Sapphire Foods gains from KFC margin recovery and positive same-store sales

Investment View and Valuation

In its July 24, 2026 1QFY27 results update, Motilal Oswal Financial Services Limited retained its Buy rating on Sapphire Foods India and raised its FY28 EBITDA estimate by 1 per cent. The broker expects improving demand, stronger execution, operational efficiencies and recovering unit economics to support earnings growth. It also expects the proposed Devyani-Sapphire merger to create scale synergies and strengthen execution across brands and geographies.

Motilal Oswal's target price is Rs 240, based on 20 times March 2028E pre-Ind AS EV/EBITDA.

1QFY27 Financial Performance

Sapphire Foods reported consolidated revenue growth of 15 per cent year on year, the highest in the previous 11 quarters, to Rs 8,910 million in 1QFY27, broadly in line with Motilal Oswal's Rs 8,812 million estimate. Gross profit rose 17 per cent to Rs 6,129 million, ahead of the Rs 5,982 million estimate.

Profit before tax was Rs 162 million compared with a Rs 18 million loss in 1QFY26, while adjusted profit after tax was Rs 140 million compared with a Rs 17 million loss a year earlier.

Brand Performance

KFC

KFC revenue grew 17 per cent year on year to Rs 6,183 million, with same-store sales growth of 5 per cent, in line with expectations. Average daily sales rose 2 per cent to Rs 118,000. KFC gross margin expanded 160 basis points year on year, while restaurant operating margin increased 120 basis points to 16.9 per cent despite energy-cost inflation.

Pizza Hut

Pizza Hut revenue rose 3 per cent to Rs 1,360 million, with same-store sales growth of 1 per cent against a weak 8 per cent decline in the base quarter. Pizza Hut dine-in same-store sales turned positive, while average daily sales were flat at Rs 44,000. However, restaurant operating margin remained under pressure at negative 3.6 per cent, compared with negative 2.5 per cent in 1QFY26, owing to higher energy costs.

Sri Lanka

Sri Lanka revenue grew 16 per cent year on year, or 14 per cent in local-currency terms, to Rs 1,300 million. Growth was supported by 9 per cent local-currency same-store sales growth and store expansion. However, restaurant operating margin declined 70 basis points to 12 per cent.

Store Expansion and Operating Trends

The store base increased 8 per cent year on year to 1,074 stores after net additions of 22 stores in the quarter, comprising 16 KFC outlets, five Pizza Hut outlets and one Sri Lanka outlet.

Management said demand conditions were broadly unchanged sequentially: April and May were healthy, June softened and July had again become encouraging. It attributed KFC's momentum to company initiatives and noted improving Pizza Hut dine-in sales.

• Sapphire Foods has reduced discounting by about 50 basis points since October 2025.
• The company implemented about 2 per cent price increases at both KFC and Pizza Hut.
• Management expects no further price rises because stable raw-material prices and operating efficiencies should offset inflation.
• Smaller-city average daily sales are about 20 per cent below metro and tier-one-city levels, but materially lower operating costs make profitability and payback comparable.

Key Monitorables and Outlook

Motilal Oswal identifies the sustainability of improving Pizza Hut dine-in footfalls as a key monitorable. Sri Lanka faced a challenging 1QFY27, although management expects a gradual recovery over the following two quarters and remains confident about its long-term performance.