Ladies, and gentlemen, good day, and welcome to the Restaurant Brands Asia Q4 FY 2022 Conference Call hosted by Edelweiss Securities Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. I now hand the conference over to Mr. Nihal Jham from Edelweiss Securities Limited. Thank you, and over to you, sir.
Yes. Thank you, Peter. On behalf of Edelweiss, I would like to welcome you all to the Q4 FY 2022 earnings conference call of Restaurant Brands Asia Limited. From the management today, we have Mr. Rajeev Varman, CEO and Whole Time Director, Mr. Sumit P. Zaveri, Chief Financial Officer, Mr. Kapil Grover, Chief Marketing Officer, and Mr. Prashant Desai, Head of Strategy and Investor Relations. I would now like to hand over the call to Mr. Prashant Desai. Prashant, over to you.
Thank you, Nihal. Good morning and welcome to everyone on this call. Thank you so much for taking the time early in the morning. We completely appreciate it. The way we have scheduled today's call is, we will first take you through in detail about the India business. This will be done by Raj, my colleague Kapil, Sumit, and myself. Post that, Raj will take you through our strategic positioning of the India business, the Indonesia business and how it will look like over the next few years. Post this, we will open the floor for oral Q&A. We had ideally wanted Vaibhav Punj , our CEO for the Indonesia business, also to be on the call. Because of some exigency, he can't be on the call.
He'll surely be with all of us in the next quarter conference call. With that, I give over to Raj, our CEO, to take you through the India business executive summary and update. Over to you, Raj.
Yeah. First of all, thank you, Nihal, and thank you, Prashant. Thank you everyone for joining this call, and appreciate your support and your enthusiasm with our brand. I'm gonna do two things. I'm gonna first talk about the Q4 quarter, and then, after that, I will give you the highlights of the year, that just ended. Incidentally, if you look at our growth and our story, you know, we're still a young company and, this is our eighth year in operation, from when we started our first restaurant in 2014. Actually the date was November 9th. I distinctly remember that date.
This FY 2023, this coming year, this year that we are in, the end of this year will mark like a halfway through our restaurant growth story, which is a journey to 700. I just wanted to congratulate the entire you know investment community as well as my team here for you know this journey that they started in 2014 and their achievements so far moving forward. On the business highlights for Q4, revenues from operations grew 37%. Q4 FY 2022, that's at INR 268 crore versus INR 196 crore in Q4 of FY 2021. That was an SSG of 17% and a total revenues growth of 37%. Now looking at the ADS.
The ADS in Q4 FY 2022, we recovered 95% of pre-COVID sales. Then in April, we actually surpassed our pre-COVID sales at 102%. In May, we continued that journey, and we are at 111% versus pre-COVID sales. Great recovery in the last couple of months, surpassing the pre-COVID sales. Now the highlight of this is in dine-in. If you look at our business that, you know, last time we were on the phone, you know, whatever recovery was coming was coming through delivery and dine-in recovery was kind of behind the eight ball. If you look at how we are standing in May, we have recovered almost all of the pre-COVID sales. We sit at about 96% of pre-COVID sales in dine-in.
Delivery, we continue to be 140%, and that gives you the 111% that we are pre-COVID in May. Regionally, West has been stellar in our recovery. We are at 141% of pre-COVID sales. South and East, 112% of pre-COVID sales. In the North, we are at about 100%. May numbers are 100% of pre-COVID sales. There's some work in the North. We'll chat about that as questions come up. Gross profit margin improved by 50 basis points to 66.1%. That's 66.1% in Q4 FY 2022 versus 65.6% in Q4 of FY 2021. Some great work there. There were some headwinds.
Despite the headwinds, you know, we have continued our journey to keep improving at gross margins. That's some very stellar work done by the supply chain team, finance team, and operations team. Moving on to restaurant level EBITDA. It's at INR 46 crore, which is 17.3% for Q4 FY 2022 versus INR 33 crore in Q4 FY 2021. That was at 17.1%. Company EBITDA at INR 28.8 crore. That's at 10.7% for Q4 FY 2022 versus INR 19.9 crore that we delivered in Q4 FY 2021. That was at 10.2%. This is basically the Q4 highlights.
You know, Kapil will walk you through the details of our marketing efforts and the P&L will be carried by Sumit Zaveri. Now just going into the whole year FY 2022 to walk you through that. Revenues from operations in FY 2022 were at INR 943 crores, which is a 91% year-over-year growth from INR 494 in the previous year, FY 2021. Gross profit margins improved from the previous year by 130 points, going from 64.5%- 65.8%. Then company level EBITDA was INR 73 crores. That was at 7.8% FY 2022 versus - 9.8% in the previous year. That was FY 2021 at - 2.
Talking about the growth journey, we kind of ended the quarter with 315 restaurants. Today as we sit in May, we are at 318 restaurants. We have a pipeline of 50 restaurants. We have 13 restaurants in construction. We continue to, you know, build those restaurants on a steady basis, quarter-over-quarter in our journey to get to 700. We also, as promised, you know, started the cafe business. We started in Q3. In Q3, we had, if you remember, when we presented, we had put 17 cafes. We have added 18 on top of that. Sorry, 18 were there in Q3, and we have added 17 on top of that. That takes us to 35 cafes.
Actually, as we speak today, we continue to open cafes, so we are at 40 cafes, as of May, and we continue to grow that. BK app, Kapil will throw some color on this, but, the good news is delivery revenue growth is 24% quarter-over-quarter. This growth continues in double digits, and, we will reveal out some more details from Kapil as we go into this section. Just the next slide, you'll see slide number six, which is on store opening status. You can see the last two quarters, we have started opening about 20 restaurants, which is very, different than the approach, in the previous, seven years wherein most of the growth came in, towards the back of the year.
We have restructured our efforts and the department as we move forward. We are now doing about 20 restaurants every quarter, and we'll continue that pace as we go up to 700 restaurants. The next slide actually basically gives you what I was talking about in terms of dine-in and delivery sales recovery. You can see the sales, you know, ADS continues to grow. It's growing right now at the growth of our dine-in business. Thanks to those numbers, we are at INR 142 in May. 61% of that business is dine-in. I think that will continue to grow. Our delivery business is 39%. Recoveries are at the bottom.
You can see that in May we have recovered 96% on our dine-in business. We had a fantastic last week just to share with you the latest. You know, we have a 146% recovery in delivery and 111% overall recovery. Just going over to the next slide. If you look at this is the regional numbers I shared with you. It shows that all these numbers continue to grow in the right direction both in all three divisions. With this, I will hand it over to Sumit to carry you through the P&L. Then we'll hand it over to Kapil after that for the marketing piece. Over to you, Sumit.
Thank you, Raj. I'll just quickly share with you the performance for the quarter and the year. Some of it Raj has already covered, so it could be a little bit of a repetition here. We generated revenue of INR 268 crore for the quarter and INR 532 crore. Our gross margins continue to remain robust. We're happy to kind of share that we've been able to sustain our margin on a quarter-on-quarter basis at 66.1%. Correspondingly, we ended the year at 65.8%. We feel very confident where our margins stand. Then, you know, the later part, we'll also be able to share what our journey on the margin side look like over the next couple of years going forward.
As far as the restaurant EBITDA is concerned, we ended the year at 16.2% restaurant level EBITDA. For the quarter, we were at 17.8%. Company EBITDA was at 13.3% for the quarter and 19.1% for the full year. Actually, as we stand, you know, and we've been constantly kind of working on our performance as we now get into the later part or as we get out of COVID, we feel confident that we are poised for a good positive move forward as we kind of get into the subsequent part of the current financial year, which we observe some data on in April.
While we are kind of talking about it, I'll hand it over to Kapil to take us through what he's done on marketing, which is actually where we feel confident that that will lead us into the later part of our growth from hereon.
Well, thanks, Sumit, and a very good morning to everyone on the call. You heard Raj talk about how we've been continuing to improve top line on the back of some very strong marketing programs. I'll start with the Whopper. The Whopper is a sub-brand and a key differentiator for our brand in India.
In many other markets across the world. It's our global property, right? So last quarter, we launched Twisted Whopper, which is a limited-time offering, and we continue to use Whopper as a platform to engage our audiences. Now the last cricket season, which started at the end of the last quarter, is a big engagement platform. We all know that, right? We used that platform with a new concept called the Meme Premier League. At Burger King, as you are aware, we always look at unusual and quirky ways to engage our audience. Memes is the new viral language. Gen Z, Millennials will use that language to communicate, and it's a very fun and humorous way of sharing a point of view, right? As Burger King, as a brand, we stand for that point of view.
We actually support that, you know, that tone of communication, right? We garnered over 15 million impressions with this campaign, and we also did another first, that this is the first time a QSR brand actually launched NFTs for the winning meme, for the participants, right? That was a big success, and we continue to see great numbers of engagement on that program. Now moving to slide number 12. We've spoken about the Stunner Menu. It's our branded everyday value proposition, and it continues to drive dine-in traffic on the back of a very strong menu, great for RP at INR 50 and INR 70. We also have seen consumers increasingly try these items in their orders, right? We see increasing check penetration of these items in our restaurants.
We will continue to promote this platform and offer great value to our consumers in the coming quarters. Now that brings me to slide number 13, which talks about our focus on building an innovation pipeline which will help us drive incrementality, right? We recently relaunched King's Collection. It's a brand-new avatar of our premium menu. Now this is a range of veg and chicken products that are based on very high quality ingredients, like a very soft slab of paneer, real cheese blended with very Indian spices, a juicy grilled chicken filet, and a spicy fried chicken filet. Now these absolutely delicious burgers are served with a new masala bun, which is also a new addition to our core menu, and it adds a lot of premiumness to the range. It's now priced at INR 199.
Early days, but we are getting very fantastic feedback from consumers to the range, and we will continue to build the premium end of our menu. The second layer of innovation is a layer of add-on of desserts. Now these are two products, namely Choco Lava Cake and Mousse Cup, which we're trialing as we speak in the last quarter. Now we scaled up nationally. Very attractive items, very popular items, very easy to deliver, and they add on incremental APC, especially on the delivery business. That's become a national rollout in the current quarter. The third layer, I will talk about this, you know, it's a very strategic menu layer for us. You heard Rajeev talk about it. You heard Sumit talk about it earlier. BK Cafe, right? The next slide details a bit on the BK Cafe.
We've been working on this layer for almost a year, and you heard us talk about it in the pre-previous calls as well. The first cafe went into trial sometime in, you know, October, November, and I mentioned in the previous calls that our cross-functional team, along with our coffee experts and specialists that we've hired for this project, have very quickly built capability and processes in the system that we now feel confident of scaling up this initiative. Just to reiterate why we feel confident about this layer being scaled up. If you recall, I shared earlier that cafe, you know, will do the following for our business. It will drive incremental occasions and frequency, it will add on to the APC project size, and it will drive day parts like breakfast.
Now of the 40 cafes that we have now on ground, we've seen incrementality clearly come through around INR 8,000 per store in every cafe store. We've seen improvements in the breakfast day part in specific stores which are in relevant trade area, and we are able to deliver a payback of about one and a half years on the cafe investment. We also continue to improve the menu. We've recently introduced muffins, which are 100% vegetarian muffins added to the menu. We already have an existing array of snacks that go complementarily with the coffee, and now the Choco Lava and Mousse Cup also get added to that.
Given these great results, we are now going to expedite our BK Cafe expansion, and we'll be launching 200 cafes by the end of the financial year ending 31st of March 2023, and we believe that will add a lot of incrementality to our business. That brings me to the last slide. You know, I want to talk about how we've grown BK app. We've now seen almost 25% improvement in app sales quarter-on-quarter, and that run rate continues for the last few quarters. We've grown awareness, we've grown installs. In the last quarter, we've also started testing our CRM module, so you'll see a lot more activity happen on that in the coming quarters. We made significant improvements to our app delivery ecosystem to grow this channel over time.
In conclusion, we continue to build brand Burger King with Whopper as a platform. We continue to strengthen our Stunner value proposition. We are creating a strong innovation pipeline that drives incrementality, especially BK Cafe, which has shown very great results in the pilot. We will continue to strengthen our BK app delivery ecosystem. At that point, I will hand over to Prashant to talk you through the future outlook.
Thanks, Kapil. Friends, as you know, you know, we were the first QSR to put it out in front of all our investors what our guidance was so that you can also track us and you could also internally measure and monitor us and then our progress. Taking a cue from that, for FY 2023, we are guiding that we will have about 390 stores. But as Rajeev mentioned, there's one big change in that. Earlier, a lot of our stores would open between December and March. What we are now intending to do is have a much more evened out store rollout strategy, as Rajeev mentioned, about 20 stores every quarter.
FY 2023 may have a limited impact on that, but FY 2024 you will see a real big impact of this, you know, continuous rollout strategy. With that one difference, we'll be roughly 90 by FY 2023, and then by FY 2024, as Raj mentioned, as we continue to do 20 stores every quarter, we intend to touch 470. Looking at SSSG growth, our view is that we'll grow our FY 2023 ADS by 25%. Just to put number out there, we should probably because we are saying that the entire portfolio should kind of average at about INR 125,000 of ADS. Which sets us in a very, very strong footing again for FY 2024 as well.
Also keep in mind, [the point], that we are putting out this guidance given where we are from an inflationary standpoint. As a result, if we feel that, you know, momentum changes, we'll come back to you with a revised guidance in the next couple of quarters. Having said that, FY 2024 and onwards, we want to come back to our earlier guidance, which used to be between 5%-7%. With so many cafes opening, we are now upping that guidance for 5%-7% to 7%-10%. Gross profit is one area where the entire team single-handedly are focused on ensuring that the quality of our business continues to remain extremely strong, despite being a very young eight-year-old brand, as Raj mentioned.
The team has worked extremely hard despite the inflationary pressures being on the product mix. We've taken some small price increases of about 3% to ensure that we deliver a very, very strong 66% gross margin in the previous quarter. The team feels extremely confident that we will deliver a 67% gross margin to you. We are upping our guidance from FY 2022 by 100 basis points on the gross profit. Again, we take this further to FY 2024. We believe we should be able to deliver another 100 basis points improvement on gross margin in FY 2024 at 68%. This factors in a moderate incremental ADS coming from cafe. As Kapil mentioned in his slide, we are currently factoring in that incremental ADS at about INR 8,000.
If this number should change, we will again come back to you and revise on the guidance afterwards. When it comes to BK Cafe, this is the big shift that we want to kind of share with you. Previously, as you know, our guidance for FY 2023 was that we would end FY 2023 at about 700 cafes. Given the traction, given the anecdotal evidences that we are receiving, given the way the customers have wholeheartedly accepted as a coffee proposition, we are now upping the cafe guidance to 200 stores. Let me give you a perspective what that means in some manner. Raj mentioned we are currently at 40 stores. We are technically talking about opening 160 stores in the next kind of 10 months, which means we'll open one cafe every alternate day starting today.
That's the kind of strength that we have on our cafe business. Again, as I was mentioning, these 200 cafes will have a very, very strong and solid impact in FY 2024. By which time, we will have, you know, of the 470 stores, at least 300 of them will have cafe. Yes, we are looking at a very, very strong FY 2023 for India business. An even stronger FY 2024 from an overall standpoint. With this, I think we conclude our India presentation. I will now hand it over to Raj to talk about the Indonesia business. Over to you, Raj.
Thank you, Prashant. Again, back with you guys. In summary, if you just, you know, look at the India business, since 2014, you know, there's one word that I share with my team that I'll share with you, steady and disciplined. That is how we run the company steadily, disciplined. You know, when we make decisions like the one in cafe, that we are going to go, you know, speedily on it, we share that in advance so that, you know, investors are aware of it. Apart from that, we have continued to have a very disciplined approach to our business.
The plan that was put in place, we obviously change the plan as we go, but you know, a disciplined approach to the plan and a disciplined way to build the restaurants. Now, we acquired the Indonesia business. The Indonesia business, just a little bit on the market, we don't have the time to go into details here. You know, it's a country with over 270 million people. 65% of the population is in our target group. It's a very similar growth country like India, where you know, it's a very young population. Per capita income is twice, almost twice of what it is here in India. Eating out of home is significantly higher than it is here in India.
You know, these are the factors that will define that market, which is a very lucrative market. If you know, look at the growth of the overall Burger King brand globally, Indonesia will be one of those hot markets of growth among maybe top five or six growth markets for the brand. Very excited about Indonesia. I'm just gonna share this slide with you just to give you a quick recap on 2019. Now, it wasn't a calendar year cycle then. I'm just sharing that time they had 164 restaurants with INR 141,000 in ADAs. The gross margin, which is the biggest opportunity of theirs, was at 56.7%.
Restaurant level EBITDA, and I'm talking about pre-Ind AS cash EBITDA, was 11.2%. The company EBITDA was at 5.3%. Now, this gross margin, as you can see on the slide below, in FY 2022 has already been moved to 58.5%. This journey will continue. You know, this is the area of expertise for us, of delivering a good supply chain discipline. You will find that we will spend the next quarter, you know, working very hard to bring those synergies that we spoke about in the last call between the two countries, whether it is synergy in buying equipment, whether it is synergy in buying products, inventory, paper products. All these synergies we are now hooking up.
These synergies you will start seeing over the next two quarters coming into play into the business. We are also going to continue. We have got about 11 restaurants in construction there that will continue. You know, we are building freestanding drive-through restaurants, which is the restaurants that we started building there. The team over there started building a couple of years ago. Those restaurants, you know, come at significantly higher ADSs and EBITDA margins. We will continue our efforts around that and you will hear from us more on that. The restaurant count as we stand today is at 177. Now COVID, you know, the recovery in COVID here in India is almost 100% in most of the brands here.
In Indonesia, it is a couple of months behind. As we speak today, they are removing the restrictions, whether it is, you know, entries into the public transportation system, offices and so forth. They are slowly now removing those. The recovery this month is at about 80%. We see that over the next two, three months, that recovery will continue to progress. We, you know, as a team, you know, not speaking too loud and not, you know, speaking before we enter and learn the market fully, we project that over the next two quarters that we will get the sales back to the heydays of, you know, pre-COVID sales.
In the same instance, we will also bring in synergies and efficiencies, both in CapEx as well as in inventory and drive a margin of 60%, and then continue our journey towards 65%, which is the goal I set in terms of long term in Indonesia as a brand. You will see a lot of that from us when Vaibhav Punj joins us on the call next quarter. Look here, it's a good investment for us. We have put in $25 million into this business. We will continue to grow both top line as well as the efficiency of the P&L.
I think it's a very cash lucrative business because we generate cash out of that significantly in Indonesia. We're just waiting for the COVID to be behind us over there, and very soon we will share that with you. Looking at more on Indonesia as we continue into the next quarter and quarters after that. Now I will just ask the folks to open it up for any questions that our team and our investors will have for us. Back over to you.
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 touchtone 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. Our first question is from Percy Panthaki from IIFL. Please go ahead.
Hi, sir. My first question is on BK Cafe. How much of CapEx do you need to convert a store into a cafe store? And secondly, does the store need to be shut for a few days while this work goes on? And if so, how many days?
Thank you for your question, first of all. Appreciate it. Cafe, you know, we have a range of, you know, how we're doing this. There are inline restaurants or freestanding restaurants wherein we put a full, you know, island cafe as we are calling it, which will cost you about INR 45 lakhs, INR 27 lakhs, to construct. We have, you know, cafes that, we will be building, which will be, extension of our, of our counter. Especially like in food courts, where you just extend the counter. Those will be, you know, the, those we are right now building at about between INR 10-INR 15 lakhs, depending on how many, you know, pipes we have to rearrange and so forth.
See, the cost will dramatically fall as we, you know, continue to build these cafes in new restaurants. In the old restaurants, there's some undoing to be done before we put in the cafe. In new restaurants, cafe is designed into the restaurant as we open it. The CapEx on that, you know, we will share with you as we go forward. It should be in the range of, you know, about INR 20 lakhs that we think additional on putting these cafes up. Your second question was,
Store shutdown.
The store shutdown, we are working very parallelly. We don't shut down the stores. We do have some boarding within the restaurants where we are putting the cafes. In many restaurants, we try to do the work at night when the restaurant is closed, and so that it does not affect the sales of the restaurants. Predominantly we are not closing restaurants. We are working on site with the sales. We do board up the area, so it's not a nuisance to the customers. In many restaurants, we work at night.
Got you, sir. Second question, I just was comparing the margins for Indonesia and India. In India, you've done a reported margin of about 11%, which means on a pre-Ind AS level, it will be somewhere, approximately in the region of maybe 3% or something like that. If I look at Indonesia, what you have disclosed in the presentation is, pre-COVID, the company level pre-Ind AS margin was about 5%, which is like, marginally higher than what you are doing in India. Despite a 10 percentage point higher gross margin in India, why are the India EBITDA margins so much poorer compared to Indonesia?
Yeah. Let me answer it differently. Let me tell you why the Indonesian margins are better. See, they have a. Again, you know, the story goes that we started in 2014, more than two decades after the incumbents were already here. So our rents in those in the India market continue to be the current market rents. In Indonesia, the journey was started in 2008. So they have some fantastic rents that run approximately 9% of their P&L, a significant advantage over the business here. Then also on delivery, you know, percentages or costs on delivery, their costs on delivery is significantly lower than our India numbers.
They're paying anywhere between 5%-10%, depending on the vendor, that aggregator that's working with them. They see a significant advantage in there as well. These are, you know, inherent good, strong advantages that, you know, are very attractive to that business. There's an opportunity over there in gross margins, and that's an area of specialization for our company and our team over here that we have been, you know, showing, and the results are in front of you, so if you look back eight years. We will bring those synergies into Indonesia business and make it an even more profitable business. Prashant, you add anything else?
Prashant here. If you look at the Indonesia business that we have presented, it's a pre-COVID, not impacted by any COVID-related activity kind of margins. Whereas when you look at the India business that Raj mentioned in his presentation, we've just kind of made, you know, 100% recovery when it comes to the dining business. Dining, as you know, is a far more profitable business compared to delivery, which was a significantly larger part of our FY 2022 business. As you will move forward, and as the Indonesia business kind of consolidates by September and then kind of marches on to what Raj mentioned to about a 60%-61% kind of gross margin trajectory, India business is now on a significant growth path, having recovered completely from a dining perspective.
Add to that the CapEx strategy that we said. By the time you look at my FY 2023 full-year numbers, compared to the numbers that we have presented on Indonesia pre-COVID, our margins will be significantly higher there. Obviously, the major benefits of all the efforts that we are doing in FY 2023, you will see a very, very high double-digit kind of a company revenue growth in FY 2024. It just largely to do with that.
Prashant, any kind of flavor you can give on what kind of margins we should expect over the next one to two years at an EBITDA level? You have given the gross margin, which basically is by FY 2024 200 basis points higher than FY 2022, which means that automatically that 200 basis points benefit we'll see on EBITDA. Secondly, if I look at your margin of around 11% this quarter, we had seen a 95% COVID recovery in Q4 as per your presentation. Even if I do adjust for that 5% remaining, the margins will be like between 12%-12.5%, adjusted for any COVID impact.
With the gross margin, that goes to maybe 14%-14.5%. Is that a stable state margin for us, at a reported level, this 14%-14.5%, or do you see further upside to that number as well?
Oh, yeah, we definitely see further upside to that, Prashant. Our view is as follows here, and this is what I was trying to give you a flavor. Our view is, if we don't see any further disruption, the way the business is scaling up, all the initiatives that Kapil mentioned on the product side, and if this inflationary pressure also were to kind of ease off with a 25% same-store growth, given the kind of store openings that we are doing on a year-over-year basis, averaging 20 every quarter, our gross margin guidance, you know, the operating leverage that we have created because we run a very frugal operations. FY 2024 on a pre-Ind AS basis, if we don't deliver you a double-digit company revenue EBITDA margin, we ask that you'll be disappointed, Prashant.
Okay. Thanks, and all the best, sir.
Thanks, Percy.
Thank you. Ladies, and gentlemen, if you would like to ask a question, then please press star one on your telephone keypad. Our next question is from the line of Varun Singh with IDBI Capital. Please go ahead.
Yeah, thank you. My question is on retail expansion, I think that you have shared with us. I mean, over last four years, sir, we have kind of more than doubled our store count from FY 2018 to FY 2022, from 129 stores to now roughly 350-odd stores. I mean, that is very encouraging. 2.4 x retail expansion and our revenue grew four times from INR 378 crore to now INR 1,500-odd crores, which is, again, very encouraging. Sir, our profits, which I'm only considering our profit before tax, excluding other income, so that is 2.5 x. 2.4 x retail expansion, 2.5 x is the increase in profits.
I'm just wondering, sir, at what level of revenue, and of course, sir, I mean, the store addition guidance that you have given, we expect our store count to double exactly, I mean, in next four years from 315 to 630-odd levels. How are we looking at this profitability and at what level of revenue we expect that we should be breaking even? This is my first question.
Thank you, Varun. Varun, as you know about our business, you kind of answered a lot of the questions you asked yourself in the sense that because we are in such a rapid expansion kind of a trajectory, our depreciation is very high. So if you were just to add back that depreciation, our business does not make cash losses. We generate a fair degree of operating cash. Plus, you also have to remember we have a negative working capital business.
The way we look at our business internally also is how much cash does this business throw up, which we can then deploy towards opening new stores, which as we had mentioned last time are our, you know, payback on all the new stores that we open are about somewhere in the range of about five years, which is kind of a 20% return at a store level. Our request to you, Varun, is look at our business purely as the operating cash that business generates till we are in a very, very strong growth trajectory path because depreciation will take away a lot of the profits that we make from a customarily reported P&L perspective.
However, maybe this year we should still be able to kind of if everything goes well what we are saying, we won't disappoint you on being positive. As I keep continuing to, you know, talk to analysts and investors alike, our business runs on operating cash, and that's the metric that we internally use to gauge how good, bad or ugly we are in terms of our performance.
Understood, sir. That's very helpful. Sir, my next question is on BK Cafe. If, for example, we invest INR 45- odd lakhs for an island-like cafe. Also, I understand that in incremental store cost of doing the business is not there, and as a consequence, CapEx will be relatively lower. Assuming just a number like INR 40 lakhs of investment for BK Cafe, what is the peak kind of revenue we expect from this category, sir?
Varun, BK Cafe is like an infant currently, like six-month-old infant. First, I'll just correct you. It's not INR 40 lakh. What Raj mentioned was INR 25-INR 27 lakh for an island cafe. So maybe you probably heard INR 20. It's not INR 40, it's INR 25 lakh for island-like cafe. As Kapil mentioned, if your incremental ADS today is INR 8,000, when the infant is six months old, even if you multiply this INR 8,000 into 365 days, you'll get somewhere around INR 30 lakh of cafe sales coming. Cafe obviously operate at a significantly higher gross margin compared to our burger business. At a store level EBITDA also cafe will have anywhere between 35%-40% restaurant level EBITDA margin. This is where Kapil's slide guidance that our payback on cafe is about one and a half years.
To your question as to where do we see this cafe sales going, I mentioned this last time. Even at the current INR 8,000 incremental cafe, we have a one and a half year payback, which is why we are now opening a cafe every alternate day. Where this will reach, too early to predict, right? If you do the math, when you look at the data published by lot of the incumbents, you'll get a sense in terms of where this can go. Just bear with us. As we keep coming back to you every quarter, we will significantly upgrade our cafe guidance on ADAS as well. As of now, from your modeling perspective, take an incremental INR 8,000 cafe.
Understood, sir. Thank you very much, sir. That's very helpful and all the best.
Thank you.
Thank you. Our next question is from the line of Prateek Poddar from Nippon India Mutual Fund. Please go ahead.
Yeah. It's Prateek, hi. Just one question. You've achieved INR 122,000 of ADAS in the month of May, and cafes are still not rolled out. This 25% SSG seems too conservative. Is that a fair understanding?
Absolutely, Prateek. I know we've been talking on this as well, and you are right. As I mentioned to everybody on the call, it does seem conservative, but you just bear with us given the way where inflationary trends are. You know, it's better to kind of be on the side of caution as we speak with a broader, larger community. As I said, you know, luckily we are listed, which gives us an opportunity to come back to you every quarter. As I said, if inflationary trends begin to kind of slide down, if we don't see any significant pressure from a consumer spending perspective, we will come and revise these guidelines. Apart from that, it's apparent that they need to be conservative.
Okay. Second question was, when I look at Indonesia, right? Can you just do some highlights as to why there was so much of restrictions which led to such poor numbers in Indonesia? This quarter and why is it that, I mean, someone asked this, but we are still lagging behind India. Is it more of timing effect in the sense because of restrictions we couldn't get back to what numbers which were there pre-COVID? Is that a fair way to understand the Indonesia business today?
I guess, you know, as I was looking at. Sorry, this is Raj. As we looked at COVID, you know, as it started from the West and came this way, you know, where we started locking down for this Omicron in January and then started reopening in February, they're just reopening now there. You know, whatever the government policy is there as well as, you know, how late it came in and how long it was there kind of determined the fact. Vaccination rates are good over there. In fact, I think Jakarta is well vaccinated now, which is the main hub for the island.
You know, it's just a matter of, you know, when it came in and how long it was there and the vaccination rate there. I can tell you now that all the opening has started and, you know, soon but surely we should see that market will open up like India. We're just poised for that and, you know, we are ready to go with a very aggressive marketing program starting July. You will see that, you know, we will ramp up not only organically, but because of these very big spend that we are going in with, a big celebrity and a very high traffic program. You will see those numbers come back very quickly.
Okay.
Okay.
One question. I have two questions. Last two. One is on cafe ADS. Maybe just to give us some context as to how we should think about how big this number can be because it's an inference. Because of global experience, if you can help us understand where this number can settle to. Today, even in the six months, I'm sure this is a mean number, how much would be maximum and how much would be, let's say, the lowest within the system, just to appreciate the mean, the number of the mean, right? Because it can get skewed because of the low number of stores today.
I know, Prateek. You know, we were asked this question. Varun also asked the same question. As I said, yeah, you know, currently budget an incremental INR 8,000 on every cafe that we open. Give us some more time, another three to six months to come back to you with a number. As I said, there are other reference points available. There was earlier a listed company in India on the value side had a number on ADS. Now we have, you know, incumbent which has cafe ADS which you guys know. There are some data points to get a sense as to, you know, where it goes, but we think very differently. We are not using them as a benchmark.
We are using McDonald's largest cafe as a benchmark from a thinking point of view. From a delivery standpoint, as I said, currently go with INR 8,000, Prateek. Give us some more time to come and kind of answer that question more intelligently.
Did I hear you right, Prashant? You said that by 2024 you would achieve double-digit EBITDA margins on a company level pre-Ind AS, right? That is what you were.
Correct.
Okay. Have you entirely completed your cafe menu or there are more offerings to be added in the cafe menu?
In the sense?
Yeah.
Hi, Prateek. It's Kapil. Our core menu is pretty much set. I think we've got a good range of hot and cold beverages and complimentary snacks that go with it. We will keep improving it. I would say we are 80% there and 20% we'll keep iterating and improving as we go along.
Yeah. There's gonna be, just like in our burger business, you know, we have limited time offers that define, you know, two and a half, three months of operation, and then those limited time offers kind of change. When I say offers, it is new products. It's, you know, sometimes it's variations of Whopper and so forth. You will find that same discipline coming into our cafe business as well. Cafe is not just coffee. Cafe is a complete business in itself. As a company here, we'll be seriously looking at that as a very separate business. Kapil and his team, our chef will continue to innovate on the menu side, and make sure that whatever menu we are producing is complementary to our business on the other side.
Perfect. Thanks and all the best.
Thanks.
Thanks, Prateek.
Thank you. Our next question is from Pallab Shah from Infina Finance Private Limited. Please go ahead.
Hi. Thank you for taking my question. Firstly, I just wanted to get a sense as why is recovery not lower? Is it, because of increased competition or a higher presence in North?
Sorry, in North?
North.
Thank you for your question. Sorry, I didn't hear that. Sorry. It's the North business you're talking about. Recovery in North is at about 100%, whereas the other markets are in double-digit SSG over pre-COVID numbers. There's a couple of, you know, things over there. We have, you know, opened more new restaurants in North in the last little while, that, you know, as you know, the younger and the newer restaurants kind of, you know, start with a lower ADS. The ADS drive over there is more because of that. We have the slew of restaurants, 18 of them, that are on the metro, on the Delhi Metro circle.
You know, you must have heard just recently Delhi announcing that the metro traffic has recovered about 75%. Those restaurants are kind of, you know, at the lower end of the scale of recovery. And those are the two factors that are kind of driving the ADS recovery over there. I think this last month of May has seen some, you know, good rapid growth in traffic coming into the restaurants. We are very positive that this will be caught up very quickly.
Just one on that. What percentage of our stores would actually be in North?
Almost, around 50% of our portfolio currently is in North.
Correct. Secondly, you've mentioned that the gross margins will actually improve at 200+ over the next two years. Does it actually include cafe benefit? Because earlier you were guiding at the same number without cafe benefit.
Yes, that's correct. Currently it factors the cafe. It also factors the current inflationary trend. If either the inflationary trend were to ease or as I mentioned, you know, if we were to work better on the cafe side, we will come back and revise them upward. Currently, taking both the factors into account, it includes the cafe.
Got it. Just thirdly on this cafe business. The cafe is actually upgraded with guidance to 200 additional 200 stores next year. The year after seems to be a bit of a slowdown because from 160 stores, you're adding only 100 stores. Is it because of the layout of the existing stores?
You're talking about the cafe, right?
Yeah.
Yeah. Look here, I mean, all new stores, not all, but most of the new stores, predominantly most of them will open with a cafe, right? There will be a handful of stores that will not get a cafe because of space restriction, or the layout of the store or just the market where it is located. It doesn't make sense for us to open a cafe. There's gonna be a handful of those stores that we will weed out. We don't have that number today. We're kind of getting a discipline around that process. Once we get that discipline, we'll remove those stores.
You know, at some point, the number of cafes opening will almost be equal to the number of new stores opening.
Got it. Just lastly on Indonesia, two things for us is what is the opening margin for FY 2022 and going forward, what are store opening guidance in Indonesia?
Yeah. Just, you know, let me just share a broader view on this. See, there's some headwinds from inflation. We understand it's here, it's there, it's everywhere, right? There's also a big synergy that we're gonna drive, which is not just gonna help the margins in Indonesia. It's also gonna help the margins in India to buying products now from 315 stores to suddenly, you know, over 500 stores. You are going to start seeing that synergies in our buying, which we will share with both markets. That is not just specific to products that they are higher cost on, or they're buying at a higher cost. It's generally for all items that we are purchasing. Every single item will be looked at.
Every single item will be renegotiated based on the size of the business, on those things that we can export and those things that we can import. Those synergies will continue to come in and that guidance should be is what we're kind of guiding on it. Again, like I said on the onset on the call, that our journey is to go to 65%. I'm not putting a date on it right now and because of my disciplined approach to this business. 60% we are heading towards the end of this year. We should exit at 60%. Then we will then put a robust plan to now move that 60%- 65%. That's the long-term 2025, 2026 plan for Indonesia in terms of margin.
Just to add to what Raj mentioned, if you factor that piece and, you know, he shared in the presentation that, you know, pre-COVID, at a company level we were in between 5%-6% EBITDA margin with the gross margin is roughly about 57.5%. If we end up with 60% gross margin by the end of this year, FY 2024, the Indonesia business also should be very close to double digits company level EBITDA margin, maybe high single digits, company level, pre-interest margin.
Thank you. Our next question is from the line of Chinmay Gandre from Reliance Nippon Life Insurance. Please go ahead.
Yeah, thank you for taking my question. My question is, with respect to the region wide data which you have given. I mean, you answered on the north part of it, in the previous question. Just, if I look at west. Hello?
Yeah. We can hear you. Continue.
Sorry. If I look at West, in May it is almost 140% of pre-COVID levels. If I compare it to, say, Southern, it's still at, say, 112%. I mean, the delta has increased over the last couple of months. I mean, can you just throw some light on this?
Yeah. You know, we shared what's going on in the north, so you already have that. I can tell you on the south piece of the business, you know, we have a couple of things. One is, you know, if you look at the market like Bangalore and Hyderabad, which is predominantly driven by technology parks and technology business, a lot of those folks are still not back. I think they're starting to get back from July onwards. I think the offices are opening up, and people will be moving back at least from the top couple of firms that I know. And that's because of the high dependency on, you know, this migrating technology workforce that lives in, you know, smaller parts of India.
These markets are just waiting for this saturation to come back. Once this you know comes back in those two markets, specifically Hyderabad, Delhi and Bangalore, we should start seeing those recoveries back to those kind of levels. We are driving good delivery business in those markets. Especially in Bangalore, there's a phenomenal delivery business. I think the dine-in business will recover as soon as these offices and so forth open up. A lot of our traffic depends on that, on those things. Anything else? West you know it's the you know the numbers are great. We did have the advantage of IPL too in full disclosure. We did a phenomenal job setting up that month.
We've got some great restaurants, and I think, you know, the 141 kind of sets a benchmark for the balance of our business, so that we can kind of move that towards that. It also sets the benchmark for people to understand that long term, this is durable in all markets. With the current program that we have implemented, which is running on your television sets or in the country at large. We are delivering those kind of numbers and that's the benchmark. There will be some nuances in markets, but I think, 141 is kind of a benchmark that we look at, and hopefully we can get all those markets to that benchmark.
Sure. Thank you. In terms of West, how many stores would be there of the total stores which will be in West?
The way we are distributed is, West and South has equal share of store count and North has 50%. That's how it is. West and South are equally distributed between themselves. 50% North and roughly 25%/25% split between West and South.
Thank you. The next question is from the line of Prateek Raghunathan from Credit Suisse. Please go ahead.
Hi, sir. Thanks for the opportunity. I just had a couple of follow-ups on your previous response. On the West recovery and particularly in the month of May, you do mention that your overall ADS is about INR 122. When the West recovery is at INR 140, does that mean that the West region ADS is more like at a INR 130-INR 135 range? Or is it that the base for West is lower and that could be more in the similar to your overall ADS?
Prateek. Just bear with us here. We don't want to share that ADS level, West or Southeast data for a competitive reason. I hope you appreciate that. It is obviously the average is higher than the company average. Just allow us to kind of, you know, keep this data to ourselves.
Yeah. Just one thing we'll tell you, it's not a lower base.
Sure. Thank you. Just as you had mentioned earlier, you mentioned that in the West you had a benefit of IPL. Why is it just West? I mean, what was particular about that?
Our matches were here, right, Prateek? The first phase of IPL until the playoffs were all played in Bombay. Brabourne, Wankhede, and DY Patil.
You had higher dine-ins in this region? I mean, just for the city of Mumbai or something like that? I would assume that IPL would benefit delivery and everything altogether as it would be like all India.
Of course, the late night business because of IPL across the country was there. I said, West had an added advantage of all the matches being played over here.
We did have the benefit of the dine-in recovery as well in this market because of the IPL event happening in West in all the cities where it was held.
Got it. Just lastly, I think someone had asked earlier on the competitive intensity in the North. I kind of missed that. If you could kind of give us an update on how that is trending with McDonald's coming back in that region.
No. It's you know, as you can see, the footprint of the competition is bigger in West and South, right? Much smaller in the North. Today, if you look at the North market, we are extensively in a lot of cities where we are the only ones with a presence there. Whereas West and South, if you look at the total, we are significantly lower in penetration than the competition. The intensity is actually bigger in West and South.
Got it. Fine. I'll take that later then. Thank you so much.
Sure thing.
Cheers. Thank you.
Thank you. Our next question is from the line of Shirish Pardeshi from Centrum Capital. Please go ahead.
Yeah. Hi, good afternoon. Thanks for the opportunity. I have two questions. The first question is, I'm referring to slide 21. When I compare the employee cost versus net sales for India and Indonesia, the arithmetic number shows that Indonesia employee cost is higher as a percentage of net sales. Any specific reasons you would like to offer?
Well, Shirish, generally, first of all, when we are looking at the current quarter, which currently are reflected, India we know has recovered more as compared to Indonesia. That's one part. You know, the recovery are different, and hence obviously being the fixed cost the base would look different. Secondly, if you really look at it from the perspective of wage scales, there is a difference in wage scales between India and Indonesia, and the wage scales in Indonesia is slightly on a higher side. At the same time, you know, at the full recovery levels, we've seen that both the businesses should virtually be at a very similar percentages in terms of employee costs.
If you look at it, the kind of ADS that Indonesia market was doing at around almost INR 140,000. At full recovery we feel that both the markets will be very similar. At this point in time, what your observation is correct, but we see it settling down at very similar levels as we go on.
Just if you can offer, Sumit, some qualitative comment, where do we want to benchmark in the medium to short term? Because obviously, our journey is that we are expanding the store count.
Shirish, currently what also is happening is a slight dip that we are looking at employee benefit expenses. It also includes the corporate employees, right? Let's put this in a slightly different context for you to understand and for everybody on the call. If you look at my store level people cost, it's very similar to where India is in the range of about 10%-11%, right? When you look at this from a corporate overall cost perspective, both Indonesia and India will be in the zone of about 5% of my top line. Where Sumit was coming from because in FY 2022 the Indonesia business got more impacted because the COVID recovery was delayed because COVID came later in Indonesia, the number looks a little distorted compared to India FY 2022 numbers.
What Sumit was trying to explain is when you go forward as Indonesia as a country opens up more at a restaurant level, people cost as a percentage of revenue and our total corporate cost as a percentage of total revenue for Indonesia business will mirror what India is between 11% and about 5% respectively.
Sure. That's all helpful, Prashant. My second and last question on the store. Raj mentioned that now most of the new stores will also have add-on BK Cafe. Now, does that mean that our CapEx per store and our size of stores will expand going forward?
Yes. If you look at it when we had gone IPO, the number that we had shared about ADS was about INR 2.81 crores for the CapEx for a per store owner on a portfolio basis. What Raj mentioned is INR 25-INR 27 lakhs for BK Cafe, INR 10-INR 15 for expansion. Weighted average, if you take 20, you can take that INR 2.8 number as a [benchmark] number.
Exactly. That's what I wanted to check. Okay. That was helpful. Thank you, Prashant, and thank you, Raj.
Thank you, Shirish.
All the best.
Thank you. Ladies, and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.
Thank you so much friends for making the time, early in the morning. We appreciate it. I know some of you have reached out us saying that, you know, we did the results on the last day, but that was only to do with our consolidation. As you know, last quarter we were among the first ones to go and announce our results. You will expect similar trend to continue as we move forward. This was largely because of consolidation. As you know, yes, we are looking forward to these interactions, and we look forward to presenting you our business, in another couple of months time when we come back to you with our Q1 numbers. Thank you everyone and stay safe.
Thank you. On behalf of Edelweiss Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.