Hold Sapphire Foods; target of Rs 1380: Emkay Global Financial

Emkay Global Financial recommended hold rating on Sapphire Foods with a target price of Rs 1380 in its research report dated May 13, 2023.

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May 16, 2023 / 12:56 IST

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Emkay Global Financial's research report on Sapphire Foods

Q4 EBITDA is 7-11% short of Street/our estimate, on weaker SSG in KFC/SL and lower margin in PH. Persisting weak macros kept SSG for KFC/PH low at 2%/-4% in Q4, and we believe a high base should further dampen performance ahead (in Q1FY24). Sapphire sees this only as a near-term blip and expects investments in store additions/mass-marketing for new innovations (PH menu revamp) to continue. With RM price moderation, gross margin (GM) fared better but negative leverage in PH drove the margin miss. Our FY24 estimates factorin a V-shaped recovery, leading to flat SSG/margin for the India business in FY24. But continued store adds/SL recovery should lead to 24%/30% revenue /EBITDA growth in FY24E. Post the recent cut, there is no major change to our estimates.

Outlook

We stay confident on QSR’s long-term growth prospects, but have a HOLD on Sapphire on near-term uncertainty, with revised TP of Rs1,380 (16.5x Jun-25E EBITDA). TP review is led by 3M rollover.

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