Buy Sapphire Foods; target of Rs 1670: Motilal Oswal

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Motilal Oswal's research report on Sapphire Foods

SAPPHIRE’s 3QFY23 EBITDA was broadly in line with expectations, as a beat on EBITDA margin (19.6% v/s our estimate of 19.2%) made up for a 4.5% miss on net sales. SSSG in KFC was marginally below expectations (3% v/s our expectation of 5%), but Pizza Hut’s SSSG came in lower (at -4% v/s our estimate of +2%). However, sequentially, gross margin increased ~70bp and EBITDA margin increased ~130bps, owing to easing material cost pressure in KFC. Sri Lanka business ADS has been stable in recent months but full recovery will take time.

Outlook

We retain our BUY rating with a TP of INR1,670, given SAPPHIRE’s healthy earnings growth trend and relatively inexpensive valuations v/s QSR peers.

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Sapphire Foods - 10 -02 - 2023 - moti