...Gentlemen, good day, and welcome to the Devyani International's Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity to ask questions after the presentation concludes. So whoever wants to ask a question may enter star and one on their touchtone phone. To remove yourself from the question queue, please enter star and two. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on their touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Anoop Poojari from CDR India. Thank you, and over to you, sir.
Thank you. Good afternoon, everyone, and thank you for joining us on Devyani International's Q1 FY25 Earnings Conference Call. We have with us Mr. Ravi Jaipuria, Non-Executive Chairman of the company, Mr. Raj Gandhi, Non-Executive Director, Mr. Virag Joshi, CEO and Whole Time Director, and Mr. Manish Dawar, CFO and Whole Time Director of the company. We will initiate the call with opening remarks by the chairman, followed by key financial highlights from the CFO. For that, we will open the forum for a question and answer session. Before we begin, I would like to point out that some statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the results presentation shared with you earlier. I will now request Mr. Ravi Jaipuria to make his opening remarks.
Good afternoon, everyone. I warmly welcome you all to our earnings conference call to discuss the business performance of DIL for the quarter of the financial year 2024-2025. DIL added 54 new stores during the quarter with an aim to reach the consumers in under-penetrated markets and offer enhanced customer experience and service. With this addition, our total store count has reached 1,836 stores as of June 30th, 2024. We remain committed to expand our store presence. The consumer sentiment in the first quarter of full year 2025 has remained more or less in line with the trends observed for the consumer, industry, and QSR industry. This is mainly on account of the challenging macro and microeconomic factors.
We witnessed an improved performance for DIL in quarter one, driven by seasonality, cost leverage, and better ADS across our business, and a relatively lower impact of Nigerian currency devaluation. The customers remain cautious with their spending, a trend that has impacted our performance as well. Additionally, macroeconomic factors such as international conflicts and global boycotts continue to impact the operations in certain geographies. The Nigerian currency continued its weakness, weakening trend in quarter, in quarter one as well. On balance, we are delighted with the positive progress in quarter one and shall continue to be relentless in our plans for the coming quarters. We introduced innovative marketing campaigns, promotional offers, and deals on our range of brands, enabling us to capitalize on seasonal trends. Despite challenges, we remain focused on offering value-driven options to our customers to adapt to market dynamics and drive growth.
To further navigate competition and strengthen the connect with younger audiences, Pizza Hut India launched a series of distinctive marketing initiatives across digital platforms and diverse channels. These efforts included increased visibility for meals through television ads and videos. The highly anticipated Thin 'N Crispy pizza crust also made an entry to our core business, driving a boost in sales during the holiday season. We are optimistic that the industry will rebound during the ensuing festive season. We continue to expand our store footprint and make our brands more accessible to our consumers. We are also focused on enhancing our institutional business, including food courts and our presence at high footfall locations like airports. To sum up, India presents a highly promising outlook for our brands and the QSR industry.
The robust economic growth, rising disposable income, and increasing urbanization will drive demand and convenience and high quality fast food experiences. We remain bullish on the India story and the QSR space in the medium and long term, and are confident that these favorable trends will continue to drive our expansion and success. Additionally, our Thailand business is demonstrating good growth with new store openings and strategic focus on customer delight. As announced earlier, we are on track to achieve a total store count of 2,000 stores within the current fiscal year, a milestone that underscores our commitment to growth and our confidence in the future potential of our markets. With this, I would like to conclude my address and now hand over to Manish for the financial highlights. Thank you very much.
Thank you, Mr. Jaipuria. Good evening, everyone. A very warm welcome, and thank you for your valuable time for attending DIL's Q1 FY 2025 earnings conference call, our 12th call since the listing in August 2021. DIL's total store count stands at 1,836 stores as at the end of quarter one FY 2025, with a footprint of 1,738 stores across our core brands, namely KFC, Pizza Hut and Costa Coffee. This consists of 970 stores for KFC, 576 stores for Pizza Hut and 192 stores for Costa Coffee. The operating revenue for Q1 FY 2025 was INR 1,222 crores, representing a growth of 44.3% versus Q1 FY 2024, and 16.7% versus quarter four FY 2024.
This is mainly on account of consolidation of Thailand business since the acquisition was completed in January 2024. The consolidated Q1 FY 2025 includes operating revenues of Thailand business for the full quarter. The Indian business witnessed a growth of 11.7% quarter-on-quarter, with improved ADS on both of our core brands, that is KFC and Pizza Hut. The gross margins for the consolidated business, including Thailand, was flat at 69.2% versus the previous quarter. The Thailand KFC business operates at a lower gross margin versus the Indian KFC business. The margins for Q1 FY 2024 were lower by 1.6% versus Q1 FY 2024 because of full consolidation. The brand contribution for Q1 FY 2025 was 15.3%, with an improvement of 1.8% versus the previous quarter.
This was aided by movement in India by 130 basis points, an improvement in our international business operations by almost 470 basis points. The all-round improvement is on account of better cost leverage across all our operations, with improved ADS and relatively better currency situation in Nigeria. Consolidated operating EBITDA on a Pre-Ind AS basis was INR 141 crores, versus INR 96 crores in the previous quarter, a growth of almost 47%. The Pre-Ind AS margins for the quarter for the consolidated business was, were 11.6% versus 9.2% in the previous quarter. The improvement in brand contribution is fully reflected in the operating EBITDA margins for the year on a consolidated basis. The consolidated reported EBITDA on a post-interest basis was 18.3%, an improvement of 1.7% versus quarter four FY 2024.
The Nigerian currency continued its weakening trend in quarter one. The rate of currency depreciation is better versus the previous quarters. During the quarter, Nigerian naira got depreciated by almost 10% versus the USD. As a result of this, the Nigerian business has recorded an overall loss of INR 22.5 crore on account of USD-denominated liabilities during the quarter. Out of this, FX loss INR 7.6 crore has been recorded in the P&L and has been disclosed as a separate line item. The remainder currency loss has been recorded as OCI. Such foreign exchange loss on account of Nigerian currency devaluation in the consolidated financial statements shall not form part of the EBITDA calculations, being a non-cash item. The PBT for Q1 FY 2025 on a consolidated basis was INR 31 crore versus INR -38 crore for the previous quarter.
The improvement in PBT is on account of improved margins in quarter one FY 2025 and reduction in currency devaluation impact in Nigeria. Taking the discussions to our core brands, KFC in India added 21 new stores in quarter one FY 2025. With this, the total store count for KFC in India stands at 617 stores as at the end of quarter one FY 2025. Average daily sales for quarter one 2025 improved to INR 104,000 versus INR 93,000 in the previous quarter. Revenues at INR 555 crores grew 12.3% on a quarter-on-quarter basis. Gross margin for KFC during the quarter was 69.5%. Brand contribution margin was 19.5% for the current quarter, thereby reflecting an improvement of 50 basis points over the previous quarter.
During the quarter, Pizza Hut added three new stores, reaching a total count of 570 stores in India. Revenue for Q1 FY 2025 was INR 182 crores versus INR 162 crores in the previous quarter. ADS for the brand improved to INR 36,000 versus INR 32,000 in the previous quarter. Gross margin for the quarter was 76.8%. Brand contribution for the quarter was INR 9 crores, with margins at 5%, which grew by 60 basis points on a quarter-on-quarter basis, mainly due to better leverage on account of higher ADS. Costa Coffee added 13 new stores during the quarter, reaching a cumulative store count of 192 stores. Q1 FY 2025 revenue was flat at INR 45 crores versus the previous quarter.
The revenue grew by 40.5% on a year-on-year basis, mainly due to expansion of new stores. The gross margin for the quarter was 75%. Brand contribution in quarter one stood at 15%, resulting in a drop of 2.9% versus the previous quarter because of ADS deleverage impact. Our international operations now fully include the Thailand acquisition. The total number of international stores was 363, with the addition of 10 new stores in quarter one. The international revenue for the quarter was INR 390 crore, giving a gross margin of 63.7% and the brand contribution margin of 14.8%. The reported EBITDA was 13.1% during the quarter. To conclude, we want to reiterate our commitment to the Indian QSR market.
As we continue to expand, we remain committed to improving our financial performance by way of prudent financial management and creating long-term value for our shareholders. On that note, I would like to request the moderator to open the forum for any questions or any suggestions that you may have. Thank you so much.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Saurabh Kundan from Goldman Sachs. Please go ahead.
Hi, thank you. My first question is on chairman's opening comments. He has mentioned that the company is optimistic of a rebound in the industry in the festive season. We just wanted to understand those comments better. Are there any signs or any data points that you are seeing based on which you are turning optimistic?
Saurabh, typically, we've seen in the past also that, in any market, it is the festival season which kind of perks up the store, which kind of perks up the overall consumer sentiment. And that's the reason we are kind of basing our, view, that, this festival season we could see it, because, we've been in this kind of scenario now for the last almost five to six quarters. And that's how we are kind of hoping that festival season could probably be a turnaround situation for the industry.
Sure, sure. Second one on KFC. If I recall correctly, you were more impacted because of, I think, Adhik Maas in the September quarter last year. Should we expect a sharp improvement from the current -7%? Your base is -4% next quarter. Can we hope for a flattish KFC on that base?
So, Saurabh, you're right. But again, as you know, I mean, the overall macroeconomic situation or the macro environment continues to evolve, right? So, for example, it is not absolutely the same environment which was there last year. We are facing headwinds on account of this whole West Asia war and the boycott of brands, which is kind of going on. And therefore, I mean, there is... So there are multiple other factors also at play, not just the Adhik Maas, as far as the current quarter is concerned. Our store count is also much better versus where we were last year, so therefore.
But at least, an improvement from the current -7% that we are at, I, I would assume.
We will not be able to make any forward-looking statement.
Okay. Okay. Sure, sure. One last one, if I can add, it's so if I subtract the brand contribution of KFC India, Pizza Hut, and Costa from the total India brand contribution, I'm getting a number of INR 12 crore, which I'm assuming is your non-core India businesses. This number is much higher than in the past. Is there any one-off in the India non-core which is bumping the profits, the contribution? Yeah.
Saurabh, there are two, three things at play here. One is obviously we have other small businesses also, apart from the three core brands in Vaango, which includes the food courts and some of the non-core businesses at the airports and so on and so forth. And at the same time, because this time we are giving the India business and international business separately, there are some elimination entries because of the intercompany transactions. So therefore, that also kind of... So you would see that the total India and total international also would not equate to consolidated, because in the consolidation, the elimination of entries will also happen. So these are the two reasons why, on an overall basis, you will not be able to reconcile the numbers.
Let's say if I were to evaluate India performance separately and international performance separately, those are the numbers, strictly speaking.
Okay, thank you.
Thank you. The next question is from the line of Gaurav Jogani from Axis Capital. Please go ahead.
Sir, thank you for taking my question. So my question again is with regards to Saurabh's earlier question only. Because, you know, earlier when you used to subtract the the Pizza Hut or KFC and all the other numbers, and you could derive the other domestic brand contribution number, the range between INR 3-INR 4 crore, INR 5 crore, and this time around it's INR 12 crore. So I'm guessing the elimination would have been existing earlier as well. So, on the other way around, can this INR 12 crore number be sustainable number going ahead? That's the question.
See, the difference was that if you go back, let's say, a couple of quarters, obviously Thailand wasn't there. And, and Thailand is a large business compared to, let's say, the, the Nepal and Nigeria operations which were there. So, so that is the reason. We do charge some small management fee from the, from the business operations, and, so, and that is how it kind of gets eliminated.
... Sure. And sir, the other question, you know, even as you said, you know, that if we total up the India and the international business, that would not actually equate to the consolidated business. So is it the adjustment for the Forex loss that is reflecting in the international business, and that is why the difference is there?
Yeah, the Forex loss also gets treated differently because, for example, let's say when we consolidate, there is some element of Forex loss which gets into OCI. There is some element which comes into the P&L line item. Whereas at the Nigeria level, everything is supposed to be recognized in the P&L, so.
Sure, sure. Got that. And sir, if you can, you know, help us out, you know, what kind, what is really driving the operational performance improvement in the international business? Because if we go by the last year, the last quarter that it was around 10%-11%, and, you know, it's a sharp jump, this quarter around. So what is really driving that?
Well, if you see, the ADS has improved across all of our brands and the operations. So let's say KFC India, the ADS is better. It's INR 104,000 versus INR 93,000 in the previous quarters. If you look at Pizza Hut India, it is INR 36 versus INR 32. If you look at Nepal, Nigeria and Thailand, the ADS is better versus the previous quarter, and therefore, that gives you a better leverage from a P&L perspective. At the same time, we've been kind of unrelenting as well as the cost saving measures are also concerned. And there is some element of cost saving measures, cost leverage, in fact, because of the better ADS numbers and so on and so forth.
So, so anything specifically related to Thailand here, I mean, because, you know, that business was only acquired by you in the last quarter, and because now we have a full one full quarter that we have, you know, sight of, assumed it. So any particular one-offs that you know you've been getting in terms of benefits that will be sustainable going ahead?
No, there are no one-off benefits from Thailand, so.
Thank you.
So also thank you as well, sir.
Thank you. The next question is from the line of Percy from IIFL. Please go ahead.
Hi, Manish. So, just reconfirming what you said. So basically, the sales of India plus international minus consolidated, the difference I am getting is INR 77 million. So does this mean that, basically, the services that the parent is providing to the Thailand subsidiary, for which it is getting charged, that is roughly equal to about INR 77 million, which comes into the sales of India and probably goes into the cost line item of Thailand?
Yeah. So it is basically, Thailand, Nepal, Nigeria. So, so that is how it kind of, comes in the separate, this thing, and then-
Got it. Got it. So if I have to actually evaluate the India performance, I should be deducting INR 77 million from the Pre-Ind AS EBITDA or the Post-Ind AS EBITDA to get the true performance of India. Would that understanding be correct?
So it's a regular income, Percy, and because as I said, I mean, there are costs that are incurred by India on account of the other subsidiaries in terms of the supply chain services, in terms of central negotiations and all. So basically, it is that cost which gets kind of nullified in a way.
Okay. Okay, understood. Where does that cost sit in India? It would not be sitting in any of the four major brand contributions, right? It would be outside that, right?
It is, it'll be, spread across various heads, basically.
But would it be part of, let's say, a KFC brand contribution? Because that's a service provided for an entity outside India. No need to have it as part of the brand contribution of KFC India or Pizza Hut India, right?
See, there could be some small elements which could be there, because, for example, we do nominate some of our store guys to go and visit there. So therefore, it could well be.
Okay, understood. Secondly, just wanted to understand on the India margins that you have reported in your PPT. On a Pre-Ind AS basis, the India margins have declined by 70 basis points from 12.6% to 11.9%. But on Post-Ind AS basis, they have increased from 20% to 20.5%. So there is a 120 basis points kind of differential or rather swing which is happening. So what is causing that?
Percy, as you know, the Ind AS calculations are based on how many new stores you've opened, what are the stores you've shut, what is the variable rental deals which are there, what are the fixed rent rental deals which are there? And therefore, it kind of gets completely operated differently versus what flows in from the Pre-Ind AS numbers. So that's a complete independent lease accounting standard calculation, and the entries are passed like that.
Sure, I got that. But generally, the rough basis points change in the Pre-Ind AS and Post-Ind AS, I mean, roughly speaking, is similar. This time the direction only is different. So is there any particular reason for this quarter or?
Because our store openings have been relatively lower, so that is the reason.
Okay. Okay, I probably take this offline. Thank you very much.
We've talked, we've talked about 7%-8% difference in the Pre-Ind AS and Post-Ind AS numbers, so it's, it's pretty much close to that.
Okay. Okay. Okay, thank you.
Yeah.
Thank you. The next question is from the line of Shirish Pardeshi from Centrum Broking. Please go ahead.
Yeah. Hi, good afternoon. Thanks for the opportunity. I have one question on KFC India. I think directly last two quarters, we have been seeing that the ADS and also the same-store sales growth is also under pressure. Obviously, it's a function if the SSGs are higher, you will see the ADS will improve, and obviously the overall business will improve. So I just wanted to understand the product interventions and whatever we are doing, is it enough giving us the confidence that the recovery will happen if the festive season come back with a strong momentum?
Shirish, product innovation is always a continuous process. But at the same time, if you look at the ADS numbers and the SSS numbers, we've been able to deliver the margins very well. And, and obviously it's a combination of how do we optimize as far as the marketing spends are concerned, how do we optimize from a, from a value layer menu, introduction perspective, what are the promotions we run, and, and therefore, all of that result into the margin numbers. So there are multiple, equations at play, which is what we need to balance, and that's how we've kind of made sure that even though, let's say, the SSS is negative, we are able to deliver the margin.
Okay.
Obviously, let's say once we see the ADS and the SSS coming back, the margins will improve ahead of that.
Manish, I got that. The reason why I'm asking, when you look at the Pizza Hut, which is most affected, and Pizza Hut seen a higher decline of SSG, but we have been able to maintain the revenue. So what is it that the changing consumer is seeing between KFC and Pizza Hut? That's what my bigger question is.
So Shirish, from Pizza Hut, we are spending some extra because, as you know, I mean, we've seen a continuous decline in this brand over the last, whatever, almost about 12-18 months. And we've taken a conscious call to up our marketing spend on Pizza Hut, and as well as the product innovation. So therefore, that is what is kind of happening. But again, because of that, you will see that the brand contribution margin for Pizza Hut are still low. So, so we are trying to... It's like we are, we are going back to basics and building the brand again.
So therefore, my larger question on Pizza Hut is that in the medium term, we have taken a pause on more number of stores opening. So as a management priority, what is the important thing? Is SSG, is ADS, or is profitability is important?
See, pizza is the largest QSR category, so there is no reason why we should not play a Pizza Hut brand or we should not be present in the pizza, pizza category, so it is important. Pizza Hut is a national number two brand, and therefore it is important that we... And it still has a very high consumer recall, very high consumer confidence. So therefore, it is important that we should be able to bring the brand back.
Okay. My last question on Thailand. Since you have done the acquisition, and you gave us the logic, why we have taken Thailand our under our stride. Just wanted to be more curious, what are the changes we have made? What are the things which has not yet happened? And whether you think, because somewhere, when we did the acquisition, you said there is a gross margin opportunity and there's a margin improvement which can happen. So in that journey, if you can give some qualitative comments.
See, I mean, it's been a recent acquisition. The team there is very stable. The business is doing well. We got it at a great valuation. So there is no need to kind of tinker with the model which is there on a huge basis. Of course, I did say that we will be able to improve the margins. And I also said that it'll happen over a period. So we are going to be starting that journey. And fundamentally. And again, remember that structurally, the gross margins in Thailand for KFC brand are lower because the brand positioning is more mass premium versus premium compared to India.
It addresses a far, far bigger consumer space, and therefore, the number of transactions in Thailand are higher than the number of transactions in India. We don't want to tinker it because KFC is very well positioned from the overall brand hierarchy point of view. But again, I mean, there are margin opportunities. Let's say if I were to look at, say, brand contribution or at the EBITDA level, which we will gradually capitalize on as we go along.
That's helpful, Manish. Thank you, and all the best. Just one suggestion, like, you have started giving much more information on Vaango. Can you start giving such more, such details for Thailand business at least for next two, three quarters?
We will evaluate that, Shirish. Sure.
Thank you.
Thank you. The next question is from the line of Latika Chopra from J.P. Morgan. Please go ahead.
Hi, thanks for the opportunity. My first question was on KFC India. Could you give us some flavor of how the month-on-month trends behaved during the quarter? It seems the April month would have been a little tougher because of the, you know, shift in Navratri, but any color on how May and June progressively looked too?
So Latika, obviously, as you know, I mean, there are seasonal months in between the quarters. So let's say whenever there's a summer holiday season, whenever some sporting event is happening, those months kind of pick up. So the same thing has played even in the current last quarter between April, May and June. So it's not very, very different trends.
... Okay, so it doesn't give much color on whether sequentially you have sensed any change in consumer behavior?
Not yet.
All right. The second question was, you know, when you analyze, or if in case you have the data, on, you know, market share of KFC on, third-party aggregator platform revenues, have you seen any discernible change?
See, overall, Latika, if I were to look at our ADS numbers, the revenue, whatever the percentage contribution from the aggregators have remained similar. Obviously, we don't kind of formally measure the market share, on the aggregator platforms. I think we have an opportunity to improve on the dine-in for KFC and, and Pizza Hut, and, and we are working on that piece as well.
Sure. The third question was, would it be possible for you to give us a flavor, some color on what is the same-store sales growth for Thailand in the quarter?
So we've not disclosed the Thailand numbers, and as Shirish mentioned, we will evaluate. But just to give you a comfort, so Thailand, the same-store sales growth is positive. And at the same time, the kind of geopolitical impact that we are seeing in India, we are seeing that same in Thailand, our stores in South. And if I were to negate that, the overall SSS is even more healthier. So even including these South stores, the Thailand SSS is positive.
All right. And since you brought up, you talked about the geopolitical issues, I remember in the previous quarter, you know, we were kind of talking about some stabilizations, you know, from this impact. But is it now, is there any change in that expectation given the recent development?
Let's see. I mean, because there is again big news flow, which has started to come in, whatever last couple of days and today and so on and so forth. And therefore, obviously, as these things happen, there's this whole WhatsApp campaign, which again tends to build up. So, so let's see, what happens. We'll keep you posted.
Sure. And last, one was any, incremental update on the food court, partnership?
We've incorporated the company. I don't know whether you've noticed that or not, which is, between us-
Mm-hmm
... and PVR. You will see some business to start coming in from the last quarter of the current calendar year, which means October, November, December.
All right. Thank you so much.
Okay, sure.
Thank you. The next question is from the line of Nihal Mahesh Jham from Ambit. Please go ahead.
Hi, am I audible?
Sir, your sound is-
Nihal, if you can speak a little louder, please.
Yes. Am I, am I audible now?
Yeah.
Three questions. The first is on the PH revival. A few months ago, you said a marketing campaign, but the product launch of Melts along with a lot of campaigns were marketed in-store. We are trying in the image to revive it. There are other initiatives also that is happening in the background.
Nihal, sorry, your voice is echoing a lot, so therefore I'm not able to make out properly.
Nihal, sir, if you are using the speaker mode, may we request you use the handset mode, please?
I'm so sorry. Is it better now?
Much better, sir. Please go ahead.
Manish, I was asking in case of Pizza Hut, is it the launch of Melts, along with the marketing campaign around that, the immediate driver of the revival that you're trying, or there are other aspects also in the background that are happening to, you know, get the brand back, on its, to its early performance?
We've launched Melts, Nihal. We've launched Thin 'N Crispy, which is a new dough, basically. We are supporting it well with the new marketing campaign, and that is helping us.
Maybe the SSS numbers that you've reported still point to, you know, the overall weakness, but anything over the last few months that is pointing to, you know, the brand showing improvement or say these, these specific product launch is helping you out?
Let's see, because sequentially, the SSS numbers are better, so it's too early to kind of call out. But, but we are moving in the right direction after whatever, continuous, almost three, four, five quarters, we've started Pizza Hut moving in a positive direction, so let's hope it continues.
Good. And till then, is there a thought on the number of stores you plan to open, or that remains depending on how the performance goes so there?
So, Nihal, as I've mentioned earlier on Pizza Hut, we are kind of approaching a little cautiously, and you would have seen in the current quarter also, the new store openings are relatively very small versus what we used to do in the past. So, so the whole objective is to kind of make sure the brand comes back. Overall, I mean, we remain bullish on the, on the category, as well as, the brand.
Understood. Maybe the second question was on KFC, Thailand. And during the acquisition, you mentioned that it's a three-player market in terms of you plus other two. If I look at India and say experiences globally, there are a lot of places where there are two franchises that operate. Is there a possibility in the future where you are interested that, you know, you could acquire one of the franchises? Would that be a possibility that you think of from our side?
Nihal, see, there are multiple types of markets, and Yum! has all kinds of models. So there are markets which are operated by single franchise. There are markets where there are dozens and dozens of franchise partners. There are markets where, let's say, one franchise partner operates multiple countries also. So as such, therefore, that just does not give us any trend that could happen in Thailand. So, so I mean, so, there's nothing we are able to kind of get anything out of it, so.
So, Manish, just last bit on the PVR tie-up. I think PVR alluded to some kind of, you know, outlook in terms of the number of food courts you all are planning. Any sense from your side if, you know, what will be the ballpark opening of the food courts you are planning for this year and next?
It's a similar number, Nihal. Obviously, I mean, because it's a joint business plan, so it will be.
I mean, like, the clarification on your side, because it was not very certain. It's, you know, that number was considered. It's obviously been three months since, so I thought it's, there is more clarity on it.
Yeah, yeah. So let's see, because as I said, I mean, you will see in quarter four of the current calendar year that we will start to see some of the food courts opening there. And let's see, because, I mean, to construct a business plan is one; second is, it actually lies in improving. So we want to kind of experiment with the food courts. We want to see how the JV is progressing. We want to test that out before we kind of go with the big bang expansion.
Point taken, Manish. Sure. Thank you so much.
Thanks.
Thank you. The next question is from the line of Devanshu Bansal from Emkay Global. Please go ahead.
Hi, congratulations on a good margin performance. Manish, if we look at, channel performance, KFC's off-premise channel has grown faster at about 19% odd, while Pizza Hut has seen about 4%-5% decline. What is the reason, according to you, for this, different, consumer behavior, across Pizza Hut and KFC?
Devanshu, sorry, can you please repeat your question? I just missed the initial part.
Yes. Manish, the question is on off-premise growth for KFC and Pizza Hut. KFC has seen about 19% growth in Q1, while Pizza Hut has seen a 4%-5% decline. What is the reason for this different behavior across Pizza Hut and KFC?
So if you look at KFC, our off-premise consumption was 41% in the current quarter, and it has more or less remained the same over the last three to four quarters. So the uptake that you're seeing is basically coming from a higher ADS, and therefore, with a higher ADS, your percentage on off-premise remaining the same, you're seeing the improvement. So whereas if, let's say, if you look at, say, Pizza Hut, the improvement on the overall ADS is better, and therefore you're seeing a better one. Because otherwise, if you look at, let's say, from a contribution perspective in terms of off-premise and on-premise, even Pizza Hut also has remained the same, around 55%-56%.
Okay. So you're saying, last time around in Q1, off-premise was 37% for KFC, which has moved to 41%, but over last three quarters, it is about, yeah, 40%, 41%.
Right.
Maybe lower base was there, right? Is that what you mean?
Correct . Even Pizza Hut also, if you look at, I mean, last four quarters, it's been pretty much in the same zone, 55%-56%.
Right. Okay. Got it. And, second is on Costa Coffee. As you see, has sort of moderated this time around in Q1 versus high single digit in past few quarters. Anything to call out here, or is this some one-off because of which the performance has been impacted?
So one is obviously we are expanding on Costa, and we are seeing some impact because of this aggressive store expansion which is coming into Costa. And then there was some disruption on our food supplies in between, which was a one-off, and therefore we will see those numbers coming back.
Any call on the store openings for Costa, or they are expected to continue?
They are expected to continue. But again, I mean, as you know, I mean, Costa, it's a much more moderate target versus, let's say, a KFC or a Pizza Hut.
Got it. Third, bookkeeping question. If I look at your overhead costs, they have largely remained stable sequentially this year versus a significant pickup last year. So have we deferred our annual increments, et cetera?
No, we've not deferred our annual increments. It has been on time. We've been kind of on time as far as our variable pays are also concerned, so that is not an issue. But obviously, we've been kind of we initiated some cost-saving measures, and therefore we are trying to kind of control the costs in the environment we are in, so.
Understood, Manish. Thanks for taking my questions.
Thanks, Devanshu.
Thank you. The next question is from the line of Dhiraj Mistry from Antique. Please go ahead.
Yeah, good afternoon, sir. First question is on Pizza Hut. I'm looking at sequential number, where your ADS has improved from INR 32,000 to INR 36,000. We have not witnessed that kind of margin improvement at the store level EBITDA, despite not material store addition during the quarter also. Can you explain that, sir?
So, Dhiraj, as I mentioned earlier on, we've invested back in marketing, and that's how we are trying to kind of get the brand back. So we invested in the innovation, we've invested in the marketing campaigns, and that's the reason we are able to see a better ADS numbers and not yet on the brand contribution side.
Okay.
So as we go along, the marketing cost will taper down, once we've managed to reestablish the brand, and therefore you will start to see that the brand contribution also will come back.
...Okay, got it. Sir, if I go back in the history, let's say, two, two years, three years down, before, where your average daily sales was somewhere around INR 38,000, and at that time you were making a bit store level, a bit a margin of almost mid-teens type of numbers. And currently we are at mid-single digit. So can we expect that once the ADS crosses INR 40,000 or INR 42,000, that double digit EBITDA margin can be made in this Pizza Hut franchise?
Yeah, at that level of ADS, we will be able to easily get into the double-digit margin.
Got it. And, sir, second, another question on, KFC. During this quarter, there was a Navratri festival which was there in April, and also geopolitical tension which impacted KFC sales. Excluding number, can you, give us what kind of SSG decline we would have witnessed during the quarter?
See, Dhiraj, I mean, if let's say this was a one time event in a year, I would have given you those numbers very happily. But again, I mean, India, if you see, I mean, during festival seasons, we are getting into Sawan this time, although it is not a festival season and where people turn vegetarian. So there are multiple, I mean Navratri, for example, are twice in a year. So there are multiple such occasions which are passed around the full year that will be kind of difficult to measure by those blocks.
Okay. So what I meant to ask is like, if Navratri was in April, and then, May and June was relatively much smoother month, the SSG growth or decline during those two months versus April month would be materially different or not?
It is different. It is not materially, but obviously it is different. So let's say whenever, Navratri are there, whenever, let's say, so for example, if you look at, let's say, Kolkata, Durga Puja time, the sales actually go up. Similarly, for example, during Sawan time in North, it behaves different time, during Sawan time in South, it behaves differently. So I mean, there are multiple such variables which are there.
Got it. Okay. And, sir, can you give your guidance on the KFC store addition for the year? Pizza Hut, yes, we have maintained a conscious stance on store addition, but, what are the expectations for KFC during the year?
So we are looking at a 100 plus store count for KFC. So therefore, for the full year.
Okay. And for Costa Coffee?
Costa Coffee will be about 50-60 stores.
Got it. Thank you. That's it from my side.
Okay. Thanks, Dhiraj.
Thank you. The next question is from the line of Marut Chaudhary, who is an individual investor. Please go ahead.
Hello, am I audible?
Yes, you are.
Sir, like you said two quarters ago that NGN 900 was there. So if it goes above or below that, then we will have a positive or negative impact. Last quarter, it increased, so we had an impact, and this time too, as you said, it increased by 10%. So now at what value are we, I mean, above how much we will have a loss and below how much we will have gain?
So, Marut, if the currency continuously depreciate, then the loss will continue. And if the currency improves, so then that stops. So if I give you the last quarter and this quarter, Nigerian naira or dollar... So let's say, last quarter, Nigerian currency devaluated, devalued by almost 32% versus dollar, whereas this quarter it is about 10%. So therefore, it's a little bit compared to the previous quarter, this quarter is a little better from a currency point of view. But otherwise, if the currency is depreciating, then you will definitely incur a loss.
Right, sir, so you have a particular number, like 1,600. If it goes above that, then we will have to see a loss in this quarter as well, or if it comes below 1,500, then in this quarter, which is our second quarter, we will not see much devaluation in it.
Yes, if let's say, 1,500 or whatever that number is, there will be no loss from it.
Okay.
Because we have already recognized up to a level, and therefore, if it remains below that level, then there will be no loss.
Sir, what is that level? 1,500?
Those numbers we are not disclosing.
Okay. And sir, like in India, Q3 is considered good for KFC, meaning for your entire FY. So is there any such seasonality in Thailand as well?
Yes, there is in Thailand as well. So let's say, Q3, which is the Christmas season, New Year, New Year season, that Thailand means for KFC, it's a good quarter almost in multiple parts of the world. So in Thailand too, it has an uptick. Similarly, let's say, if it's the summer season there too, like in India, in Thailand, there is a Songkran Festival, it is good in that as well, so.
Okay, sir. Sir, and like with PVR, we can see our engagement in JV. Sir, can you tell me, in R.K. Associates, the JV we had made before this, what is going on with it now? I mean, what, how many stores have we opened or what is visible ahead?
So far, we have not opened anything in it, because it has some complications with respect to Railways, bidding, and all of that. So far, nothing has opened there, so some of its stores have come, which we have taken in Devyani International as standalone. Because of which, although the business is coming, it is coming in Devyani only. So, so once those basic things we have to sort out, once that is done, then we will see the JV numbers in it.
Okay. Thank you. That's it from my side. Thank you.
Thank you so much.
... Thank you. We will take the last question from the line of Tejas Shah from Avendus Spark. Please go ahead.
Hi, and thanks for the opportunity. Just one question from my side. When I was looking for reconciliation in two statements that you made on Pizza Hut. We said that-
Disturbance. Tejas, there's some disturbance in your voice. Are you on speakerphone, by any chance?
Is, is this better? Hello.
Yeah, just say again, sorry.
Yeah. So, I was just looking for a reconciliation in two statements that you made on Pizza Hut margins. We said that despite higher ADS, the margins were under pressure because there was heightened marketing activity. And I think at some point you also said that brand was slightly underinvested, or perhaps we wanted to add on the branding franchise. So should we see this heightened activity as a normal spend, so that brand doesn't suffer again in future, and then we don't have to go through this volatility on branding, brand franchise from the consumer perspective?
We just see, whatever post-COVID, there have been multiple exceptional, exceptional situations. There was a very, very strong inflation. We have reduced the intensity on promotions and so on and so forth. And then we had issues on the Fun Flavor Pizza. So there were multiple such issues which kind of impacted the brand. We've corrected most of that. We are now putting in new innovation in the market, and we are supporting that innovation to build the brand back. So we don't think it's going to be required on a continuous basis. So it's a matter of just kind of bringing the brand to a stability level, and then we will see the margins coming back again.
Sure. Can you, can you, a bit elaborate on, on the nature of this spend? Is it like we, we actually increase ad spend, or we support innovation with, slightly lesser margin, discounts? What exactly think it is?
It's predominantly the ad spend, ad spend across mass media and digital. And plus, heightened one around the stores in terms of outdoor media and so on and so forth. And plus, we've kind of tweaked promotions also a little bit, so that the consumers are able to get a good value when they walk into the store. And therefore, you would have seen that there is a small impact on the gross margin as well, so.
Sure. And just last one on this. Does the larger proportion of this heightened spend goes into food aggregator platform, or is it equal between among the two platforms?
It's mainly on mass media.
Mainly on mass media. Okay. That's all from my side. Thanks, and all the best.
Thanks, Tejas.
Thank you. Ladies and gentlemen, I would now like to turn the conference over to the management for closing comments.
Thank you so much. I hope we have been able to answer all your questions satisfactorily. Should you need any further clarification or would like to know more about the company, please feel free to contact our investor relations team. Thank you once again for your interest and support, and for taking the time out to join us on this call. Look forward to interacting with you soon. Thank you very much.
Thank you. Ladies and gentlemen, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.