Buy Sapphire Foods; target of Rs 1650: Motilal Oswal

Motilal Oswal's research report on Sapphire Foods

Sapphire Foods (Sapphire) reported 13% YoY revenue growth, despite 18% YoY store growth. The store growth was offset by a decline in same-store sales for both KFC (-3%) and Pizza Hut (PH; -15%). KFC’s revenue rose 16% YoY despite 26% YoY store growth, while PH’s revenue declined 3% YoY in 4QFY24. However, there was no store addition for PH during the quarter as Sapphire undertook a cautious expansion strategy. It has planned to open PH stores in single digit during FY25. GM trend was positive across brands due to a benign RM basket. However, unit economics were hit by weak growth metrics. KFC’s ROM declined 40bp/140bp YoY/QoQ to 18.7%, while PH’s ROM decreased sharply by 1,130bp/730bp YoY/QoQ and became negative (-2.7%) in 4QFY24.

Outlook

The stock trades at 24x and 19x Pre-Ind-AS EV/EBITDA on FY25E and FY26E. We reiterate our BUY rating on the stock with a TP of INR1,650.