Sapphire Foods stock surges 8% to hit 52-week high as brokerages remain bullish, raise target price

Sapphire Foods India, which operates KFC and Pizza Hut outlets, is looking to invest in brand building

Shares of Sapphire Foods India jumped over 8 percent in early deals on August 1 to hit a 52-week high of Rs 1,817.2 apiece on the National Stock Exchange (NSE). The jump comes after brokerages reiterated bullish calls on the stock after the Pizza Hut and KFC operator reported in-line earnings for the quarter ended June 2024.

Sapphire Foods' consolidated net profit fell 68 percent year-on-year to Rs 8.52 crore ($1.02 million) in Q1FY25. Analysts, on average, had expected a profit of Rs 17.39 crore, according to LSEG data.

The Yum Brands franchisee's revenue from operations, however, rose 10 percent to Rs 718 crore, missing analysts' estimate of Rs 723 crore.

The QSR industry continues to see weakness in unit economics across dine-in and delivery formats. KFC has shown resilience in managing the headwinds more effectively.

Pizza Hut has been struggling due to weak unit economics and intense competition. The store expansion spree is expected to slow down in FY25 (mainly in Pizza Hut) to fix the profitability metrics, according to Motilal Oswal.

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The brokerage maintained its cautious stance on QSRs for the near term due to the ongoing demand challenges. "We reiterate our buy rating on the stock with a target price of Rs 1,850," it said.

While the operating environment has been challenging, management commentary suggests further weakness is unlikely and performance should gradually revive. JM Financial stated that it likes Sapphire’s approach to go aggressive on a more resilient KFC and be calibrated in Pizza Hut; green shoots in Sri Lanka also augurs well, it said.

"Valuations at 23x FY26E EBITDA (preIND AS) not demanding; however, the pace of recovery in same-store sales growth (SSSG) will be key for further rerating," said JM Financial as it maintained a buy rating on the stock with a raised target price of Rs 1,740.

The demand environment in the festive season is the key catalyst to drive share price performance for all QSR companies, according to analysts at Elara Capital. "We pare FY25E SSG growth estimates to 1.1% for KFC, factoring in a muted Q1 and healthy recovery near term, which could imply no potential outperformance of the fried chicken category versus industry average," they said.

Better profitability is the only respite for players in the fried chicken category and related stability will help command premium or on-par valuations versus peers, Elara Capital said.

The brokerage expects momentum to pick up in H2FY25 with better growth and an improved margin trajectory. It maintained a 'buy' call on the stock with a target price of Rs 1,900, up from 1,785 earlier.

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At 10:19 am, Sapphire Foods shares were trading over 4 percent higher at Rs 1,724.85 apiece on the National Stock Exchange (NSE). So far this year, the stock has gained 22 percent, outpacing benchmark Nifty 50 which rose 15 percent during this period.

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