Sapphire Foods Q2 Results Review - Battling Challenging Environment: Dolat Capital

Dolat Capital Report

Sapphire Foods India Ltd. reported 36% revenue growth – in line with our estimate. The growth was driven by 36/60% jump in KFC/Pizza hut during the quarter.

Though the Sri Lanka business reported 76% growth in Sri Lankan rupee terms, in Indian rupee terms growth was mere 2% - restricted overall performance. Also, though Sri Lanka business reported 23% Ebitda increase in LKR terms, due to currency fluctuation, Ebitda declined by 25% in Indian rupee terms.

Sapphire Foods opened 42 new stores during Q2 (20 KFC, 14 Pizza Hut and eight in Sri Lanka), taking the total store count to 658. We believe that the company would continue to add 130-160 stores every year going ahead with a cluster based approach and penetration strategy.

High inflation in key raw materials dampened gross margin by 320 basis points. However, better operational efficiencies helped Sapphire Foods improve its Ebitda margins by 470 bps.

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