Buy Sapphire Foods; target of Rs 415: Motilal Oswal

Motilal Oswal's research report on Sapphire Foods

Sapphire Foods India (SAPPHIRE) reported revenue growth of 14% YoY (in line) in 3QFY25, driven by a 13% YoY increase in store count. KFC revenue grew 12% YoY, supported by 22% store expansion, though offset by a 3% decline in same-store sales (est. -3.5%). Pizza Hut (PH) revenue rose 10% YoY, with 6% new store additions and 5% SSSG (est. 4%). Sri Lanka posted strong revenue growth of 30% YoY (+15% in LKR), driven by 14% LKR SSSG and 5% store growth. Gross margin contracted 30bp YoY and 20bp QoQ to 68.6% (est. 68.8%). KFC’s ROM was down 190bp YoY/up 170bp QoQ at 18.2%, impacted by operating deleverage. PH’s ROM expanded 10bp YoY to 4.7%, and Sri Lanka’s ROM improved 360bp YoY to 17.8%. Consolidated restaurant EBITDA pre-Ind-AS grew 9% YoY to INR1,164m (in line), though margins declined 60bp YoY to 15.4% (13.8% in 2QFY25). Pre-Ind-AS EBITDA rose 12% YoY to INR 811m, with a marginal 10bp contraction in margin to 10.7% (8.5% in 2QFY25).

Outlook

However, ADS and SSSG recovery remain key monitorables, as they are critical to improving unit economics. We reiterate our BUY rating on the stock with a TP of INR415 (30x Dec’26 pre-IND-AS EV/EBITDA).

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