Ladies and gentlemen, good day and welcome to Restaurant Brands Asia Limited Q1 FY 2026 earnings conference call hosted by Motilal Oswal Financial Services Limited. As a reminder, all participant lines will be in the listen only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star ten zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Naveen Trivedi from Motilal Oswal Financial Services Limited. Thank you, and over to you sir.
Hello.
Good evening. Good evening, everyone.
On behalf of Motilal Oswal, I'm Naveen Trivedi, would like to welcome you all to the Restaurant Brands Asia Q1 FY 2026 earnings conference call. From the management today we have Mr. Rajeev Varman, Full-time Director and Group CEO.
Mr. Sumit Zaveri, Group CFO and Chief Business Officer . Mr. Gaurav Ajjan, Head of Corporate Development and IR. Mr. Kapil Grover, Group CMO.
Mr. Sandeep Dey, Brand President, Indonesia, and Ms. Cicily Thomas, Brand President, India.
I would now hand over the call t o the management for the opening months. Over to you sir.
Thank you very much and thanks everyone for being on the call. I know there's competing calls. We really appreciate everyone joining here. Look, I'll give you a little strategic summary that I usually give on the onset. Sumit will carry you through the numbers. Kapil will carry you through brand and sales and then we will hand it over to Sandeep to carry you through the Indonesia business. Gaurav will kind of wind it up. In the end we are all here to answer the questions as well. Cicily Thomas will also join in in handling any questions post the presentation. Let me just first start with the India business. The India business, you know, continues to get stronger. It was strong. It's getting stronger.
Our revenue growth was 12.6% on the top of SSSG of 2.6% and then a growth of 63 new restaurants, net restaurants. The total revenues at INR 55.52 crore. Restaurant EBITDA INR 53.6 crore which is 23% higher than the same quarter last year. Company EBITDA which is fine line. All these are free numbers I'm sharing with you but INR 22.5 crore which is 28.6% higher than same quarter last year. These results, they're on top of our strategy which has communicated on an ongoing basis. It hasn't changed. We continue to grow and strengthen it. The first one is, you know, top line. How do we continue to grow the top line? We have been now positive in sales for many quarters and we've been reporting it and you've been kind of seeing those numbers as we have reported them. 2.6% SSSG driven by dine- in traffic.
We continue to focus our energy around bringing more people into our restaurant and Kapil will share how we have progressed on that. Some very good results in bringing keyhole and growing the business. SSSG on top of SSSG as we call it, which is traffic growth. The strategy there hasn't changed. We continue to build and strengthen each of the layers. The first, we call this the barbell strategy. On the entry level we have our 2 for INR 79 and 2 for INR 99 promotion. We call it 2 for X promotion which has been now running for over a year. If you remember before this we had the INR 99 Meal. The crispy veg meal which had grown traffic the entire year the previous year and then after, I'm talking about FY 2024 and FY 2025, we grew on top of that with, you know, this value, these two holders here.
Now this year we continue to grow on top of that. This is a traffic growth year -over -year. Now another year. The NP level, which was, you know, 2 for INR 79, 2 for INR 99. Then just a few weeks ago we introduced for four weeks the INR 99 Cafe. Just because we have not covered the entire landscape here in India with cafes, we have a very strong KPA portfolio. We'll share those numbers with you as well in a few seconds. He then went out to start talking about the coffee and we did very stellar numbers and Kapil will share progress on that side. That was on the value side. We continue to drive through not only product on the burger side but also on the cafe side to make sure that there's people coming in.
On the other side of the barbell, we had a strong menu on what we call the King’s Collection, which is a range of premium burgers that included four burgers. What we have done in the last six months is we have done extreme customer surveys and research and we have enhanced the quality of those burgers and people will talk more to it. That King’s Collection now 2.0 is a fantastic range of very high-end, good quality burgers at INR 200. Then we launched the Korean range, which is a limited time offer. What we will be doing is this limited range will change every quarter or every three months and there will be a new limited time offer. We will continue this to keep strengthening our premium layer. The Korean burgers, you know, we are selling higher than INR 200 and they really did well.
We'll share those numbers when Kapil gets on. There's a premium King’s Collection and then there's a limited time offer of premium burgers such as the Korean and we will share with you what the attendance is. This is a barbell strategy. As we move forward, we'll continue strengthening both these pillars but also build a very strong middle layer, which we will talk to you about in the next quarter after we have done some work on it. We also talk about digital first brand today. Very happy to report to you that 93% of our restaurants have self-ordering kiosks. That's 93% and that was done in a little over two years. We have installed self-ordering kiosks, trained people, got everyone up to speed on our self-ordering kiosks. We call them SOK, self-ordering kiosks, and also table ordering and app ordering is available in 100% of our restaurants.
We are completely digital. In fact, 90% of our sales come from this digital platform only. Less than 10% of the sales is manual or run up on a power system. 94% is digital. Good work done by the entire team and operations as well as our beautiful team in technology and our construction will work together in moving this in such a rapid pace. The dine- in app, which is our other tool which does both delivery business as well as dine- in business. Kapil will speak a little bit about how we are gathering information is between 80 - 90 transactions that we do every day are on that app. These are people that are repeat customers and they keep coming back and their information, what they like, what they want to buy, all that is available to us.
This is a very strong platform for us and we continue to kind of enhance that. More downloads. We have worked in the last, I think three months, four months to increase the downloads again. Kapil will share those numbers with you. The next generation out of this digital platform is to integrate this into the AI. We are doing a lot of work where they will be AI facing the consumer, AI facing our restaurant. Also when I say restaurants, our staff are people that run our restaurants, people that work in our restaurant support centers. Also it will be facing towards our vendor partner, our people that supply food for us. This is again a 360 degrees. As we have always spoken about technology being at 360 degrees. We are working on all 360 degrees.
We will talk about this more in the future quarters as we start rolling these out in module. The next piece is profitability. Here we have spoken about two real big elements. One is to drive profitable digit delivery sales and we have continued to do that. In fact, our margins in delivery sales have gone up by 1%. Delivery profits have gone up. Also the revenues have gone up by 11.5% on top of new restaurants being added, but also SSSG and delivery. Good work on the profitability part of this where we are making the delivery sales not only profitable but also increasing the volume of the sale.
The second part that Sumit has spoken in the last call and actually sees on most calls is about the middle layer of our P&L which is there we have utilities, we have rents, we have all these line items and we continue to work on those line items. Especially the effort that we have made on the front of our utilities. You will find that we have saved a lot of money there and brought it down into the bottom line. Restaurant EBITDA margins improved by 0.8% year- over -year through these initiatives. We have renegotiated a lot of contracts on the IT front where our technological partners rearranged our technology, the way we have consumed it. Those have also attributed to a lot of profitability focus in that area.
These are the three pillars that I wanted to talk about, and you will hear a lot of details both from Sumit and as well from Kapil. Now, just quickly moving over to Indonesia. What is happening in Indonesia? Indonesia, as you know, we have the three focus points, and we have always spoken about those three focus points. One is to revitalize and drive top line. I'm very, very happy to see the progress. We're not there. There's a journey ahead of us. We will continue driving it. If you look at our sales in the last nine months, eight out of those nine months, we have driven higher ADSs from the previous years. If you look at the period from November to July 2024, November to July 2025, they have grown 5% year -over -year in areas. We continue to grow that top line. We have done it.
Initially, when we spoke to you, there was only one chicken offering. There was a classic layer. We had brought in a spicy layer in there. Now Sandeep will tell you what we have done further, because we fixed the menu. We had challenges when we went into the business about the quality of products. We did the surveys, we fixed all those products. Then you start inviting people back in through bringing in new products and cheese and spices. This is the way the country runs. We will share with you what Sandeep will share with you, what we have done in the last promotion, which has driven high volumes of people coming back into our business. A million more in areas that we have driven, and we have brought that home.
We are really literally at the point where actually this business in this quarter has actually at the restaurant level generated money. This is the first from the last several quarters that we have been reporting to you. Good job there, Sandeep. He will talk about it. The other pillar that we continue to talk to you about is the portfolio itself. We have rationalized the portfolio. We have cut down additional four restaurants. We spoke about eight that we had closed last year. On top of those eight restaurants, we have closed another four. I think we are kind of at the end of that rationalization journey. The other journey will continue, which is about reducing rents, and we continue to renegotiate rents of all our restaurants over there. That work will continue, and we will continue to try to optimize that as well.
The portfolio optimization, I think we are in the last phase of it, and we will continue the rent optimization as we go forward. The third pillar that we have spoken to you about is about the reduction in corporate overheads. As of today, we have reduced already 25% of the corporate overheads. That's about INR 15 crores. This reduction will continue as we are looking at this year to reduce that by a further 10%, which is another INR 4.5 crores. Overall, when we started this journey, I've shared with you that we will remove 1/3 of the corporate overhead. When you talk about corporate overhead, it's just not people.
It's a lot of things that we have done, whether it is contracts, whether it is the facility itself and so forth, that has reduced this by INR 15 crores, and it's going to further reduce between INR 4.5 -INR 5 crores. That will have reduced the total corporate to 35%. I think that's a good, safe place to be in. That journey continues, and the work on that continues with Sandeep and his team, and he will speak to it when he gets online. With that said, I'm going to turn it over to Sumit to carry you over the detailed numbers, so over to you.
Thank you, Raj. I'll first take you through India numbers and then take you through Indonesia numbers. The idea that I'm talking about India and Indonesia would be to really talk you through the journey that we've been having across both the geographies. I'm using slide number 8 first to take you through the India performance. As far as the store counts are concerned, Raj mentioned that we added 63 restaurant in a span of over last one year, which translates to six more restaurants during the quarter. We had some store closes during the quarter, restaurants that we closed. We've always been saying that we would add around 60 - 80 restaurants on an annual basis. We remain focused on that growth journey, and you will see us growing at that stage as we progress further into the later part of the year.
Looking at SSSG, we've been consistently to an extent largely having positive SSSG trends. Those have been in the region of around 2.5% - 3.5%. This quarter as well, we had a 2.6% SSSG positive growth with an overall portfolio average ADS of 120 as 2.5%. Even when you look back, and when I cover the EBITDA numbers as well, it allows us to cover the COVID for the effective inflation that we have on our P&L cost lines, and hence it also at these levels of SSSG. It also allows to make sure that entire efficiency gains in the middle of the P&L, which Raj was alluding to, get transferred or start to reflect in the restaurant EBITDA and the company's EBITDA numbers as well. Just looking at the overall revenue numbers, we ended the quarter at INR 552 crore, an increase of INR 62 crore.
A combination of the new store, 61 new stores that we opened during the previous years, plus the SSSG of 2.6% and the positive SSSG that we've had through the earlier quarters. As far as gross profit is concerned, we have maintained the gross profit in a tight range of 67.6% or thereabouts through these last five quarters. We feel happy about being at this because we've thrived off strong inflationary pressures plus being refocused to driving traffic through the value strategy. We've been able to kind of maintain the trajectory of gross profit in a tight range. We feel that strongly about it. This in any case does not take us away from our long target of 70% over the next three to four years, which we've always been speaking about. You will see us progressing towards that as we've always been mentioning about in the past.
As I was mentioning, at the 2.5% it allows us to fully absorb the inflation that we have at the middle of year, and any efficiency gains that we have at the restaurant EBITDA gets translated into the profitability, which is what is a reflection of our 8.9% profits improving to 9.7%, improvement of 0.8% over the previous year. This is largely led by the cost efficiencies that we've got on the utility side of the line. We've always been talking about that we have plans to overall improve for our utility cost lines as we go along. This is just first quarter where some parts of the implementing receive start actually some improvements, and this journey will continue going forward as well. Plus, we've got some cost efficiencies through negotiations on the IT side of the cost, and obviously sounds counterintuitive after making substantial investments on the digital side.
Honestly, those investments of operations mean the cost lines are so efficient as the operations have started to become efficient. It was positive for us on both sides. As far as company avatar is concerned, there is a translation of efficiency gains from restaurant EBITDA to company EBITDA. There are certain one-off expenses that are there on the corporate side, which is kind of products making the number s slightly lower as far as company EBITDA is concerned. Going on to Indonesia, this goes to kind of reflecting the performance so that we can understand the progress or in a slightly different manner as compared to the way we've spoken in the past. I just quickly talk about the summary lines and then go to the ADS trends and the P&L trends for Indonesia in slide 10 and 11. I'm on slide nine as far as Burger King is concerned.
We are at 139 restaurants. The rationalization of the portfolio continued through the quarter, but from the substantial reductions that you would have seen earlier, it has now come down to three or four platforms. We feel that we are kind of coming to an end in terms of further rationalization there. At the same time, as we kind of rationalize our portfolio, we feel good where we stand at the moment in terms of our ADS at INR 19.7 billion for the month. Not that this is where we would want us to be, but from the perspective of the trajectory that we've taken, we feel that yes, we've kind of at least moved the needle upwards from where we stood. As far as Popeyes is concerned , 25 stores. That's been the so far now for quite some time.
We've not been adding any more to the portfolio as we still need some answers to be solved or got debts before we go back to the growth side on Popeyes. T heir overall revenue stands at INR 280 billion with loss reduced over the previous quarter. The company level by INR 2.2 billion.
I just want to go s pend a little bit of time on slide number 10.
As you could see, we've consistently now been remaining higher than the previous years since literally November right up to July 28 , till almost the end of July. We've consistently been ahead of our overall revenue in Burger King as a part of the portfolio. You all would be wondering why did we start from November there. It's honestly the reason why we put it is because that was really when the new government kind of took charge in Indonesia and there was a symbolic announcement of ceasefire in October. Clearly speaking, that trend, we started putting our investment back in the market on the marketing side as well. Pure action from our side literally started from November, which is when we've been, it's the kind of readings to continue to have performed better as far as our ADS.
On an average, we've kind of grown at an average ADS of around INR 1 billion if we look at on average for a period of nine months. As you can see in the chart below, it has largely come through improvement in dine-in, which is what we always wanted to focus on as we go back and start putting money back in the business. Now, what does it do on the P&L side? If you look at slide number 11, you could very clearly see that over the last four quarters our overall ADS, which used to be at INR 17 million, got through INR 19.7 million. You will see that when we look at numbers when Sandeep takes you to that, you will see the plan that we are going to have to maintain and then grow our ADS going forward as far as Burger King is concerned.
As you can see, as we have improved our ADS, obviously not only the revenue continues to be higher than the previous periods, but it has also helped us improve our gross margin by a percentage point. And a store EBITDA level where we lost around INR 8 billion in quarter two last year. Four quarters back from there, quarter positive store level at INR 6.4 billion. We kind of made a gain in Burger King.
It gives us. It makes us feel positive that yes, we should really be slowly but certainly move forward on our journey in budgetary and Indonesia with the plans that we have. While we are moving positive on Burger King's side, Popeyes obviously yes is an area where we need some more work to do. We are seeing the area falling from INR 14.6 million to INR 13.2 million and if one was to go back to earlier periods, it was higher than it was, almost close up to or maybe INR 3 million-INR 4 million higher than what it was four quarters back. That's basically where our current challenge is and we want to kind of take this back up when we believe we should b e able to do that.
We have some plans and we will share back to its flag as well to you. Gross margin is a journey that is similar to BK. We will prove it by 2% on gross profits, but because of lower ADS are lost in top 5 self containers to gains additional around INR 6 billion for a quarter. There is positive news on BK, Popeyes is still has work to do, and overall Indonesia on a consolidated basis, while there is positive movement on the store EBITDA and the company EBITDA side. There is still work for us to do, but at least there is positive trajectory that is available on BK and Popeyes. With that, I'll just hand it over to Kapil . If there is anything more, then we can obviously discuss later. Taking leaving.
Thanks. Thanks, Sumit. Thank you. On the marketing side, just to share that we've had a very exciting start for this year. Quarter one, as Raj mentioned, we had this barbell strategy really getting executed. The quarter started with the launch of the Korean range. You're all well aware Korean is a big fad across culture, music, pop drama. We leveraged that insight and built out a very authentic range of Korean products including burgers and chicken thighs. Fabulous response on the product. Great response in stores from consumers. We did a complete 360 campaign really respecting the Korean culture across digital, social, at store, and we got a fabulous response across both the channels. Our SSSG is reflective of that.
On the other side of the barbells, while we are doing the Korean range as a part of our premium range, we also have the value program running consistently to continue to drive more footfalls to the store. 2 for INR 79/INR 99 continuously drives traffic and it's one of the most affordable deals in the market. The second lever of our value strategy is the crazy app deals, which is where customers walking into our stores can download the app and use exclusive deals available only on the Burger King app for dining. That helps us drive loyalty and frequency over time. The third component of our value strategy is the shareable value meals, which are meant for different locations where you have large group sizes so people can buy a great value meal which is shareable between two to three people.
On this page, I just want to talk about one more thing. The King’s Collection Raj mentioned that we relaunched that. It's a 2.0. It just got rolled out in the month of June. We have significantly improved the quality of our products beyond where they were. This is obviously backed by a lot of consumer research on the quality of what consumers consider as premium.
The brioche bun . The whole muscle and like a whole cheese patty. Right. Those are the ingredients that have been introduced in these products. Now they're great value, great quality, and yet at a fairly value for money price at INR 100 where you can g et these great basic products.
Moving on to the next section of innovation, I'm moving to slide number 16. While we did a lot of work on the burgers at the premium end, value continues to be a strong pillar for growth. We opened up the innovation on March more than this quarter. Cafe is a big pillar for us as a sales driver. There was a promo on the cafe, which is INR 99.
Raj spoke about that.
Drive clients now open 480 cafes. How do we get people to try our cafe product? How do we make people aware that 480 working have cafes in there? The 99 promotion was done in the summer months. Four weeks of promotion, very good response. Improvement in trials, improvement in Europe story, and we saw a big uptake of our coffee and shakes, which are very high quality products for our consumers. We've added to that range by introducing the co-brand based KitKat BK Fusion. It's our first step into launching co-branded products. BK Fusion is our global property and KitKat is our first partnership, and we will continue to build on this in future with more brands and more partnerships. The last bit, which just got rolled out pretty much two weeks ago, is the Whopper Deluxe chains. This is a whole new range of burger.
It's inspired with what was, you know, Whopper Jr earlier, but it's got improved quality with glazed buns, a pat of patties, and new proteins. We've introduced the paneer cottage cheese, we've introduced cheese, and we introduced a fried chicken Whopper Deluxe. These three products strengthen the range in the middle of our menu. Now we have a range of six Whopper Deluxe burgers starting from INR 139 all the way up to INR 199. It makes our menu a lot more, you know, variety. It's still great value for money at that price point and expands our strongest killer in the menu, which is Whopper, right? We released that earlier this month and we'll have more to share in the following calls on that. We continue to local store marketing, buying in cash media. Social media remains a strong fellow building consumer engagement.
Our content is very organic, and in the month of April with the Korean campaign, we saw one of the fastest growth in our social media followers on Instagram, which is sort of an indication of how popular the campaign was. On the digital transformation side, self-ordering kiosk slide number 19, we now have 484 rep cons with SOK, and customers really loving the new experience of ordering digitally, you know, and controlling the experience themselves. Table ordering available in all stores except f ood court and storage table service, which s ignificantly enhances the customer experience inside our store.
The BK app journey continues to be very, very strong. We saw a lift in installs, almost 50% quarter on quarter, and also the orders on the app jumped up by almost 60% quarter on quarter. That continues to be a strong pillar of building engagement with consumers and, over time, building frequency and noise. That's the update from my side and hand over to Sandeep for the Indonesia update.
Thank you, Kapil, and a very good evening to all of you. As you heard from both Rajeev as well as Sumit, we are witnessing a strong momentum in the Burger King business. Hence, we continue now delivering close to INR 1 million higher ADS for the last few quarters.
We remain confident in our ability to maintain this successfully and are also seeing laser focus on driving more and more traffic back into our response. Our strategy continues to be rooted in offering great taste, smear distancing, exceptional value to our guests, powered by our unique twin engines of burger and chicken. We have observed that Indonesian consumers had a strong preference for both spicy and cheesy flavor. Leveraging this insight, we introduced spicy and cheesy variants across both burgers as well as chicken, priced attractively and supported the launch via comprehensive marketing campaign. The response was very encouraging, and we have seen sustained result even after the campaign concluded. We all know it's a very strong chicken market, and we are committed to strengthening our relevance and favorability in this category. We identified a large opportunity when catering to a group dining occasion by offering whole chicken meat.
Drawing inspiration from a local favorite, we developed something called Ayam Nusantara. It's basically a whole chicken, non-graded, seasoned with lotus spices, fried and served with rice and a variety of sambal. Sambals are basically Indonesia's version of Indian spicy chutney. This exciting new product will be launched next month. Following that, we will also introduce a Western style breaded whole chicken . We strongly believe that these innovations will not only drive instrumental business but will also reinforce our position in the chicken category. Not to forget, we'll continue to focus on delivering strong value propositions across all our menu layers and across all our sales channels. Now I'm moving to the next slide, which is about the Popeyes business. Now we understand that it's a stock market, it's a competitive fried chicken market and strong amount of competition for both global as well as local QSR players.
Winning in this space demands substantial investment in scale and ease and brand awareness. Recognizing this, we have actually pivoted our strategy. We are leaning into our funds as a second destination and providing innovative guest experience more like a fast casual restaurant, all while maintaining our decision cost approach. We piloted that concept in a couple of stores for over a quarter of about 4 - 5 months and are seeing early positive signs. Dining business has increased and our gross margins have improved by a few points.
Now instead, by these results, we h ave expanded the model to four additional. That's why we are in the process of learning from diverse store formats and diverse trade area. The goal is to gather all those insights and eventually scale this model across the entire portfolio. That concludes the update on our Indonesia business and I will now hand i t back to Gaurav to share the outlook.
Thanks, Sandeep. Good evening everyone. We can move ahead to slide number 28 titled The Way Forward India Operation. There is no change in our guidance for restaurant openings.
We will continue to add 60 - 80 restaurants every year to reach approximately 800 by FY 2029.
While we have added the next six restaurants this quarter, you will see the pace of growth increasing in subsequent quarters, as we have several sites already in c onstruction now on gross profit.
I would want you to note that our GP is an all-in number, and apart from the food cost, it includes paper and packaging along with primary and secondary distribution. Our GP guidance is the same as we target the 70% margin by FY 2029. Please note that we will not see a linear increase every quarter, and we aim to strike the right balance between sales growth and bargain entry.
However, we are confident that we will continue our margin growth trajectory seen over the past several years.
That will take us to about 70% by FY 2029. Thank you all for joining in.
I would request the moderator to please open out the floor for questions.
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 touchstone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use hand tips 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 Pranay Chatterjee from Burman Capital. Please go ahead.
Hey, good evening everyone.
Am I audible?
Yes.
Firstly, one comment by CFO Sir. He mentioned regarding India's corporate overhead that there was some one offs this quarter. Would you be able to share what?
These one-offs were, and ballpark, what?
The quantum would be?
Yeah, it was fun. Active size.
I'm sorry your voice is getting cut.
Yeah, sorry, am I audible now, Pranay?
Yes, yes.
One is because of the G-Sec relate reductions we saw some actual valuation liabilities thesis which was the quarter and that was. There were some ESOP grants that we did during the quarter. That really two lines which was higher than what you would see it on a recurring basis.
What was the quantitative.
If you said the growth probably got c ut off or what was the quantum?
The actual valuation got about INR 1 crore because of the G-Sec rate adjustment that happened during the quarter.
Oh it's just INR 1 crore, yes. Got it. Great.
My only other question is on the o verall demand environment that you are seeing. Obviously, we have not seen any sort of fraction in some of the other results that have come out in vector. I'm also sure that you know June, because of rains, might have slightly dampened the summer vacation spike that you guys usually see.
How still how do you see a s it goes to Q2? Obviously, you have been doing your own initiatives and offers and many work rates to drive dining traffic.
Keeping that aside from a macro point of view.
How do you see it progressing? Is it still similar as we were, let's say, last quarter or several quarters back, or you see some improvements?
Yeah, I think, you know, Pranay, we basically are seeing very similar trends. There's some limited demand, and it's a tighter market than, you know, usually. We get the stacks here, but the demand on the lower end of the menu, the value there continues to be soft. We don't see it very big there. It's on the premium layer where we have seen a little bit of a shrink or tighter that's reflective in our, you know, SSSG, which is only 2.6%. Yeah, that is where we're seeing the market overall.
Got it, got it. Great.
That's a ll my questions and I wish you all the best. Thank you.
Thanks. Thanks, Pranay. Guys, if you're asking questions, can you just lift your hand phone so there's no echo coming through, please? Thank you.
Thank you, sir. Gaurav, next question is from the line of Gaurav Jogani from JM Financial. Please go ahead.
Thank you for taking my question.
My question again is similar to what t he previous participants, you know, it's more on the demand side only.
If you can dissect, you know.
Given the value layer i s increasing, are you seeing at least the transaction or the, the n umber of guest count increasing?
If that is helping, how much o f that is then getting converted for sticky customer base for you going ahead?
Yeah.
Yes, I mean, our dining traffic continues to be strong, right? It's been strong now for a couple of years, actually more than a couple of years. That traffic continues. Like I said to Pranay earlier, that is on top of some very good value promotions that we're doing. You know, the app that we have rolled out, which we're doing about 80 - 90 transactions, those are what we call as you kind of rightly, corporate sticky customers that, you know, build our future sales as well. We continue to kind of get those downloads going as well. Like Kapil was saying earlier, the Korean campaign actually brought down, brought a lot more downloads in that period, and that actually increased the number of transactions on that. This quarter, Q2, we have Shravan, we have Shradh, we have Navaratri. A lot of it is also there.
There will be some vegetarian tube kind of a demand for a while and we know that and we are actually, you know, presently happy with the, you know, because the margins are higher on that side of the menu and we have a very strong vegetarian menu. We feel good about that.
Sure, at least can you infer now?
That the deceleration in the demand has now at least stopped, and if not, it's been stable for quite some time now. Would that be right?
Y eah. As I said to Pranay, it's very similar to what it has been for the last couple of quarters. As you know, it's a very similar trend that you're seeing, and it's more focused on the value side of the m iddle.
And somewhat according to you is l eading to this demand softness. It is largely the macro environment or is it some of the shift is happening to other cuisines, other menu parts largely because of the Swiggy's and Zomato's of the world that the options are increasing and people are, you know, down trading to some other cheaper options than cuisines?
See, because we continue to increase our dining traffic. Right. We are getting more and more dining traffic. Couple has been recording positive dining traffic now hopes so many quarters people are still coming into the restaurant. Right. I think generally if you look at the industry, there has been an APC decline across the industry and that is what I would say is the potential or the, you know, the buying power is kind of a little bit depleted, but the transactions are happening, people are coming in.
If you have a good strong dance promotion, which we have, which again with c afe also we introduced the INR 99 Cafe and it's really awesome for us. I think demand is there. Demand is on the value side and it is continuing to grow in that value side. I think as things kind of loosen up, we are hoping that by quarter three, which is the October, November, December, you know, month, I think we would have put, you know, the, the, I think the, the general market would have shifted by that time to a little more positive, you know, sale wins towards more and more in traffic on the premium side.
The last question is with r egards to, you know, you have been d oing a good job in terms of c ost reductions, and that is reflecting in the overall margins as well.
How much more room do you see?
Especially on the India side to drive margins on the EBITDA side?
I do understand that there is good h eadroom on the gross margin side.
Specifically on the other cost line items.
Other than the cost margin.
Yeah, very good question. There's a couple of things, right? One is the top line. As you continue to build the top line, all the other margin levels will go up. That we continue to do. To do that top line on the head of traffic is the right way to do it because that is something that will stay with the company for the long run. That's the one that you can actually elevate as you move into the future quarters. That first is the top line. We need to continue building that top line and on the base of good traffic. Now, coming down to the P&L lines, you did say we kind of outlined that we are going to move the 67% - 70% over the next few years, hopefully sooner than later.
The other line items like the rent, the deals that Cicily is now signing up are way below what we signed up six, seven, eight years ago. These rents that are coming in, as they come in more and more properties this year, she will take the total to about 580. Some restaurants will continue to bring the overall rent ratio down. As the top line climbs, you will find the rent margins, the rent lines even going lower and lower. Utilities, Sumit has been talking about utilities now for the last few calls and that work continues. We can't do that work in 580 restaurants on one day. We started those with a handful of restaurants and we climbed and did a city, went to the next city.
The total impact of all the work we are doing on utilities, after this whole program is over and all those restaurants are on the full utility, discounted utility charges for a whole 12 months. That work is continuing and we'll continue to see those benefits coming in. The utility line, the labor line usually used to run about 10%- 10.5%. We have now intentionally taken that by 0.5% above to about 11%- 11.1%. That has gone direction from our operations team said this is the right. We need to, and I believe completely that we need to invest this money now in training people on SOK, the self-ordering kiosks. We need to make sure that happens. We have rolled out a new premium layer. We have rolled out cafes in 480 restaurants. We have gotten the Korean, we have brought in this new shakes with Kit Kat.
There's a, and the new menu in the middle there. There's a lot of stuff that gets thrown at the restaurant, and we want to make sure that proper training is going on in the restaurant, so forth. That line in future as the top line increases will go down to between 9.5%- 10% kind of a range. That room is available to us. We just don't want to avail it now, we want to avail it in the future. We want to invest right now that point 1.5% that we have initially not planned to make sure that all the initiatives are working well. All those are the line items where the rooms are there, and the top line is the biggest one because, you know, you take the same rent and have a bigger top line, your margin improve on the same rent. That's the answer to that.
Thank you for the detailed answer.
That's all from me.
Thank you, Gaurav.
Thank you, sir. The next question is from the line of Aditya Soman from CLSA. Please go ahead.
Hi, good evening.
Just one question from me actually.
If I see you've done an incredible job in ramping up the BK Cafe at our store.
We've gone from 77% cafes to over 90%, now 93%.
However, when I look at the age, yes, obviously that increase has been far.
More limited year -over -year. I understand one of the factors you mentioned was sort of at the premium.
Growth has been slower and maybe even some sort of down trading. Is there any other factors given that?
You've got an increase in cafe increase.
Also, more put faults coming through.
Any reason why the radius hasn't moved up as much?
Yeah, as you just said it and as we are reiterating, we moved on c afe very rapidly. Right. Within a little over two, two years, two and a half years, you can say we rolled out all the cafes. There are a lot of cafes that have been on the ground for a few months, maybe even a few weeks. There is a whole bunch of cafes that have not really had the experience of consumers coming and tasting coffee and enjoying the cafe. That'll take time as it grows up there. If you look at the first few cafes we opened over two years ago, they're doing healthy, you know, ADS, the cafe site, I will say average about INR 20,000- INR 22,000.
If you look at the younger new ones that we have just rolled out, they're doing maybe INR 6,000-INR 7,000 kind of ADS over there. There is a graduation and if you can see those INR 22,000 in two years, that's the kind of a cycle that we see for c afe as it graduates and it will not graduate in all markets at the same level. We see as an average that people move that forward and that will be on the back of promotions. Like we just said, it'd be INR 99 Cafe. Next year again, Kapil is planning another one during the summer with some cold coffees and stuff like that. We will continue now building into our calendar, a cafe calendar as well, continue building that portion of the business.
Thank you. That's very clear and very useful.
To sort of summarize, over time we'd expect all these additional cafes to get closer to that INR 20,000 mark. Like I said, there could be some differences, but closer to the INR 20,000 mark and then beyond.
That should be a driver of sort of ADS.
In terms of that impact.
The premium going forward, would there be a ny impact coming through from that?
No, I think premium used to sell at levels, unit levels, and we don't share unit levels, but significant unit levels. We have seen some kind of contraction on that in the recent few quarters. That's driven just, and the products are being, a couple has actually elevated the product.
All King’s Collection is elevated.
The Korean range was phenomenal. I mean this was, the research showed us that this was one of the best products that we have rolled out and we did well with that Korean range. In the head of, you know, where we look at the entire premium menus with the King's Collection, the Korean and the Whopper itself, you know, there is a little bit of stress in that range and we see that if it comes back to our numbers that were about a year and a half, two years ago, which I think we will start seeing towards the quarter three years, we are estimating that that's what's going to happen then I think, you know, you will find a good balance. The barbells will be very well, nicely balanced. You will see that impact also in gross margin. You'll also see that in restaurant level operating profit.
Thank you. That's very generous.
That's fantastic.
Thank you.
Thank you, sir. The next question is from the line of Amnish Aggarwal from PL Capital. Please go ahead.
Yeah, hi sir, I have a couple of questions. First being that what is the ADS in our cafe business?
Because we had been promoting it a lot, what has been the trajectory over there and what's the way forward? That is the first part of the question.
The second is on some of the, you can say, expense heads because, say, for example, manpower cost has been, say, in a range from the last quarters, INR 70-INR 75 crores, but this q uarter, it has suddenly jumped from INR 75-INR 85, whereas we have hardly added six stores on a standalone basis.
Similar is the other expenditure, where t he jump has been very stark from INR 182 crore to INR 220 crore. These are, I would say, the two other parts of these numbers.
The third one is a financial.
Other income, where there has been a very big jump from INR 7 crore to INR 27 crore. Thank you.
Abnish, I'll just take some of these questions that you've asked. One is as far as cafe is concerned, our ADS in cafe stands at INR 13,000 for the overall perfect portfolio. I also saw some of the early participants asking in terms of the cafe, the earlier portfolio. Obviously, you know the growth in any kind of category that we add, the credits on the longer the category remains in the store and as part of the portfolio, and the older stores. When I say older stores, the first 200 stores which came with literally are almost around two years into the launch of cafe, those stores have seen cumulatively around 10% improvement overall cafe sale since the time this kind of launch happened into those stores. We feel confident that we should be able to build on to this.
As we've seen, we have been introducing products into the factory last year towards later part, we added products on the cold side of the portfolio. This time we've launched a co-branded business. The focus on improving the overall sales continues to be very, very strong as perfect catching part of the portfolio. As far as employee cost, the shift that you kind of asked for, renewed look at the employee costs and overall, overall visa. That is, I'm presuming you are looking at it as a store level sales on a quarter on, on a last year to current year's overall employee costs have moved up from INR 51 crore to INR 61 crore at the floor level, which is on account though with the key argument these opens. That's one.
Second, as we launched the entire digital initiative at our store in order to kind of educate the customer through this entire digital journey. What we've done is that we've literally shifted the customer to order what he wants to consume at our install for ourselves. We want to make sure that the customer understands the journey and the asset that we put into our hand. Consciously, we've added a few more people at our stores during this quarter, which was part of our plan. If honestly, you know, like we spoke about some of the efficiencies that we've got, the actual efficiency that we've got on the offlines, on account of it, on account of utilities and all, is almost close to around a percentage and a half, which this offsets far as on account of the conscious decision to put more people into.
On the response side, let's see kind of stuff. The increase in finance related income other is because of the surplus investment that we had on account of the raising of QIP, which is what has resulted into a higher other income. The other part also is on account of the way the Ind AS 116 get accounted, where when we kind of cancel out any kind of lease, these liability also get reversed, and the liability on account of the finance cost, if there is anything that gets reversed, comes into that. There is a nuance on account of Ind AS 116. I'm not getting you the details of it. Hence, when we speak in our initial number, we concentrate and talk more from the perspective of pre-Ind AS numbers because post-Ind numbers does make the readability a little more complex. If you want, we can kind of share the bridge separately.
Just one thing is that the increase in other expenses, how much of that could be one time due to this?
Roughly around INR 6 crore would be the increase in other expenses on a post-Ind AS basis .
Okay.
Because otherwise from INR 182 crore to INR 220 crore.
Jump is INR 38 crore.
I think you can reach out to me.
Gaurav will kind of walk you through those numbers. I think we can take a few more . Thank you.
Thank you, sir. The next question is from the line of Devanshu Bansal from Emkay Global. Please go ahead.
Thanks for the opportunity and congratulations on a good set of numbers, Rajeev.
Your performance has been relatively better v ersus the other listed entity in the burger QSR space.
I wanted to check if there is a ny significant growth difference for you across regions?
Specifically, if you could share some thoughts o n how the south region is performing f or you vis-à-vis other region?
Generally speaking, we have grown traffic in dine-in across the board. Whether it's south, north, west, there will be certain areas that grew larger than the others. Generally speaking, we basically grew traffic in our dine-in.
Sir, I wanted to understand from your trade papers perspective these are r elatively higher at about 30 to 35 days versus under QSR.
With cash on balance sheet, can we get some margin benefits from our v endors, if we sort of reduce these trade terms?
Having approached honestly to our entire supply chain strategy where you kind of pursue it through a 3PL partner from the perspective of holding office. Really speaking, it's not honestly speaking the benefits on the supply chain side is not necessarily through the working capital management. But rather working closely with the vendors as we go deeper as we kind of expand our portfolio, he believes that both of us as well as our vendor partners should be able to benefit through the growth journey that we are taking. Then as you are deploying the capital more from the perspective of site and certain other initiatives that you want to take, that could bring further efficiencies on the utility side. That is where we believe the return would also be higher and how we are planning the deployment of capital.
This is lastly a small follow-up.
There is some 250 bps i ncrease in other expenses sequentially despite our r evenue sort of increasing about 13% sequentially. You also talked about certain initiatives on the store utility side. What has led to this increase?
Typically, it is below these line items. Utility has improved, rank is below. What actually has led to this sequential increase of 250 bps other expenses?
As I was explaining about earlier as well, there is certain rewards or there is certain one-time cost in the other expense lines that we have to between of around INR 70 crore on account of all the lease closes that we did. That is really the biggest factor that we kind of seen. The balance is on account of the four additions that we did during the last year which has for this to the current. There is beyond that for a person cause that has a common through that line which impacts the overall other expenses line that we have.
It's just. It's just on account of the store closures that we had. We had around five store closures for the corp associated, so that is what impacted that line.
Got it.
Fair enough. Thanks for taking this.
Thank you, sir. That was the last question for today. I now hand the conference over to management for closing comments.
Thank you.
Thank you so much everyone for joining in. Really appreciate it. Again, you know the India business continues to get stronger. There's work to do, there's miles to go. We need to grow the top line. We need to continue working on our middle layers. There's rent, utilities, margin. We need to continue driving that. We feel good about the business. We feel good because dine-in traffic continues to grow and at the neck of growth of 60- 70 restaurants every year. We are seeing some good green sprouts up in Indonesia. The Burger King business and the Popeyes business. The Burger King business is actually coming. That's nicely. I think there's ways to go there as well. We like the turnaround and we see that going in the right direction. Popeyes, I think Sandeep has got a fantastic strategy now with the casual dining approach.
We've taken the ADS up by INR 1 million for each of those restaurants. I think he's moving now four parts ahead to do that. I think there is also some work in Popeyes in the middle there where the market is slightly inflated and we need to fix those so that the restaurant moves towards break even and then, you know, hopefully from there. We have to keep it. The work Sandeep and his team is doing I think really endured the tough times and now in the world we are turning this. Thank you everyone for joining in. Wish you a good evening. Thank you.
Thank you, sir. On behalf of Motilal Oswal Financial Services Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.