Buy Sapphire Foods; target of Rs 400: Motilal Oswal

Motilal Oswal's research report on Sapphire Foods

Sapphire Foods India (SAPPHIRE) reported revenue growth of 8% YoY (in line) in 1QFY26, driven by a 10% YoY increase in store count. KFC’s revenue grew 11% YoY, supported by 15% store expansion. KFC’s same store sales growth (SSSG) remained flat (in line). Pizza Hut’s (PH) revenue declined 5%
YoY, as same store sales (SSS) declined 8% (est. -6%). PH’s new store additions were 5%. Sri Lanka posted healthy revenue growth of 19% YoY (+15% in LKR), driven by 12% LKR SSSG and 7% store growth. Gross margin contracted 120bp YoY and 80bp QoQ to 67.4% (est. 68.3%). KFC’s ROM contracted 310bp YoY to 15.7%, impacted by lower ADS (down 5% YoY to INR116k), higher mix of delivery orders, and operating deleverage. PH’s ROM contracted 710bp YoY to -2.5%. Sri Lanka’s ROM contracted 50bp YoY to 12.7%, impacted by higher employee costs. Consolidated restaurant EBITDA pre-Ind-AS declined 13% YoY to INR943m (in line), and margins contracted 300bp YoY to 12.1% (12% in 4QFY25). Pre- Ind-AS EBITDA was down 22% YoY to INR548m, with a 280bp contraction in margin to 7.1% (7.1% in 4QFY25).

Outlook

The stock trades at 38x and 29x pre-Ind-AS EV/EBITDA on FY26E and FY27E, respectively. We reiterate our BUY rating on the stock with a TP of INR400 (32x Jun’27 pre-IND-AS EV/EBITDA).