaimer has also been published in the presentation. I will now hand over the call to Mr. Sanjay. Over to you, sir. Good afternoon, everybody. My name is Sanjay Purohit. Welcome to our quarter two and six-month FY 2025 consolidated financial highlights. As usual, between me and Vijay Jain, our CFO, we will share with you the results. These are already up on our website, plus have been filed with SEBI. Our quarter two consolidated restaurant sales at INR 694 crores grew by 8% year-on-year, with EBITDA of INR 115 crores at 16.6%. As you can see, growth conditions have been difficult. Our consolidated restaurant EBITDA declined 8% year-on-year, and restaurant margin was 13.7%, down 240 basis points. Our consolidated EBITDA I spoke about was INR 115 crores, 16.6%. This declined year-on-year by 1%. Our consolidated adjusted EBITDA was INR 59 crores, which declined year-on-year by 13% or 210 basis points. Our consolidated PBT before exceptional items was INR 5.3 million or 0.8%, whereas the adjusted PBT before exceptional item was about INR 14 crores or 2.1%. The exceptional items impairment came from our Maldives business, where we've got two KFC and two Pizza Hut stores each, and the Maldives business contributes 0.4% of our overall revenue. This business has struggled over the last one year after the Middle East geopolitical situation, when we saw sales down by nearly 60% year-on-year, and over the last one year, this has not improved. This sharp reduction in the sales of those four stores resulted in the business incurring losses, and hence, as a prudent approach, we have taken a non-cash impairment of INR 11.4 crores in the quarter as an exceptional item in our consolidated financials. Now let me go to slide number 19 and speak about KFC. Typically, quarter two, as all of you would know, is the softest quarter for KFC, and this is because we've got a number of vegetarian-only festival days. Interestingly, this year, we have seen a greater impact, greater negative impact, during the, during such festival vegetarian days. Because SSSG was - 8%, because of the resultant deleverage, our restaurant EBITDA came at 16.5% or down 270 basis points year on year. Part of this is reflected in the muted demand conditions, and as I've said in the past, our response for SSSG revival revolves around focusing on increasing co-occasions of consumption through product innovations like Chicken Rolls variants, Zinger Burger variants, Snackers. We focus on day part extensions like lunch, late night, and Wednesdays, and we drive value at three different price points of snacking, individual meals, and group meal occasions. From a store opening perspective, we opened 19 stores in the quarter, and as we've been indicating, by the end of this calendar year, we should roughly be doubling our store count that existed in December 2021, as we had indicated. What we are seeing of KFC in quarter three is a continuation of what we have seen perhaps over the full calendar year, where SSSG is roughly in the region of - 5%, - 6%. And as we come out of Navratri and post Dussehra, this is the kind of inherent business demand that we are seeing. I'll now hand it over to Vijay to talk about the specific numbers. I'm on slide number 23, which gives channel-wide sales contribution. Dining plus takeaway mix was at 58% for the quarter and delivery at 42%. This largely remained in line with the previous quarter, Q1 FY 2025. The SSSG came at -8% with ADS at 111. We added roughly 80 restaurants in last one year, and the overall revenue growth came at 9%. Gross margin improved by 40 basis points year on year. While gross margin improved by 40 basis points due to overall restaurant, EBITDA came at 16.5%. This was impacted on account of the operating deleverage caused by -8% SSSG. Slide number 26 gives you 4-year trend and 5-quarter trend. The overall brand still remains quite strong, and with the measures Sanjay spoke about just a minute back, and the vegetarian festival days out of our way, we hope for a better H2 as we move forward. With respect to Pizza Hut, we have seen a 17% sequential quarter on quarter upliftment in average daily sales in the April, May, June quarter versus the January, February, March quarter. So our ADS levels have reached 48, and this has remained more or less stable in quarter two also, where ADS levels have been in the region of 47. Our restaurant sales increased by 3%, with SSSG being -3%. In line with our the strategy that we called out of we will we will continue to invest behind marketing, and that marketing investment first went behind Melts between April and September. Now in October, we have launched the exciting Momo Mia range of appetizers and pizza. We are quite confident that as we continue to invest behind marketing and our in-store execution improves today, on an average, all our stores are above four rating on Swiggy, Zomato, as well as on Google. So clearly, the emphasis that we put on improving operations has also helped. So we are quite confident that in the medium term, the brand will revive. We continue to be cautious on store openings, but while we opened only one store in the quarter, we should open roughly 20-25 new stores this year. Sorry, we opened three stores in this quarter, and we should open between 20 and 25 stores in the year. Vijay, could you just take the numbers? On slide 33, sales, channel-wide sales contribution, dining plus takeaway came at 48% and delivery at 52%, again, in line with quarter one of FY 2025. Overall, SSSG was -3% at 47,000 ADS, and the overall revenue grew by 3%, with gross margin up by 40 basis points. The negative SSSG led to operating deleverage, and combined that with the additional marketing investments impacted the EBITDA, which came at 4.1%. Slide 36 gives you the 4-year trend and 5-quarter trend. As it can be seen that last two quarters, the ADS has partially recovered, and even Q4 last year, we actually incurred losses. Even from a profitability-wise, we are in the range of 4%-5%. So if we continue to focus on the brand revival through the product innovation and the marketing investments, we believe the brand will emerge stronger in the medium term. Our Sri Lanka business continues to recover well, with both sales and profit improvement. Restaurant sales grew by 10% in LKR terms, while SSSG here was 9% and transaction growth was also very healthy. In rupee terms, restaurant sales increased by 19%. Restaurant EBITDA margins were also the best in the last four, five quarters, but let Vijay take the specific numbers. Slide number 41, channel-wide sales contribution. Dining plus takeaway for Sri Lanka business came at 62%, with delivery at 38%, exactly same as quarter one. The SSSG was 9% and backed by a positive SSTG results, driven by transaction growth. From an ADS point of view, LKR 335,000 ADS and INR 93,000. Overall revenue grew by 10% in LKR and 19% in INR. In terms of gross margins, while we dropped by 110 basis points in Sri Lanka, the restaurant EBITDA grew by 20 basis points to 15.5%. Slide number 45 is four-year trend and five-quarter trend, and the last two quarters, in fact, last several few quarters of positive SSSG backed by transaction growth bodes well as we move forward into H2. So in conclusion, it's been a difficult quarter and a difficult six months, but we continue to focus on what we can control on the basics of improving store operations. Our cost management has been really good. Gross margins, as you can see, we've been able to get some benefit right across. The nature of channels has changed a little bit more in favor of delivery. Now, with most of the vegetarian month, the vegetarian days over, we should get a better read by the end of, say, November on how the second half is progressing. But we are still confident that if we stick to the basics, we will get out of this in a much better position. Now, with this, I will hand it over to all of you all for the question- and- answer session. 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. The first question is from the line of Vishal Gutka from HDFC Securities. Please go ahead. Yeah. Hi, Sanjay and team. Three questions from my side. First, on KFC, we have gone for massive expansion in last three years. I think, three years back, the store count was 200, now they are 450. At the same time, the market might not have expanded the same rate, with regards to store expansion, what is it? I just wanted to check, in the wake of current slowdown, where are we exactly expanding? Are we expanding into more into existing cities or, it's completely virgin markets? And do you think there's a need to recalibrate expansion, at least in existing cities, because, that will provide the buffer time, so that, store expansion catches up with the market growth rates? That's the first question. Second question was Pizza Hut. Domino's has gone very, very aggressive on the NPD or innovation calendar, although we also made some launches, Melts, and I think Momo Mia that is coming up. But I believe that, we really need to push the pedal on the innovation front as concerned. What kind of ADS is required, to achieve low-teen margins in the context of increased competitiveness of this from various players? Because earlier, ADS might not be relevant in the current context, given the competitiveness has gone up in a significant manner, and last question on M&A front. Given that, we'll be generating decent amount of cash flow over a period of next two, three years, any thoughts on, M&A? Are you open to acquiring a minority stake in any cloud-based kitchen brands, whichever who are compliant with the seven rules that we have on that front? Last, I would like to wish the entire team happy Diwali. Thank you. Just, can you, Vishal, can you elaborate on your question two, which you said on Pizza Hut innovation? And what was the question? Yeah. So Domino's has gone very, very aggressive in terms of innovation. Four or five innovations they have launched in a period of six months, kind of back-to-back. We have done Melts, and I think recently you have come out with Momo Mia. So just wanted to understand, sir, can we go aggressive on innovation front as well, NPDs and innovation? And the question is that ADS, what ADS number will be able to achieve low-teen margins? Because earlier ADS numbers might not be relevant, given that the competitiveness has gone up significantly in this, in this category. Yeah. Very well. So I'll take the first question on KFC expansion. Over last three to four years, 85% of our restaurants have come in towns where the population is more than 1 million. I don't see this trend changing as we move forward as well. And within that 85%, the 50% to 60% of restaurants would have come in the top top metros. So that trend would remain even as we move forward. In terms of overall count, we called out that we would double the count by December 2024, and we should be close to 500, so that's on track. Post that, we will again revisit what the guidance should be for the future expansion. But that's how the mix will play out between the metros, the Tier One, and the populous towns where the population is more than one million. On Pizza Hut, I think you would- Yeah, and, Vijay, I just wanted to check, so on KFC, you are telling that existing cities only expanded, right? Virgin market, there is expansion will be lower, right? That is the assumption I'm trying to make. 20%-20% of our store expansion comes in a probably virgin market. Yeah. So I just want to add color here. Even in existing cities, the idea is, so there might be parts of existing cities that are not served, and we typically have a certain way to look at a distance from an existing KFC store that we could look at a new store. Now, that varies according to the development of the brand in a particular city, so it'll vary a little bit. So I think even if we are expanding in Mumbai, we are expanding in Mumbai into newer trade areas that might have been less well-served than earlier on. Yeah. So that's, that's one. On the innovation part, I think our belief on innovation is, first of all, innovation never, ever will come at the cost of the core product. So the core product itself has to do really well. And typically, innovation appeals to, you know, a set of consumers who quite likely are your loyalists, and for them, you give a new reason to come back to the store. In some cases, like Melts, you are actually pulling the consumer into a new occasion of snacking also. Now, the big part of innovation is to be able to land it with every single consumer of yours, and typically this takes time. So to do an innovation, you know, to do four, five innovations, perhaps in a short period of time, actually is quite counterproductive because your consumer is unlikely all your consumers are unlikely to have sampled the innovation. With Melts, we've seen roughly anywhere between four to nine months is the ideal time, you know, for a innovation, after which you decide whether it should be part of your core menu or not. And I think our pace of innovation, we are quite happy with as of this moment. You spoke about what level of ADS will get us to low-teen level margins. I would say in the region of about 55 is where we would get to double-digit margins. Finally, on your M&A and cash flow, while right now so what we generate through the year is marginally short of what we spend on CapEx, but there will be a period, there will be a time when very soon, when this our generation will be higher than our requirements. And hence, at that point in time, we will look at M&A. We continue to look at M&A. At this moment, there are no great opportunities that we see. Also, we have defined our criteria in terms of dos and don'ts, and that's clearly part of our annual report. We have called out the seven mantras, which we believe are key to success at scale in a food business. So those are the filters which we keep using to evaluate the opportunity. There is no hurry. There is enough and more runway for both KFC as well as Pizza Hut. So if not in the short term, in the medium term, we would love to add a third brand using those criteria. And at that point in time, we'll figure out what's the right mode of structuring in terms of cash flow. Got it. Got it. Wishing you all the best for the coming quarters, and happy festive season. Thank you very much. Happy Diwali to you! Thank you. Thank you very much. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. The next question is from the line of Nihal Mahesh from Ambit. Please go ahead. Hi, good evening, Sanjay and Vijay. Am I audible? Yes, loud and clear. Hello, Nihal. Wonderful. First- Nihal, we lost you, huh? Hello. Nihal, Nihal, your voice is cracking. You're, in fact, breaking. We're losing you. Am I audible at this point? Lot better. Go ahead. Yes, I'll just make it quick. My question was, I do understand the kind of slowdown that, you know, the entire QSR space is seeing. But just so the details are okay, given KFC is an undisputed leader, has a value offering, is there a case where maybe the brand is not having enough appeal? I'm coming from maybe looking at this SSSG number, which seems, generally weak for a strong brand like what I would expect out of KFC. So that's my first question. So you'll have to just repeat that question because we got the last part of the question. What do you want us to address on KFC? Just help us. So Sanjay, just trying to understand, is the weak SSSG for a brand like KFC, which has such a high market share, more a case of a lower appeal with the brand rather than the overall slowdown? Just trying to understand that. I wanted your comments on that. Yeah. So, a strong brand and weak appeal are perhaps two opposite ends of the spectrum. I agree it's a very strong brand, and largely competitive intensity will not. First of all, in fried chicken itself, there's reasonable competitive intensity. But, overall, also, it plays in the general outside food occasions, you know, in the general restaurant category. So competition comes from other sources also. And when you've got a weak demand environment, it also will impact even a brand as strong as KFC. Having said that, I must say that this year we've been quite surprised by the intensity of the drop that we have seen on the brand during the vegetarian days. So, I think it's even from the northwest and even in the south, where we have a festival called Purattasi in Tamil Nadu. There also we are seeing, you know, we have seen drops. So I think now post Dussehra for the next two or next three or four weeks, is when we really should look at, we'll get an assessment of how the rest of the year is panning out. Having said that, like I said, we continue to invest significantly behind the brand. And when I look at how we do in direct competitive environments, we continue to do really, really strong, even with, you know, even with a direct competitor who's come up in the last, say, one year or so. And then finally, I think we are must call out that there is an impact of the Middle East tension that we are seeing. There's some geopolitical impact that we, perhaps can see on the business. Not now, it's existed under the surface, for perhaps, the last two, three quarters. Got that. My second question was on the delivery dine-in mix. That is obviously something that for the last many quarters, we're seeing a trend towards delivery. Just wanted to understand, anything to do with the scale-up of aggregators or certain consumption patterns you want to highlight? And Vijay, if you could just quantify the financial impact in terms of margins as the mix shifts more towards delivery. Yeah. So one part of the delivery contribution increasing is the fact that we have opened late night as an occasion. This was very little, say, even a year ago, and today it's a reasonable part of our business. So and that's only purely delivery. So that's one. Second is we are also seeing pressure in mall. Typically, the footfall pressure in malls has translated into our dine-in, in malls suffering a bit. So these are the two large trends that we have seen that have favored delivery versus, you know, versus dine-in. Nihal, in terms of the impact on shifting the mix from dining to delivery, in a PNL, we typically see a 10-15 basis point impact for every 1% shift. While this is not the entire impact on a delivery cost, we mitigate to some extent through the pricing, so our gross margins are better on delivery platform as well. So the net impact, what we look at, is 10-15 basis points. Got that. Thank you so much, and wish you a happy Diwali. Thank you. Thank you, Nihal. Happy Diwali. Thank you very much. The next question is from the line of Tejas Shah from Avendus Spark Institutional Equities. Please go ahead. Hi, first on KFC. Could you break down the nature of the slowdown, specifically, is it driven by reduction in transaction volume, or are we observing down trading in the average ticket size also, and also in the same answer, if you can comment on the market share on both KFC and Pizza Hut, how we are observing that? So the SSSG decline is the SSSG and the SSSG decline is virtually the same. And perhaps the ticket size might have gone down 0.5% to 1%. That's it. Okay. And So basically Yeah. Go ahead, sir. Yeah, so it is a transaction drop. It is not so much of a ticket size drop. From a market share perspective, I think once the rest of the companies present their numbers, then we will get an idea of how our market share is. But I think just indications that we are getting seem to suggest that we are still perhaps doing better than most of the industry, including on Pizza Hut. Yeah. And given the existing demand environment and competitive dynamics, how are you approaching store expansion guidance for KFC and Pizza Hut in the near term? And what are the specific markers, apart from private final consumption that you spoke about in earlier calls, that you are kind of monitoring to kind of turn the momentum on expansion as well? Yeah. So on KFC, I think we'll let this quarter play out, and then by the next quarter's investor call, we should be able to give a guidance on how 2025 will pan out. I would, I mean, if I have to hazard an answer today, I would say that we will be a little more cautious than we have been over the last three years in terms of our expansion on KFC. On Pizza Hut, we already called out that we were expanding anywhere between 50 and 60 stores. So this year, we believe that it will come down to 20-25, because there are still opportunities that exist, and our pipelines are built over several months and perhaps a year or two also. So, yeah. Just to clarify, Sanjay, we meant cautious compared to what we have been doing over the last three years on KFC, where we doubled the count. So that's a relative term we have used, cautious. Otherwise, we still believe that we'll continue to expand pretty much on KFC. And two or three quarters of negative SSSG should not be a cause of worry to expand a strong brand. So yes, you will still see pretty healthy additions on KFC as well. Very clear. That's all from my side. All the best for coming quarters, and happy Diwali to the team. Thank you, Tejas. Happy Diwali to you. Thank you very much. The next question is from the line of Jay Doshi from Kotak. Please go ahead. Yeah. Hi, team. Thanks a lot for the opportunity. First of all, in the opening remarks, you mentioned you will double the store count by December 2024, which probably means that some 40 store additions. Did I hear it correctly, or were you trying to say by FY 2025? No, you heard it correctly, Jay. So close to 500+/- here and there, close to 500 stores for KFC. For KFC. Understood. Second is the last couple of quarters with 114,000 and 122,000 ADS for KFC, profitability was still holding very well at, you know, around 18.5% Brand Contribution Margin. This time around, it dropped by 200 basis points, and, you know, while, you know, I know, ADS is slightly lower, but still the drop is. It appears that you are handling, managing operating leverage much better, over the past six months than, you know, in September quarter. So if you could explain in terms of what has changed and how should we think about this going forward? And final one, again, on KFC. So all these are KFC-related questions. The final one is that, you know, if you look at the last two years, the seasonality from September to December, ADS tends to be broadly similar levels at September and December, while, you know, you know, we've always maintained that September is a seasonally weak quarter and December is a better quarter, but because maybe you have more store additions in December, and hence, ADS tends to be similar. So in this time around, if you are adding 40-odd stores, will ADS potentially decline in December versus what we are seeing in September quarter? That's it from my side. The first part of the question on restaurant EBITDA, last year, we also had the benefit of gross margin going our way, so that helped us a lot in managing the overall restaurant EBITDA margin. When you are trying to compare this year's ADS level, and you compare with previous year, what you're missing is the inflation impact in terms of the cost, wages, the energy cost, and all those things. Marginally lower, the overall cost increase is also an impact which needs to be considered when you move beyond a year. So that's the first part. Second, the gross margins have remained range-bound for us. Last year, if you see, the gross margins, actually, we had a benefit versus a year ago in terms of gross margin. And having said that, at -8% and at 111,000 ADS, we believe 16.5% restaurant EBITDA, considering these levels of sales, is pretty healthy EBITDA. If you wouldn't have managed costs better, this could have gone down much, much further. Hence, it has to be looked into the relation of this 111,000 ADS and -8%. The second part of your query, which was on Q2 versus Q3 ADS levels, again, year on year, they may not be exactly comparable. Last year, September probably was one of the best months in the year because it came after two months of Adhik Maas, and then the Shraddh moved into October, and the 29th September is when I remember the Shraddh started, so it moved entirely into October, so the previous year's number may not be entirely comparable, and a year ago that we were coming out of COVID. And so to be fair, if I look at six, seven years history, yes, we do experience quarter three to be better than quarter two, and we don't see any reason why this year the quarter three should not be better than quarter two. Now, by how much it would be, let the maybe couple of months pass and then we'll know better. But yes, quarter three should be better than quarter two. Understood. Vijay, just one thing. On brand EBITDA contribution margin, I was referring to March 2024, June 2024, and September 2024, where there is no difference in gross margin. However, you know, EBITDA margin brand contribution has dropped by about two hundred basis points versus March 2024 and June 2024. Yeah. So that, that's where the drop in ADS of 3%, sometimes a drop in ADS of when you look at three, you think 3,000 is a 3% ADS. With the kind of operating leverage, that 3% can impact you by almost 150 basis points in terms of operating leverage, isn't it? Because the flow-through for a business like KFC is as high as 40%, right? And to add to that, the inflation on minimum wages, wage costs, energy costs, that adds up. Yeah. So from a Jan-Mar quarter to a July, August, September quarter, we've got, yeah, we've got all operating cost inflation coming in, Jay. Understood. P erfect. Thank you so much, and good luck for the next quarter. Thank you, Jay. Happy Diwali to you. Thank you very much. Next question is from the line of Percy Panthaki from IIFL Securities. Please go ahead. Hi, good evening, team. My question is on KFC. So I understand that Q2 was marred by the vegetarian days and the decline being higher than usual. So what has been your experience in October? For October, are you in positive SSSG territory on a YOY basis? Yeah. So even October, Navratri happened, and it, we also comped Navratri, last year also. Post, I mean, the way that we look at it, is that if you see the calendar year and if we see the financial year till date, so whether it is January to September or April to September, we are in the region of - 5% to -6% SSSG, and this is what we think the quarter also will come out at. Okay, understood. Which we had on the, because of the vegetarian days, the festival days, we don't anticipate that in quarter three, so hence, we believe this may be the range we are looking at. But again, too early, there's a three-week in October. And we are assuming that there is no change in, in the macro environment. That's an important assumption. But like, are you seeing any kind of green shoots? I mean, post, I know it's been very few days, but, post Navratri, et cetera, with the vegetarian days out of the picture, in the last couple of weeks or so, are you seeing any green shoots of improvement in the underlying demand? Currently, we are not seeing as high as -8%. That the trend which existed prior to quarter two is what the trend is. It has come back to. Yeah. Uh, okay. And actually, only last week, Percy, was a clean week. Right. So the week that ended yesterday was the first sort of clean week without, from Monday to Sunday week, that went without any sort of vegetarian disruptions. Right. So just wanted to understand what's happening on a demand front. I mean, if we look at, and you are not alone, right? All the listed QSR players are seeing weak demand. But if we look at results of, let's say, Zomato, there, the growth is very high, overall, like 20% plus kind of growth. Even if I take, remove the restaurant additions that they are doing on their platform and look at the sales per restaurant, that is also growing for them. So is it that this is like competition not amongst the QSR players, but amongst the larger industry itself, where smaller restaurants, et cetera, which were not really reaching the consumer earlier, are now being able to reach the consumer much more easily through these aggregator apps. So is that what is happening, do you think? I mean, just trying to hypothesize here, because, again, as I said, this is an overall QSR industry issue of weak demand. It's nothing to do with you particularly, but I'm just asking you as well as other companies as well. Yeah. So the weak consumer demand environment does not limit itself to QSR industries, but I feel looking at other FMCG companies also, their results, and it extends to virtually every other consumer product category. My own take on this is, while I don't think there's a big reduction. So GDP growth is still reasonable. However, in most competitive categories over the last two, three years, we have seen significantly heightened competitive intensity, certainly in QSR. Today, if I look at high street, if I look at mall, and if I look at online or digital stores, in high street, if you have, say, seven, eight competitors in a, you know, in a food gullies, in a mall, you'll have competition from perhaps 20, 25 restaurants, and in the digital space, you'll have competition with, say, 100 brands. So I think competitive intensity has gone up, and this competitive intensity is significantly higher than any rise in private consumption expenditure. So this is a perhaps short, medium-term impact that we are seeing. Having said that, also at times, perhaps we've expanded also and made the brand available significantly higher than earlier. So that's perhaps one, also, reason. So I think all of this we've got to put together when we, you know, when we look at the coming year, or so, Percy. Got it. Got it. And my last question on Pizza Hut. S o just like in KFC, I asked, are we seeing any kind of positive signs in October for Pizza Hut? And this 55,000 ADS that you said would be required for double-digit margin, I mean, is there- Sorry, sir, but can you please get on the question queue if you have a follow-up question? Okay. Yeah, never mind. We'll just take this quickly. Yeah. Okay, sir. Yeah. So on Pizza Hut also, it is similar. I think we are holding. After we saw the bump up in quarter one, we are holding in quarter two and currently per se, so I think they're also muted. Demand conditions are not helping. Having said that, at least we are stable and that itself is green shoots. Got it. Got it, sir. Thank you very much. Appreciate the question, Percy. Thank you. Happy Diwali! Happy Diwali. Thank you very much. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participants. Thank you. The next question is from the line of Devanshu Bansal from Emkay Global Financial Services. Please go ahead. Yes, sir. Hi, good evening. Thanks for taking my question. Sir, particularly delivery, we are still doing okay, but the challenges are more in dine-in channel, even in absolute terms, when we see KFC, it's largely flat in Q2. So do you see this as a structural change in the industry, and is there a need to sort of change our store format strategy as well? Yeah. So undoubtedly, over the last three years, there's been some amount of channel shift from dine-in to home service. When we look at other markets internationally, we see that there is a certain limit to how much this channel shift will occur. Having said that, we've always believed that an omni-channel store is the best suited to deliver the financial results that we want. A large portion of the capital to put up a store goes in the kitchen, and only a smaller section is spent on the front of house, and hence, I mean, it is always better to have dine-in, takeaway, and delivery, all three channels open, so let the consumer choose what she wants, you know, how she wants us to serve her. I mean, it continues to be omni-channel rather than only delivery. In only delivery, I just want to call out that unless a brand has the capability of delivering 100% through their own system, otherwise having a large portion of sales go through the aggregators does not make too much of financial sense for a brand. Just two quick follow-ups here. So, you mentioned that global study. So what is the extent of shift that typically is happening across the globe between optimized and non-optimized, if you could just highlight? I won't have very specific numbers but if I just look at businesses in the U.S., et cetera, where the cost of product on delivery is substantially higher than what is on dine-in because of the delivery charges. So their consumers seem to be coming back strongly to both dine-in and takeaway. Understood. Understood. Convenience, I think that's the point that I'm making. Understood, sir. Understood. And, between front and kitchen, what is the CapEx segregation for you? Typically, 70% of the CapEx goes into back of house, and the balance 30% is front of house. Understood. And last question from my end. You mentioned that our transaction size has broadly remained flattish versus last year. The competition at least has been very aggressive and focusing on transaction growth. So what, what's your view here? Because our ADS has remained flat. Are we losing transaction share to the competition? So I just want to highlight here that when SSSG has been - 8%, transaction decline also has been in the same region. When KFC overall system growth has been 8%, our overall transactions have also increased in the same proportion. So there's been very little ticket size improvement or otherwise that we have seen. So KFC as a brand has still grown transactions. The same store transaction growth might, you know, might be in the same realm of SSSG. Understood. So you're saying that, with your store expansion, that is leading to, decline in transactions at your existing stores side? No, I never mentioned that. I just said that there is an SSSG decline. However, at a brand level, transactions are still growing. I think that's the only statement that I was making. The other part which you are referring, whether we are degrowing because there are other players who are gaining, we don't see that other players SSSG any better than probably ours. So I don't think so that that stands true, that hypothesis is true. Well, I was talking more from a pizza-leading pizza player, sir, not from the burger player. But they are sort of sacrificing the bill size on the table, and they are seeing pretty good transaction growth. So my question was- I'm sorry to interrupt, sir, but can you please rejoin the queue for a follow-up question? Sure, sure. No issues. Thank you. The next question is from the line of Gaurav Jogani from JM Financial. Please go ahead. Thank you for taking my question. I just have one question. In terms of Pizza Hut, sir, you know, given that the margins are in now mid-single digits, and we would require an ADS of at least 55,000 or near to reach to that double digit. So how does this, you know, impact our unit economics at the store level? And, so, and also, you know, given that, you will also have inflation going in in the future years, in terms of the other expenses, so would that also push the ADS requirement higher to get to the double digit and then justifying the, the store unit economics? So, Gaurav, the first part, how does it impact? I was not clear, because what we called out is that 55,000 ADS or near or thereabout should be good enough for us to move towards double digit. So what exactly you mean that how does it impact? No, no. My, my question was, because it's a 55,000 ADS right now, that would lead to a double-digit kind of an ADS. But going ahead, there will be also some inflation in terms of rent and other expenses. So would that also mean that, you know, you would require a higher ADS then to get to the double digit? And then on the unit economics part, given that, you know, because we are not doing the double-digit kind of an margins right now, so how does that impact the overall unit economics for it, in terms of the ROE, ROC total for the stage? The first part of the question, if there's an inflation and which does not actually lead to a parallel ADS growth and only in a cost, certainly you will require a higher ADS. But then it's a very hypothetical question. Typically, we have been able to manage inflation quite well, even the cost inflation quite well, when if you look at the last three years of Pizza Hut. Even right now, at a 4% EBITDA margin, restaurant EBITDA margin, if you actually do the math, the drop in the revenue has been quite significant. We were doing at one point in time, 60,000 ADS levels, and despite dropping to 47,000, the impact on EBITDA has not been quite there. We have been able to manage the cost inflation quite well. So it will all depend on what form and shape the inflation hits us as we move forward. But yeah, but mathematically, there's an inflation on cost, you will certainly require a higher ADS. So that was the first part of the question. The second is how does the ROI and all those get impacted? Again, we are looking at a brand in a very different, manner. The Pizza Hut brand for us is a second pillar of growth, which we need to work upon. Right now, the brand is at a stage where we need to build the rev, the interest in the brand from the consumer point of view. We don't want to be in a situation that after a few years, we are only left with one leg of growth in terms of KFC. And hence, right now, i t's a phase where we need to invest behind the brand. If you do the math at this stage, of course, the ROI and the ROCs will not work out. But this was not the question, let's say, two years ago, when we were delivering 60,000 ADS, when the ROI was pretty decent. So I think the first stage first. Let's move towards that 50,000 plus mark. Start like moving slowly towards that double-digit mark, and then we can discuss that ROI and ROC conversation. Strong. That's all from me. Thank you. Thank you. Thank you very much. The next question is from the line of Shirish Pardeshi from Centrum Broking. Please go ahead. Good evening, Sanjay and Vijay. Thanks for the opportunity. Good evening, Shirish. Yeah. Just one quick question: Out of 461 stores in KFC, Sanjay, you mentioned that we have stores in malls. So what percentage of stores and what percentage of revenue from these mall stores we get? I may not have the exact number right now, but the revenue from mall would be anywhere between 40%-45%, revenue from mall. And of course, this in terms of the count, this probably will be slightly lower, so it would be anywhere between 30%-35%. Okay. So your hypothesis or your understanding is that the revenue in the mall stores has been up very strong. So what we are saying is that dining, mall typically has a very high mix on dining, and very small amount of takeaway and very small amount of delivery as well. It's not that we don't deliver out of a mall, but yeah, the mall dining has taken a definite impact over the last six months. That's my understanding, because mall dining would be much stronger, so I don't think the delivery would have affected. So you mean to say that the dining and ticket size is under stress? Not the ticket size, just the transaction. Because of the footfall at the malls, the kind of probably footfall the malls are seeing, and again, it's a, even what we are seeing at the movies, the kind of movies which we are seeing, I don't think the first six months have been great in terms of mall footfall because of the movies as well. So yes, the mall dining has definitely been impacted. So on the flip side, if we had a non-vegetarian issue with the KFC portfolio, Pizza Hut should have surprised you positively in the mall stores and sales? So the mall impact was nothing to do with because of non-vegetarian. The mall impact is just the mall footfall and the movies, what we're talking about. So it's nothing to do with the cuisine, whether it's vegetarian or non-vegetarian. The vegetarian impact, which we're talking about on the KFC, is just the overall impact which has been across malls and high street stores. So that impact is irrespective of the format. Okay, got it. My second question is on slide 29. You have given Momo Mia Pizza, but I guess, why this is LPO, and when this was launched, and how long it will be there in the market? This is part of our menu right now, Shirish. I think when we look at. We typically evaluate it after three to four months, and then we see whether it needs to be a continuous part of our menu or not, or L PO. So it has gone before Navratri, if I'm right? It was launched in October, first week of October. October. Yeah, before Navratri. You're right. Okay. No, I saw that, so that's why I'm saying, but I was more curious why it is LPO. No, I never said it's an LPO. No, it's written in the slide, limited time. It's part of our innovation pipeline. Typically, we evaluate it after three or four months, and after three or four months, we take the call whether we need to make it as a continuous part of our menu or, perhaps withdraw it, at that time. That's that I understood, Sanjay. What I was trying to understand, you alluded, you said that we are trying to build the occasions for the excitement for the consumer. So Melts has given some fillip, but then is Momo Mia is also giving you the occasion and footfall increase? Not clear. Yeah. So, did I hear you say that Melts has given you some fillip? Momo Mia should give you a further fillip. Is that what I understood? Yes. Yeah, so it should give us a additional fillip. I think we'll wait for the quarter to play out to understand how this works. Okay. All right. Happy Diwali to you, Sanjay and Vijay. Happy Diwali, Shirish. Yeah. Thank you very much. The next question is from the line of Harish Advani from Investec. Please go ahead. Hi, thank you for the opportunity. I just had one question, when it comes to the KFC, that we are trying to do in terms of increasing the daypart occasions, through rolls and, biryani bowls, et cetera. So I just wanted to understand, since you've been doing this from the last, two to three quarters, how has this, been trending? And if you can share any, percentages of how this is contributing to our overall ADS. That was my last question. Sorry. So, at this moment, while we are pushing the alliance, we are pushing rolls and so on, at an overall basis, the bold truth is that our SSSGs have continued to be negative. So, you know, one can say that it has had a limited impact on improving our sales trajectory. Okay. And, is it possible to quantify how much it's contributing to ADS at the moment? So, contribution, typically, we don't give out, Harish, and that's, y eah, typically, we don't give out. Okay. Thank you. Thank you, Harish. Happy Diwali to you. Thank you very much. The next question is from the line of Jignanshu Gor from Bernstein. Please go ahead. Hi, am I audible, Sanjay and Vijay? Very much so. Hi. First of all, a very happy festive season going into it, and hopefully the numbers recover. I just had one question in the interest of time. For the Sri Lanka business, now that contributes roughly 15% of our EBITDA at overall level, what kind of growth prospects do you see there, from a medium to long-term perspective? We've just got out of perhaps about six to eight quarters of a really difficult time in the country and nothing that, I mean, it's all macro conditions that sort of nosedive. We believe that Sri Lanka would give us similar kind of growth opportunities as India. We should be able to open, say, anywhere between seven and ten stores a year, and that's what we would have thought earlier. At this moment, we'll be just a tad cautious still and wait for another quarter or so before we accelerate. Having said that, stores will continue to open, but it will be in single digit. Very helpful. Just one very small additional question on. This is on the CapEx related to India. So, since we see the CapEx per store added has sort of dropped by 10%, is this largely due to non-store CapEx being lower than past? Or is it also because we are making some changes in the configuration of the stores as we open them? Again, because I think you're working out CapEx on through a backward calculation by looking at the cash flow, right? Right. Yeah, so sometimes the cash flow vis-a-vis the actual CapEx, there could be always a mismatch. To be fair, I don't think our CapEx have dropped. It continues to be in the same region, which is roughly INR 2 crore for KFC, INR 1.35 crore-INR 1.4 crore for Pizza Hut t hat remains. Sometimes the cash flow, depending upon when have you ordered, the cash flow can be very different. So there is no change in the CapEx. It's neither increasing nor decreasing. Okay, great. Thank you so much, and have a good festive season. Thank you so much. Thank you very much. Due to time constraint, that was the last question. I would now like to hand the conference over to the management for closing comments. Thank you, and over to you. Yeah, thank you very much, all of you all, for having joined this. I'm happy that we've done it just before Diwali, and I wish you, your families, a wonderful Diwali and a wonderful rest of the festive season till the end of the year. Thank you very much for supporting Sapphire Foods. On behalf of Sapphire Foods India Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.