Buy Sapphire Foods; target of Rs 370: Emkay Global Financial

Emkay Global Financial recommended buy rating on Sapphire Foods with a target price of Rs 370 in its research report dated May 08, 2025.

Broker Research

May 08, 2025 / 13:02 IST

Buy

26 Aug, 2025 12:21

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Emkay Global Financial's research report on Sapphire Foods

Sapphire’s Q4 EBITDA was in line with our muted expectations. Overall/India revenue grew 13%/10%, largely led by store additions in India and a ~31% growth rebound in Sri Lanka. SSG trends were tepid, with -1%/1% SSG for KFC/PH India in Q4, and the associated negative leverage led to ~7% EBITDA decline. With impending benefits from tax-reliefs, Sapphire remains hopeful of delivering a low single-digit SSG for KFC in FY26, 70-80 KFC store additions on a 502 exit-count and stable brand margins, though Apr-25 SSG trends are muted. The PH Sri Lanka expansion is expected to accelerate, with 7-9 store additions on encouraging SSG recovery; however, the PH India expansion is likely to be guarded (~25 stores). Among channels, delivery mix for KFC continues to increase (+400bps in FY25; 20% growth), with lackluster footfall growth in the on-premise channel. To gain dine-in transactions, Sapphire’s focus is on recruiting new consumers with the Rs99 offering across categories (Boneless/Strips/Burger/Rolls) and sustained marketing under the ‘Taste the Epic’ Campaign. Sapphire maintains that omni-channel is the right model (vs cloud kitchen), as 70% of the capex is toward the back-end kitchen. With its high fixed-cost model for QSRs, a ~2% cut in topline has resulted in 10-11% cut to our TP/EBITDA estimate.

Outlook

We remain constructive on Sapphire’s mediumterm growth potential and maintain BUY while cutting our TP by ~10% to Rs 370 (unchanged multiple of 28x EBITDA).

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