Ladies and gentlemen, good day and welcome to the United Foodbrands Limited Q2 and H1 FY 2027 earnings conference call, hosted by MUFG Intime. 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 touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Bijay Sharma from United Foodbrands Limited. Thank you, and over to you, Mr. Sharma.
Thank you. Welcome everyone to United Foodbrands Limited Q2 FY 2027 earnings conference call. For today's call, I have with me Mr. Kayum Dhanani, Managing Director, Mr. Rahul Agrawal, CEO and Whole-Time Director, and Mr. Amit Betala, CFO. Before we begin, I would like to remind you that some of the statements made in today's conference call may be forward-looking in nature and may involve risks and uncertainties. Kindly refer to our earnings presentation for a detailed disclaimer. The results and earnings presentation have already been uploaded on the website and stock exchanges for anyone to access. We will begin the call with Mr. Dhanani sharing his perspective on the quarter, followed by a detailed discussion on operating and financial performance by Mr. Agrawal. We will then open the forum for questions. I will now hand over the call to Mr. Kayum Dhanani. Thank you, and over to you, sir.
Thank you very much. Good evening, ladies and gentlemen, and thank you for joining us on our Q2 FY 2027 earnings conference call. Q2 FY 2027 has been another strong quarter for United Foodbrands. The momentum we have built over the past several quarters has continued, and the broad-based nature of our growth has deepened further. We are now in our fourth consecutive quarter of strong broad-based performance, and the business trajectory is looking very strong. I want to bring out four important points on how we think about this quarter and our performance. First, the business continues to operate at a new scale with structurally healthier unit economics. Our underlying operating model is working as anticipated. Our customer acquisition engine continues to deepen, and our restaurant-level operating performance continues to strengthen.
The strength we are seeing is not a function of any single quarter, but the cumulative outcome of a multi-year journey that is now visibly delivering. Our mature portfolio continues to operate at a healthy restaurant operating margins, meaningfully above where we were a year ago. Second, the multi-engine portfolio continues to work as designed. Barbeque Nation India remains our anchor engine and continues to compound strongly. Our international business has demonstrated a meaningful growth this quarter, validating both the strength of our format and the operational discipline of our teams on the ground. Premium CDR continues to deliver healthy growth. With mature store unit economics holding strong, the portfolio diversification we have built over the last several years is now showing its value through consistency of performance across markets. Third, our captive demand architecture continues to deepen.
Approximately 91% of our dine-in volumes continue to come from our own channels, that is, our own app, our website, and our reservation call center, and walk-ins to our restaurants. This is a structural feature of our business, and it is a feature that is growing. The customer relationships we own directly, the engagement data we build on our own platform, and the brand affinity we create with our guests are growing stronger every quarter and are the foundation of our business. Fourth, we are investing through this growth phase and continue to build for the future. We opened nine new restaurants during the quarter, which reflects both on conviction in the business and the strength of our pipeline. We continue to fund our expansions primarily from our internal accruals, and we remain disciplined on site selection and underwriting standards.
Our focus is on building a business that compounds from the long term, not optimizing for any single quarter. I would end with a note on our teams. The performance we are presenting today reflects consistent execution across our restaurants and our central functions. Our people have continued to deliver through a period of meaningful business transformation, and this performance is a reflection of the culture and the discipline of our teams bringing to this organization every day. I will now hand over to Rahul, who will walk you through the operational performance in detail. Thank you.
Thank you, Kayum. Good evening, everyone, and thank you for joining today. I will walk you through the operating performance for the quarter, our financial performance, and then our outlook for the year ahead. Q2 FY 2027 has been another strong quarter across every part of our business. Consolidated revenue for the quarter was INR 429 crores, growing 40.9% year-on-year. Consolidated same-store sales growth came in at impressive 24.5%. Our growth continues to be entirely volume-led. Consolidated dine-in transaction volumes grew around 56% year-on-year, and our delivery business grew 47% year-on-year. Let me walk you through each of the segments of our business. Barbeque Nation India delivered another strong quarter. Same-store sales growth was 27.8%, revenue growth was 41.4%, and dine-in transaction volume grew 60.8%.
More importantly, the brand has now firmly established itself on three positioning anchors: that is, strong value for our guests, a trusted destination for celebration and group occasions, and a well-built digital capability that owns the direct relationship with our guests. Our continued performance over the last four quarters is a reflection of this new operating identity, and our focus is on building further from this base. Our digital investments continue to meaningfully deepen the quality and ownership of our demand. Approximately 85% of our business comes from dine-in, which continues to operate with strong unit economics. Within our dine-in business, more than 80% of our customers are now pre-reserving their visits, compared to around 70% a year ago. This reaffirms the brand's ability to attract demand on its own strength, rather than being dependent on high footfall catchments or walk-in traffic.
Across our total dine-in business, approximately 90% is being driven through our captive channels, that is our app, website, our reservation center, and walk-ins to our restaurants. The deeper penetration of our digital assets has also translated into approximately 3x growth in our loyalty program adoption, which in turn is driving a higher share of repeat business. Moving to Barbeque Nation International. Barbeque Nation International delivered another strong quarter with same-store sales growth of 26.5%, year-on-year revenue growth of 59%, and dine-in transaction volume growth of 64%. Delivering this performance against the continuing geopolitical backdrop in the region is an extremely strong outcome and reflects the operational discipline and execution quality of our team on the ground. During the quarter, we launched value-added marketing initiatives across our international business and specifically rolled out various digital initiatives in our Middle East markets.
We have also implemented session-wise, day-wise analytics, which is enabling us to dynamically optimize pricing and demand across restaurants. Combined with our increased marketing investments, these initiatives are driving higher conversions and continued momentum across the segment. Premium CDR delivered 28.5% revenue growth, with 7.8% same-store sales growth and dine-in volume growth of approximately 25%. The segment continues to perform well in its established markets, while the FY 2026 cohort of new restaurants, particularly in Mumbai and Delhi, is progressively building customer base and brand familiarity. We closed the quarter with 274 restaurants in our network, with nine restaurant additions during quarter two. We currently have 19 restaurants under construction, which will open through quarter three and quarter four of this financial year. Our new store pipeline remains healthy, and the trajectory of our FY 2027 expansion is on track.
Beyond this year, our medium-term plan is to add 40 to 50 restaurants annually across our portfolio, largely funded from internal accruals and with the same discipline on site selection and underwriting standards that will continue to guide us so far. Moving on to financials. Our gross profit grew 39.3% year-on-year during the quarter, with gross margin of 65.5%. On a sequential basis, gross margin was lower by approximately 30 basis points, reflecting the current inflation environment that we are navigating across input categories.
Our pre-Ind AS restaurant operating margin came in at 13.2%, representing a year-on-year expansion of approximately 520 basis points, driven by the operating leverage we have built across the business. On an absolute basis, our restaurant operating margin grew by 130% year-on-year. Our matured portfolio pre-Ind AS restaurant operating margin was 14.7% for quarter two and 15.5% for the first half, reflecting the underlying strength of our unit economics.
The margin profile of our new store cohort has also continued to improve, which is accelerating our overall payback periods. Our new restaurant portfolio reported pre-Ind AS restaurant operating margin of 7.4% in quarter two, which is the highest level we have reported in several quarters. This is an improvement from 6.1% we reported in quarter one FY 2027. As the FY 2026 cohort continues to mature and our quarter one and quarter two cohort progress through ramp-up, the drag from new restaurants and our consolidated margin will continue to narrow. We delivered pre-Ind AS adjusted operating margin of 6.1%, which is again around a 500 basis point expansion over previous year. The margin expansion is a result of operating leverage, which is now consistently flowing to the business. On balance sheet, our net debt position remains marginally higher during the quarter.
The CapEx that we have deployed for our ongoing expansion, which are largely offset by operating cash flow that we generated during the quarter. We continue to fund our expansion primarily from internal accruals, and we operate on prudent leverage limits relative to our underlying business. As we move into quarter three and quarter four, I think we will begin to lap stronger quarters of FY 2026, and the reported SSSG print will naturally reflect that comparable base. However, we are focused on building the underlying volume momentum that we are seeing across every segment.
Our approach on margin remains unchanged. We continue to focus on the directional levers that drive margin expansion, that is gross margin recovery, matured portfolio restaurant operating margin expansion, maturation of our new store cohort, and operating leverage of our corporate overhead. As each of these continues to progress, our margin outcome will follow.
On network expansion, as I said, our current under-construction pipeline is very strong, and we will have 19 restaurants which will open through quarter three and quarter four. We remain on track to cross 300 restaurants by end of FY 2027, and we plan to add 40 to 50 restaurants annually every year. Our focus remains on value-led growth, deepening our captive demand architecture, and building out more restaurants from our own portfolio. This is the operating discipline that has guided us to deliver in the last five quarters, and the same discipline will continue for the rest of the year. Thank you. We can now open the line for Q&A.
Thank you very much, sir. We will now begin the question- and- answer session. Anyone who wishes to ask a question, please press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Dhwanil Desai from Turtle Capital. Please go ahead.
Hi. Good evening, Rahul and team. Congratulations for an excellent set of numbers.
Thank you.
My first question, Rahul, is that, overall, Barbeque India, our outlet number is around INR 6.4 crore for the H1 FY 2027, INR 6.4 crore. Going forward, I think in the previous call, we had discussed that there is a potential theoretical capacity to go up to INR 9 crore to INR 10 crore number, or even higher. What are we doing to kind of increase this number from, let's say, INR 6.4 crore towards that? What is the pathway to that? What are the steps that we are taking? If you can talk about that.
So, look, our average is INR 6.5 crore, so there are already many restaurants in our portfolio which are operating beyond INR 9 crore. But on the average basis, I think the SSSG that we are delivering is also obviously increasing it from what used to be around INR 5.5 crore to around INR 6.5 crore, INR 7-ish now. I think there are three specific levers that would work for us. One is throughput optimization. If you look at our restaurants today, our weekend dinner sessions in most of the locations are well optimized, but our weekday lunches, or weekend lunches in some cases, are not so optimized, and there is meaningful headroom in these. As you know, we have also been specifically running some of the interventions, and this has translated into increase in average revenue per restaurant in the company.
My sense is, as we optimize more and more of this throughput, obviously the average revenue per store will move upwards. I think one of the second big levers is the deeper customer engagement that we have built from our captive channels. I do not know if you caught from my opening remark. In our business, last year, almost 70% of our business used to come through prior reservations, and that number has moved to 80% today, over the last one year. This is largely driven by our own captive digital assets. Our loyalty program adoption has also increased almost 3x. The percentage of business who used to redeem loyalty points last year, in quarter two last year versus quarter two this year, there is almost 3x jump in that. The monthly active users in our cohort is also growing well.
I think that as we deepen our customer engagement and drive our own captive channels, some of these will definitely translate into increased revenue per store. We have seen this happening in last one year. The third lever is also delivery. Our delivery has grown very well over last year. We have grown at around 50% year-on-year on delivery. I still believe that delivery has still not reached its potential as of now. We have three very strong brands through which we do delivery. One is Barbeque Nation, which is focused on kebabs and tikkas, UBQ on daily meals, and Dum Safar on biryani, right? As we launch specific campaigns and launch value SKUs, this is another lever which will unfold and help us to drive higher revenue per store.
I think beyond these three structural levers, we also have a lever of calibrated price increase, right? We have not taken any price hike over last one year, and we have seen that our customer volume numbers have grown by almost 60%, right? As this volume number stabilizes, we will also have an ability to take selective price actions in specific markets or specific day parts where the volumes are well established, which will help us to also drive higher revenues from these places. I think a mix of all of these four levers will help us to increase revenue per store, which in turn will also help us in SSSG and margins.
Yeah, very clear, Rahul. My second question is, I think you alluded to in the opening remark, much better unit economics, and I think the new store, I think the maturity is coming faster with better margins. I think that is evident in the numbers. If you can talk about that in terms of new stores maturing faster, how does it make unit economics better, by quantification of that? I understand qualitatively it makes the payback faster, but quantitatively, how do you see that panning out for Barbeque India?
Largely, the improvement in the new store cohort that you are doing is on account of Barbeque India. If you look at last two quarters' numbers, we have opened 14 new restaurants, out of which 11 are in Barbeque India only, right? I think on the new store cohort, there are three things that will work. One is, as we shift towards Barbeque Nation India opening more and more in our portfolio, the brand, which is very well recognized in most parts of the country, will help you get to a faster throughput numbers, which will drive to your margin, right? As the share of Barbeque Nation openings in this cohort increases, I think the average ROM will move up. I think the second thing that is helping us here is generally the quality of our site selection and underlying process, right?
If you remember two years back, we had some shutdowns of around 15- 20 restaurants. There are a lot of learnings which have been incorporated in our existing model, which is helping us to reach to an optimal number or a matured margin number faster. The third is, we have also changed the way we look at new restaurants now. We have changed our designs, we have right-sized the areas now at a 3,000 sq ft area. I think it is driving a better throughput per square feet. It has also reduced operating costs on a per- store basis on rental, utilities, and some fixed operating overheads. All these are together driving stronger unit economics. The way I see it is, earlier the gap between matured and consolidated margin on account of new stores used to be around 1.7%-1.8%.
For the last two quarters, this gap has been shrinking. This quarter, if you look at it, the gap between matured margin and consolidated margin is only 1.3%, and on the previous quarter, it was close to 1.6%. Frankly, very happy with the way the new store portfolio is shaping up. I think one point is also confirming that our new model of right-sizing and our new operating model of cost structure that we have built in is the future and is validated by the economics of the new store.
Got it. Got it, very clear. Last question on margin. I think you talked about four different levers for the margin in the opening remarks. I understand earlier our focus was on volume growth and driving traffic, and hence we compromised some gross margin because of that. Do we see with the, and I assume that we want to continue to drive traffic growth. With current gross margin remaining where it is it possible that the operating leverage will take the mature ROM to 18% kind of a number which we used to earlier? Is there a pathway of three, four quarters to that, or you think it will take much longer? Any thoughts on that?
We spoke about these four levers, and I think each of these levers are working perfectly over the last four quarters. If you look at the operating leverage that we have seen in our business, there is a clear 7%, 8% margin jump just because of operating leverage and because of the benefits of SSSG that we are seeing in our business. I think gross margin is also directionally looking up. I know this quarter is down by 30 basis points, but if you look at where we were between quarter four and quarter one and quarter two, I think we can see that month-on-month there is some improvement in the gross margin.
In this inflationary environment, I think some of the procurement benefits that we are getting from scale is actually reflecting in some of the gross margin improvement that we have done in our business. I think there will be some moderation in the administration environment, and that will structurally again shift to us. I frankly believe that there is a headroom to also expand gross margin as we further build scale in this business. Second thing is, our operating leverage will also start working. Third is on our corporate overhead. Some of these will also start reflecting as we build scale in our business. There has also been this very specific point on marketing spend. As you know, we have very good adoption of our loyalty program this quarter. We have been building up over the last three, four quarters, but this quarter it is quite meaningful.
One is the impact of whatever loyalty point reduction that has happened in the business. The second is because of the higher adoption, the provision relating to the future liabilities also increased in the business, which is sitting in our corporate overhead. Impact of these is what we see in our margins. Frankly, none of these worry me fundamentally because all the four directional levers that I spoke about is moving in the right direction. As we build on further from the current base, these numbers will start automatically correcting itself.
Okay, got it. I will come back in a minute. Thank you, and wish you all the best.
Thank you.
Thank you. Before we take the next question, a reminder to all the participants, if you wish to ask a question, please press star and one. Next question is from the line of Vivek Kumar from Geometric Securities. Please go ahead.
Hello, am I audible?
Yes, Vivek.
Hello? Sir, thanks for the opportunity.
Yes.
My question is regarding, we have almost turned around the business, and we have good learnings from the last four years in terms of both expansion and closing down of some restaurants. What are the programs or what are initiatives that we are taking or we plan to take to maintain a decent SSSG? I understand you cannot grow at 30% SSSG for a long time or even medium term, but if you can tell us, what would be the SSSG that you should expect over two to three years on an average? What are we doing to maintain a good SSSG for next year? Because of the base sets, from this Q1 of next year or Q4 of this year, then especially for like January quarter, I think we will, from that is when we started turning around.
Are there any initiatives, or do you think the momentum gives us the confidence that this will continue? What kind of SSSG should we model for? That is my first question, sir.
My view is, in an established restaurant business, not just in India but globally, if you continue to deliver 5%-7% SSSG on a long-term basis, it is a great business, right? Over the period of last one year, we would have been averaging around 20 odd percentage, which is just getting back what we would have lost in two years before that, right? I think directionally, we would continue to drive this number, which is try and achieve 5%-7% on a long-term basis, right? I think the momentum is continuing. We are seeing good numbers currently also. Good thing is that the growth is largely entirely, I think, volume-led, right? Broadly, there are three things which have happened, right?
One is, over the period of the last one year, with the increase in our marketing spend, one, we were always very strong in terms of our brand positioning, right? Over the period of last three years, I think we have further established a position wherein our value to the guest is very strong, in terms of value for money that they drive from dining and Barbeque Nation. We have clearly reinforced our positioning as a trusted destination for celebration and group dining out. Some of our digital capabilities that we have built, and the direct guest relationship that we have built, are really helping us, right? The brand positioning, I think, is built and will further build on this, and this will be one of the big engines to drive SSSG.
The second part, as I was alluding in the previous question of how we can increase average revenue, is continuing. Value-led initiative, day part specific, session pricing, lunch, weekday, prime time offers. There are multiple things that are at play, which is giving the volume growth that we are giving today. We also have a Big Buffet as a very strong model in our tier two, tier three markets. We are operating it in almost 25% of restaurants. Some are exclusive and some are mixed formats of Big Buffet versus regular, which is again giving us one more lever to drive our SSSG. Third, I think, most important point is also the quality of this growth. This is not just discounting-led growth. This is also a growth where we have built a very strong digital connect with our guests.
As I mentioned earlier, today, 80% of our customers come pre-reserved, which has never been the case. Historically, as we are building up this business, we had always seen that number hovering around 65%- 70%. Again, the adoption of loyalty points, captive channels, all of these are helping us. My view is, while we have done exceptionally well over the last one year, we will hopefully continue to do well and drive a slightly higher number. On a really long-term basis, we should be at around 5%- 7% SSSG. If you look at our history of last 15 years, our SSSG is around 6%. Which is a six-year compounding of 6%, which is one of the best in the industry globally.
Next year, probably we will slide down to 6% SSSG, or do you think next year will be double- digit and slowly, on the long run you are talking about 5%-7%? Anything you are doing to move towards double-digit SSSG, the similar programs that you have initiated in our restaurants from next year to be but in double digits, or are we not thinking in those terms?
We are definitely thinking in those terms. Like I said, the priority is volume-led growth. For volume-led growth, I can only talk about what the directional levers are that we have to work on. Our optimization of restaurant capacity, flywheel that we have launched almost three, four quarters back, it is still working. We will continue to optimize throughput. We will continue to deepen our customer engagement programs, or digital assetsn. We will continue to work on our delivery business. We will continue to work on our brand positioning. These levers are the ones which will guide us to higher SSSG. Why would we not want to move to a average revenue numbers of INR 8 crore to INR 9 crore over a period of time? The only thing that works very strongly in our business is operating leverage. There are programs for that.
There are strategies for that. But as you know, this also depends on the external operating environment. I think today's operating environment, thankfully, the demand side is very strong. There is some inflation impact, but our positioning also is very strong. In the sector that we operate in, we are pretty much the largest. The second player is one-fifth, one-sixth of our size now. I think we are in a good position to further strengthen this business.
Is the momentum continuing, sir, into October?
It is, in terms of average revenue, but also realize October was a period with Navratri, which is strictly vegetarian days for a large part of our guests. I will not jump into comparing it just for one month, but structurally, whatever points that we have been talking about for the last few quarters are all continuing. There is nothing which worries me that was happening in the past three, four quarters but has changed now considerably. Absolutely not. They are only strengthened.
You do not want to guide next year, SSSG, right? Because you want to just keep doing what you are doing, and then we will see how it pans out, right?
Absolutely.
Next year, not among the number. Yeah. Okay, sir. Thank you very much.
Thank you, Vivek.
Thank you. A reminder to all the participants: anyone who wishes to ask a question may press star and one. Next question is from the line of Viraj Mehta from Enigma Investment Partners. Please go ahead.
Yeah. Hi, Rahul. Congratulations.
Thank you.
Rahul, my first question is regarding our CDR business. SSSG in that business this quarter was single- digit, and I understand it was on back of 5.5% SSSG on the base quarter. But given that your lot of focus and your lot of time and bandwidth has been taken by Barbeque Nation India and the changes that we have done and the programs that we have done in there, this business, in terms of changes, or is there anything that you think we can do to probably structurally better the SSSG, especially on a very small base that we are sitting in that business?
Yeah. Viraj, first of all, I think the SSSG numbers look smaller as compared to the Barbeque performance, but 8% SSSG in itself on a base of 5% is a very strong number, right?
Right. No, I understand. But we are kind of you have spoiled us. What to do?
No. The good thing is that the revenue base is also growing very well. I will tell you my outlook on the CDR business. First of all, I do not think there is any bandwidth issue at all. I think this is also structural; it is a separate legal entity with one of the Founders as CEO running it extremely efficiently. Our feedback on product, guest experience are always the roof. This is one of the great brands, both Toscano and Salt, that we are very proud of owning in our portfolio. The business specifically has just moved from being 23 restaurants to around 42 restaurants over the last two years. Despite that, despite such a large expansion, despite the top-line growth, they also continue to maintain SSSG in the business.
I think today, if I have to look at this business, I look at it in two distinct zones. One is the established market, which is South India, where they are present for quite some time, and their performance is really great. Their mature restaurant margins in these places are upwards of 80%. The average revenue per store in these places are also around INR 6.5 crore , INR 7 crore, around that number. The second distinct zone is the newer market that we have entered, which is specifically Mumbai and Delhi. These markets are in a brand-building phase. The restaurants are progressively building their customer base and brand familiarity, which naturally takes longer in market where we are also relatively new.
I think we are, and as you would have noticed that for the last two quarters, we have been very prudent in not jumping into opening up more stores. We said, "Look, the maturity profile is expanding; it is slightly longer in Mumbai and Delhi, so let us just go and fix that." If you are tracking our history, whenever we had some problems, we have fixed those, be it our international business, Barbeque India business, Premium CDR, newer markets. So, I feel very confident that this will, at least the newer market, will turn around as we sort of perform in established markets. We will end up again starting to open two, three, four newer restaurants as we expand and build on the existing markets.
On SSSG, like I was also alluding to the previous question, I think maintaining an average number of 5%-7% is a very good number. This business, their own five-year CAGR on SSSG would have been around 8%, 9%.
Sure. Since you mentioned that the new model, right-sizing of restaurants, plus Big Buffet, plus all of the interventions that you have done, the model is more or less according to what you thought it would plan out. In terms of, in the last call, you did say that it does widen your target from probably 500 restaurants to much more than that. But you are still probably just focusing on 40 restaurants a year. Now, given that, A, the cost per restaurant is also much lower than what it was earlier, like now you are at 3,000 sq ft, earlier you were at 4.5, and you are going into tier two, tier three markets where the cost is also lower, and you are generating a lot more cash than what you were doing a couple of years back, and you are growing faster.
Given all of this, what are your views about, you are still talking only about 40 restaurants a year, and not higher? Like, why do you feel that a little bit of hesitancy in spite of almost everything going right?
Oh, so good question. I think you would have seen quarter one was around five new openings, quarter two is around nine. Quarter three, quarter four will also be around a similar number, 9-10, given that our under- construction pipeline is very strong. I think we are in a phase where we are building the capabilities, be it in our business development, site teams, project team, legal team, ops team. So, those are ongoing. If you have noticed, in our guidance for FY 2030, we have moved up from around 400 restaurants to around 425- 450. So, we are constantly thinking about that, and while you are quoting the lower end of the number of 40 restaurants, I did say that it has been 40- 50. So, let us deliver this higher number, and if required, sequentially, we will move up.
Frankly, internally, our entire target is to move to a base of around 500 restaurants by FY 2030. But we will take it up as quarters come. So, like you said, the business is working well, the payback periods are good, the new restaurant cohorts are also working well. We would continue to be disciplined and try and expand this restaurant base number higher if we can. I think we are not in a position where, if we get a good site and we like the site and the economics around it, we say no because of the bandwidth issue. I think we are just being cautious and try to build it in a step-up function, and still deliver around 50 restaurants every year.
Sure. Got it. Thank you so much, and best of luck.
Thank you, Viraj.
Thank you. Participants who wish to ask a question may press star and one. We will take the next question from [Keshav Parwal] from Orthos Alpha. Please go ahead.
Hi, Rahul. I think congratulations on a great set of numbers. I think revenue is something which we were not expecting, but giving a top line of more than INR 200 crores was incredible. I will come and ask three questions for you.
Thank you.
The first one is on realization and gross margin, basically. Dine-in volume is viewed at 56%, with revenue growth of 39%. It shows a decline of 10% in average dine-in bills. When we do look at the gross margin of 65.5%, it is unchanged from the base of Q4 FY 2026, and against the guidance, like for FY 2027, when we were expecting a 100 to 150 basis points improvement. Can you please throw some light on this?
Did you Just to summarize your question, are you asking about why is gross margin still lower than quarter one by 30 basis points?
No, basically I wanted to understand that you could split the SSSG part into covers and average bill. At what point do we expect the average bill to turn positive?
Sorry, at what number we expect what average?
Could you split the segment SSSG into covers and average bill? What time do you expect the average bill to turn positive?
We do not specifically call out the split between SSSG, split between volume and pricing. But directionally, what I can only tell you is that we have not taken any price hike in the business over last four quarters. Just specifically between quarter one and quarter two, the average realization would be lower by around 7%-8%, in my view. This is also impacted by mix change in case of a higher increase in Big Buffet concepts versus the regular concept. Broadly, it is that only.
Okay. I have my second question on the corporate cost and our FY 2027 margin objective. If we look at corporate cost this quarter, it has risen to 7.3% of revenue, and I think it was 6.5% in Q1. How this sequential increase of INR 300 crores is pre-operating cost of the 19 restaurants, and how much is the permanent overhead? Is our 9%- 10% FY 2027 adjusted operating EBITDA margin objective realistic term? Because in H1, we have delivered around 10.1%, so how better do you expect the H2 to be?
Yeah, sure. There are two parts to it. One is on the corporate cost. Yes, we did increase as a percentage from quarter one to quarter two. I think several of the hires that we have made in some of our internal capabilities, in our backend culinary team, digital, tech, marketing, some regional operations, they have joined us through quarter one and early quarter two, and pretty much reflects in quarter two on a full- quarter basis. I think that build-out is now largely complete, and quarter two numbers should reflect what we see on a full- quarter basis. In addition, I also mentioned that we have taken incremental provisions against our loyalty program. Our loyalty program adoption has increased by around 3x. We have taken provisions which cover the expected future redemption liabilities as per the accounting norms.
That has hit our corporate overhead, and that number is to the tune of around 0.3% of overall sales. I think on corporate cost, as the revenue continues to scale, the overall corporate overhead ratios will start coming down. This is one of the important aspects of our margin expansion through operating leverage on corporate expense. In terms of our overall pre-Ind AS margin, I did speak about levers. As management, we can control some of these levers and guiding factors. I think all of these, as I said, is moving in the right direction. I think I am not chasing a number on a specific date, but as these levers unlock, this will help. I do realize that quarter one, H1, is at a lower number than the numbers we have spoken about in the past.
But also realize that generally H2 is a very strong quarter for us. I would not jump into any specific number right now, but believe that some of these efforts that we have taken, and these efforts are also built on quarter-on-quarter. So what we did in Q3 of last year versus Q4 versus Q1, and Q2 has a stronger base. Structurally, our business has moved from an average of around 5.5 to around 7 crore in our mature portfolio. Some of the margin benefits, I believe, should come in H2. But I will also say that the inflationary environment is slightly more than what we had expected, and there is some impact of that continuing. But my strong belief is, as the businesses go through cycles, these will also normalize.
I am very excited about the way the fundamentals of the business is built, and I strongly believe that margins will flow through as long as our revenue base is building up strongly.
Okay. Just to touch upon this quarter, which just gone by. On a two-year stack basis that I looked at, the India SSSG has slowed from 26.6% in Q1 to 22.3% in Q2, despite Q2 lapping the weakest comparable of the year. What is Q3 to date trading on a two-year basis?
On a two-year basis?
Yeah.
What is the data point you are looking for? What is the October SSSG on a -year basis?
I do not have that data handy.
On a one-year basis also.
No, like I said, it is not comparable, right? So last year, Navratri fell in September. This time it fell in October. So, I would wait for the entire quarter to go by and give you. But as I said earlier, directionally, our average revenue per restaurant are strong. They are continuing that same momentum as we have delivered in the first half of this year.
Okay. Okay, Rahul, all the best for your opening of 40 to 50 restaurants per year. I think that is something which we all are looking forward to. All the best, Rahul.
Thank you. Thank you, Keshav.
Thank you. Next question is from the line of Vivek Kumar from Geometric Securities. Please go ahead.
Thanks for the opportunity. Am I audible?
Yes.
Sir, you spoke that your competition is one-fifth. I agree that if you compare like to like, but who do you see as this competition for celebrations, sir? In general, what kind of rest? Because you were referring to the same grilling kind of, Barbeque kind of people as competition. But in general, when you see competition for Barbeque, who all do you see as your competition? And then, second question, I will ask both because these are only two. And Big Buffet, when you see you got good traction, can you explain how you are taking this and trying to scale up the Big Buffet part? These are my two questions.
Yeah. Like I explained earlier, the brand stands for group eating out and celebration. And any restaurant brand which correlates to that, is something that is our competition, right? But I think, by and large, the user behavior is that whenever somebody has to go out in a large group, a use case of Barbeque Nation works extremely well because there is something for everybody. The host of the party knows what the bill is going to be, and he can suit his budget accordingly. And generally, the spread is wide. And we also stand for great service, right? So all of these work in our favor.
If I have to look at the direct competition to our business, there are the buffet players, and this is offered at one spectrum largely by, let's say, five stars and four stars, where the pricing that we offer is almost 30%-50% cheaper than what they would get in these places, right? One is that, and secondly, our spread is far, far superior to some of the other spreads. I think the amount of protein options that we give with live grilling experience is something that is not available in some of the other places, right? The second spectrum is a lot of other players who have started with a similar concept of live grill on the table and offer buffets. I think in that I was referring to that the competition is almost one-fifth of our existing size, right?
Your second question was on Big Buffet, right? Yeah, so Big Buffet is expanding extremely well. I think earlier in our previous half- year, we realized that in our tier two, tier three markets, we have been not able to build demand, especially on weekday lunches and in some other day parts, weekday dinners, right? So we launched a concept of Big Buffet, which was at an extremely high value of around INR 450, the average pricing. And we are seeing a new cohort of customers who could not come to Barbeque Nation at regular pricing, coming to these cohorts, right? And in some of the places where we have done mixed Big Buffet, we have also seen that people are coming to us and experiencing the brand for lunch sessions with Big Buffet concepts, and in a lot of cases, also converting into regular buffet and dinner concepts, right?
I think this gives us a very good entry point into a lot of tier two, tier three markets of India, where we can do both a mix or just exclusive Big Buffet. And the unit economics of the models where we have started this is giving us very, very encouraging results, right? So, we would expand this in most of the tier two, tier three markets in India. And as I also mentioned earlier, this also widens our opportunity set for the country. We were earlier looking at around 450 restaurants, but now I believe 600 restaurants across 700 districts in the country is a doable thing as we expand.
Thank you, sir. Thank you.
Thank you, Vivek.
Thank you. Next question is from the line of Naitik Mutha from NV Alpha Fund. Please go ahead.
Hi, sir. Thanks for taking my question. My first question is, I was just looking at our H1 numbers. When I compare the first quarter versus second quarter, the reason I'm comparing is because we are on the same, almost similar top line. When I look at the margins, there is some pressure. I understand some part of it would be because of inflation, but a key part seems to be coming from the employee sort of cost. I understand we've made some hires on the backend, which could see the full impact. Just wanted to understand this employee cost that we're seeing for this quarter is the annual run rate that we should sort of look at, or there are certain one-offs in the employee cost?
No, Naitik. There's no one-off in the employee cost, but also realize that the employee cost that we see from the financial statement includes both employees of restaurants and backend, right? During the quarter, we had also opened nine new restaurants, and whatever we opened last quarter also ran for the full quarter this year, right? We have around 19 restaurants under construction, so we end up hiring employees for these new, anywhere between 45 days- 15 days in advance of the launch, right? Some of these costs are also sitting. This is not one-off. This is largely expansion-driven, and this is the way it will continue in future. On the revenue bit, like you mentioned, yes, the absolute number of revenue is similar, but between quarter one and quarter two.
But in quarter two, there are also nine new restaurants that opened this quarter and five that opened previous quarter, which are also impacting revenue. Despite that, the increase is marginal. There is obviously impact of different periods like Shraadh and Shravan that we've seen in our business, and we've seen our business in the months of July and August. This seasonal, this is usual. And we also see this trend of Q2 being one of the weakest quarters for us. There's nothing unusual about the quarter at all.
Right. So just to confirm, INR 94 crores, INR 94 odd crores is the employee cost, which is the base, and then hereon you'll see inflation or additional hiring impact, whatever, as and when we open new restaurants?
Yeah, absolutely. So on the inflation, the backend inflation, employee cost inflation would be around 6%-7%, and the store employee inflation would be around 2%-3%. So that is what we have maintained for a long period.
Got it. Got it. My second question now, when I look at the mature restaurants versus sort of the newer restaurants, the newer restaurants' margins and the revenue both have actually improved when I sort of look at QoQ, but for the mature ones, it has not actually improved. So wanted to understand what is the difference that is sort of driven performance improvement in one of them and not in the other?
No, directionally, you are right about it, but let me explain. In the matured portfolio, quarter one, we did around INR 7.1 crore, whereas in quarter two, we did around INR 6.8 crore, right? So there is broadly INR 30 lakh lower annualized number between quarter one and quarter two, which is largely a seasonal impact, right? On the new portfolio, we did INR 5 crore in quarter one versus INR 5.6 crore in quarter two. The factors there are, one, the timing of the launch. If you launch, let us say, just towards the end of the quarter, your revenue is slightly lower. If you have already done it for, let us say, beginning of the quarter, right, for two and a half months, the margin improves, right? Or the top line improves.
But if you look at the number of, let us say, INR 5.6 crore, this is still lower than the mature portfolio number of around INR 7 crore, right? I think that directionally, the new stores are working for us for the factors that I mentioned, right? So the mix is moving towards Barbeque India, the quality of site that we are doing, and also the right- sizing model that is working. So the factors of both are different. One is seasonal, mature portfolio is impacted by seasonal. The new portfolio is currently the base of the business, which is stronger now.
Right. In terms of the restaurant operating margin for both of them, largely it is because of the top line moving, nothing else, right? The difference—
Yeah, yeah. It is—
—in the margin.
It is just that, yeah.
Got it.
The gross margin impact is.
Got it.
30 basis points. It is largely revenue is lower, so margin impact is lower.
Margin.
The right base to compare is Q2 versus Q2 last year versus Q2 this year, right? You will see that.
Yeah, yeah.
The SSSG has been flowing through very strongly in our business, despite inflation, despite whatever gross margin impact and everything.
Right. Absolutely, sir. Right. Got it, sir. Thank you very much. That is it from my side.
Thank you, Naitik.
Thank you. Next question is from the line of Manjeet Buaria from Saamya Advisors. Please go ahead.
Hi, good evening. Thanks for taking my questions. Rahul, I wanted to conceptually clarify one thing. As we move to our 45-odd new restaurant addition target, that will be about 15% of our existing FY 2027 base, assuming we end up around INR 300. My back-of-envelope math suggests that at a company level, these new restaurants should not drag down the overall restaurant operating margins, which we do in FY 2027. They will start at probably lower ADS, et cetera, but it will not be a drag. Is that the right understanding, or do we have to sort of assume some drag on the FY 2027 margins, when the pace of restaurant addition accelerates to about 15% of our existing base?
No, it should not. Look, directionally, what is happening in our new portfolio is that the margins are ramping up pretty well. We have not seen these kinds of margins for several quarters, right? This is also at a good base of nine openings in a quarter. The difference between mature and consolidated is also merging, right? I think directionally it should not, and I am also seeing a matured versus consolidated margin gap shrinking from almost 1.8% to 1.3% now. Like I said, new portfolio also has, in some cases, impact of whether the restaurant openings were back-ended and are, let us say, opening towards the end of the quarter or beginning of the quarter. It also depends on some of the markets where, suppose, we enter into a completely new territory.
For example, we launched Thailand this quarter, and the setup cost in the initial months were very high. Despite that, we are seeing the new margins to be what they are today, right? Since the base is smaller, the impact of some of these factors can be larger, right? It is very difficult to predict it, but by and large, I think structurally this cohort is moving in the right direction, is what I can tell you, Manjeet.
Understood. My second question, Rahul, is do we continue to see the broad-based growth across the country, or is this driven by any specific pockets?
No, it is. Pretty much every market has grown in double digits. The same is also continuing in the month of October. I think generally October is weaker because of Navratri in North India, but apart from North India, South, West, and also East has done extremely well for us. I think North is just seasonal because of those nine days. In quarter two, it is again broad-based. I think all the four regions of ours would have done 20% SSSG plus. But the average for, let's say, Barbeque India is 27%.
Okay. Rahul, is the minimum wage revision which has happened all in our employee base at present, or some of that is yet to flow through?
No, it is already in the employee cost.
It is already in the employee cost. Okay. Last question, Rahul. I think you touched upon the Navratri impact a couple of times in earlier responses. If I recall correctly, last year in some quarter you had called out the impact of Navratri, and then you had taken a July through October base, et cetera, while explaining the impact. If I recall correctly, the impact on SSSG was not very high, probably about a percent or less than that. Am I getting that correct, or is the impact higher than that?
No, no, the impact was higher. So, in fact, if you look at, I do not recall it completely, but last year, without Navratri, the numbers were for three months around -3% . Then, with October numbers, they were, I think, almost similar, as in +0%, or something. I remember the increase in our momentum of covers, volumes, everything started from October month last year.
Got it. So, this year, Q2 would have sort of a slightly positive impact because Navratri was sort of there in last year's Q2 base, which is not there this year.
Yes, slightly. Yeah.
Yeah. Okay. My broader question is, it is not extremely large, as you pointed out, to move the whole year in some sense, right?
No, it is not. I will tell you. North India generally is impacted a lot, right? North India, you will see almost a 30% drop for those nine days, right? Nine days is approximately 10% of the quarter. Dropping by 30% is almost 3% of the entire business. North India business in our total business, North India including U.P. and, in some cases, Bihar, would be around 40%. There is a good 1.5% impact that we get on our SSSG because of this.
Got it. Rahul, just one more question, and I will come back. I think as we have started expanding our CDR formats as well, do you see any structural advantage we have with certain real estate like mall properties because you can sort of offer more leasable area to them across our brands? Or does it not work that way practically? They look at it at a brand level separately.
It does help. There are malls where we have done all three portfolios at one go and also help the mall to rebalance their portfolio and utilize more of the spaces that are suited for each of the brands separately, right? From any of those malls or any other real estate providers, it helps. We have also done in corporate parks, where we have done all three brands together. It also, I think, helps to lease out, let us say, put together anywhere between 7,000 sq ft, 10,000 sq ft area and also bring a portfolio of, let us say, all-you-can-eat brand, an à la carte Indian cuisine brand, and an Italian cuisine brand to the portfolio of the mall, right? It definitely helps.
Okay. Rahul, I will come back to you. Thank you.
Thank you, Manjeet.
Thank you. Ladies and gentlemen, we will take that as the last question for today. I now hand the conference over to Mr. Omkar Bagwe for closing comments. Over to you.
Thank you, everyone, for joining us on call today. We are MUFG Intime, Investor Relations Advisors to United Foodbrands Limited. In case of any queries, please feel free to reach out to us. Thank you.
Thank you very much. On behalf of United Foodbrands Limited, that concludes this conference. Thank you all for joining us today, and you may now disconnect your lines.