Devyani International Limited (DEVYANI) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Devyani International Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anoop Poojari from CDR India. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone, and thank you for joining us on Devyani International's Q1 FY '25 Earnings Conference Call. We have with us Mr. Ravi Jaipuria, Non-Executive Chairman of the company; Mr. Raj Gandhi, Non-Executive Director; Mr. Virag Joshi, CEO and Whole-Time Director; and Mr. Manish Dawar, CFO and Whole-Time Director of the company. We will initiate the call with opening remarks by the Chairman, followed by key financial highlights of the CFO. Post that, we will open the forum for a question-and-answer session. Before we begin, I would like to point out that some statements made in today's call will be forward-looking in nature and a disclaimer to this effect has been included in the results presentation shared with you earlier. I will now request Mr. Ravi Jaipuria to make his opening remarks.

Good afternoon, everyone. I warmly welcome you all to our earnings conference call to discuss the business performance of DIL for the quarter of the financial year 2024, '25. DIL added 54 new stores during the quarter, with an aim to reach the consumers in under-penetrated markets and offer an enhanced customer experience and service. With this addition, our total store count has reached 1,836 stores as of June 30, 2024. We remain committed to expand our store presence. The consumer sentiment in the first quarter of full year 2025 has remained more or less in line with the trends observed for the consumer, industry and QSR industry. This is mainly on account of the challenging macro and microeconomic factors. We witnessed an improved performance for DIL in quarter 1 driven by seasonality, cost leverage and better ADS across our business and a relatively lower impact of Nigerian currency devaluation. The customers remain cautious with their spending, a trend that has impacted our performance as well. Additionally, macroeconomic factors such as international conflicts and global [ oil cores, ] continued to impact the operations in certain geographies. The Nigerian currency continued its weakness, weakening trend in quarter 1 as well. On balance, we are delighted that the positive progress in quarter 1 and shall continue to be relentless in our plans for the coming quarters. We introduced innovative marketing campaigns, promotional offers and deals on our range of brands, enabling us to capitalize on seasonal trends. Despite challenges, we remain focused on offering value-driven options to our customers to adapt to market dynamics and drive growth. To further navigate competition and strengthen the connect with younger audiences, Pizza Hut India launched a series of distinctive marketing initiatives across digital platform and diverse channels. These efforts included increased visibility for meals through television ads and videos. The highly anticipated thin and crispy pizza crust also made an entry to our core business, driving a boost in sales during the holiday season. We are optimistic that the industry will rebound during the ensuing festive season. We continue to expand our store footprint and make our brands more accessible to our consumers. We are also focused on enhancing our institutional business, including food courts and our presence at high footfall locations like airports. To sum up, India presents a highly promising outlook for our brands and the QSR industry. The robust economic growth, rising disposable income and increasing urbanization will drive demand and convenience and high-quality fast food experiences. We remain bullish on the India story and the QSR space in the medium and long term and are confident that these favorable trends will continue to drive our expansion and success. Additionally, our Thailand business is demonstrating good growth with new store openings and strategic focus on customer delight. As announced earlier, we are on track to achieve a total score count of 2,000 stores within the current fiscal year, a milestone that underscores our commitment to growth and our confidence in the future potential of our markets. With this, I would like to conclude my address. And now, hand over to Manish for the financial highlights. Thank you very much.

Thank you, Mr. Jaipuria. Good evening, everyone. A very warm welcome, and thank you for your valuable time for attending DIL's Q1 FY '25 Earnings Conference Call, our 12th call since the listing in August '21. DIL's total store count stands at 1,836 stores as at the end of quarter 1 FY '25 with a footprint of 1,738 stores across our core brands: namely KFC, Pizza Hut and Costa Coffee. This consists of 970 stores for KFC, 576 stores for Pizza Hut and 192 stores Costa Coffee. The operating revenue for Q1 FY '25 was INR 1,222 crores, representing a growth of 44.3% versus Q1 FY '24 and 16.7% versus quarter 4 FY '24. This is mainly on account of consolidation of Thailand business since the acquisition was completed in January '24. The consolidated Q1 FY '25 includes operating revenues of Thailand business for the full quarter. The Indian business witnessed a growth of 11.7% quarter-on-quarter with improved ADS on both of our core brands, that is KFC and Pizza Hut. The gross margins for the consolidated business, including Thailand was flat at 69.2% versus the previous quarter. The Thailand KFC business operates at a lower gross margin versus the Indian KFC business. The margins for Q1 FY '24 were lower by 1.6% versus Q1 FY '24 because of full financial consolidation. The brand contribution for Q1 FY '25 was 15.3%, with an improvement of 1.8% versus the previous quarter. This was rated by movement in India by 130 basis points, an improvement in our international business operations by almost 470 basis points. The all-round improvement is on account of better cost leverage across all our operations with improved ADS and relatively better currency situation in Nigeria. Consolidated operating EBITDA on a pre-IND-AS basis was INR 141 crores versus INR 96 crores in the previous quarter, a growth of almost 47%. The pre-IND-AS margins for the quarter for the consolidated business were 11.6% versus 9.2% in the previous quarter. The improvement in brand contribution is fully reflected in the operating EBITDA margins for the year and on a consolidated basis. The consolidated reported EBITDA on a post-IND-AS basis was 18.3%, an improvement of 1.7% versus quarter 4 FY '24. The Nigerian currency continued its weakening trend in quarter 1. The rate of currency depreciation is better versus the previous quarters. During the quarter, Nigerian naira got depreciation by almost 10% versus the USD. As a result of this, the Nigerian business has recorded an overall loss of INR 22.5 crores on account of USD-denominated liabilities during the quarter. Out of this FX loss, INR 7.6 crores has been recorded in the P&L and has been disclosed as a separate line item. The remainder currency loss has been recorded as OCI. Such foreign exchange loss on account of Nigeria currency devaluation if the consolidated financial statement does not form part of the EBITDA calculation being a noncash item. The PBT for Q1 FY '25 on a consolidated basis of INR 31 crores versus minus INR 38 crores for the previous quarter. The improvement in PBT is on account of improved margins in quarter 1 FY '25 and reduction in currency devaluation effects in Nigeria. Taking the discussions to our core brands, KFC in India added 21 new stores in quarter 1 FY '25. With this, the total store count for KFC in India stands at 617 stores as at the end of quarter 1 FY '25. Average daily sales for quarter 1 '25 improved to INR 104,000 versus INR 93,000 in the previous quarter. Revenues at INR 555 crores grew 12.3% on a quarter-on-quarter basis. Gross margins for KFC during the quarter was 69.5%. And brand contribution margin was 19.5% for the current quarter, therefore reflecting an improvement of 50 basis points over the previous quarter. During the quarter, Pizza Hut added 3 new stores, reaching a total count of 570 stores in India. Revenue for quarter 1 FY '25 was INR 182 crores versus INR 162 crores in the previous quarter. ADS for the brand improved to INR 36,000 versus INR 32,000 in previous quarters. Gross margin for the quarter was 76.8%, the contribution for the quarter was INR 9 crores with margins at 5%, which grew by 60 basis points on a quarter-on-quarter basis, mainly due to better leverage on account of higher ADSs. Costa Coffee added 13 new stores during the quarter, reaching a cumulative store count of 192 stores. Quarter 1 FY '25 revenue was flat at INR 45 crores versus the previous quarter. The revenue grew by 40.5% on a year-on-year basis mainly due to expansion of new stores. The gross margin for the quarter was 75%, then contribution in quarter 1 stood at 15%, resulting in a drop of 2.9% versus the previous quarter because of ADS [ deleverage ] impact. Our international operations now fully include the Thailand acquisition. The total number of international stores was 363, with the addition of 10 new stores in quarter 1. So in turn, the international revenue for the quarter was INR 390 crores giving a gross margin of 63.7% and the brand contribution margin of 14.8%. The reported EBITDA was 13.1% during the quarter. To conclude, we want to reiterate our commitment to the Indian QSR market. As we continue to expand, we remain committed to improving our financial performance by way of prudent financial management and creating long-term value for our shareholders. On that note, I would like to request the moderator to open the forum for any questions or any suggestions that you may have. Thank you so much.

[Operator Instructions] The first question is from the line of Saurabh Kundan from Goldman Sachs.

My first question is on Chairman's opening comments. He had mentioned that the company is optimistic of a rebound in the industry in the festive season. I just wanted to understand those comments better. Are there any signs or any data points that you are seeing based on which you are turning optimistic?

Saurabh, typically, we've seen in the past also that in any market, it is a festival season, which kind of works up the store, which kind of works up the overall consumer sentiment. And that's the reason we are kind of basing our view that this festival season, we could see because we've been in this kind of scenario now for the last almost 5 to 6 quarters. And that's how we are kind of hoping that festival season could probably be a turnaround situation for the industry.

Sure, sure. Second one, on KFC, if I recall correctly, you were more impacted because of, I think, [indiscernible] in the September quarter last year, should we expect a sharp improvement from current -- your base is minus 4 next quarter? Can we hope for a flattish [ efficacy ] on that base?

So Saurabh, you're right. But again, as you know, I mean, the overall macroeconomic situation or the macro environment continues to evolve, right? So for example, it is not absolutely the same environment, which was there last year. We are facing headwinds on account of this whole West Asia war and the boycott of brands, which is kind of going on. And therefore, I mean, there is -- so there are multiple other factors also at play, not just the [indiscernible] as far as the current quarter is concerned. Our store count is also much better versus where we were last year, so therefore.

But at least an improvement from the current minus 7% that we are at, I would assume?

We will not be able to make any forward-looking statements.

Okay. sir. One last one, if I can add, is if I subtract the brand contribution of KFC India, Pizza Hut and Costa from the total India brand contribution, I'm getting a number of INR 12 crores, which I'm assuming is your non-core India businesses. This number is much higher than in the past. Is there any one-off in the India non-core, which is bumping the profits, the contribution?

Yes, Saurabh, there are two key things at play here. One is, obviously, we have other small businesses also apart from the 3 core brands and Vaango, which includes the food courts and some of the non-core businesses at the airports and so on and so forth. And at the same time, because this time, we are giving the India business and international business separately, there are some elimination entries because of the intercompany transactions. So therefore, that also kind of -- so you would see that the total India and total international also would not equate to consolidated because in the consolidation, the elimination of entry will also happen. So these are the two reasons why on an overall basis, you will not be able to reconcile the numbers. But let's say, if I were to evaluate India performance separately and international performance separately, those are the numbers strictly seeking.

The next question is from the line of Gaurav Jogani from Axis Capital.

My question again is with regards to the Saurabh's earlier question because earlier then, you used to subtract the Pizza Hut, KFC and all the other numbers. And you should arrive the other domestic brand contribution numbers, the run rate is INR 3 crore to INR 4 crores, INR 5 crores. And this time around it's INR 1 crores all. So I'm guessing the elimination would have been existing earlier as well. So on the other way around, can this INR 1 crores number be checked in as a number going [ by ]. That's the question.

See, the difference was that if you go back, let's say, a couple of quarters, obviously, Thailand wasn't there. And Thailand is a large business compared to, let's say, the Nepal and Nigeria operations which were there. So that is the reason. We do charge some small management fee from the business operations. And so -- and that is how it kind of gets eliminated.

Sure. And sir, the other question even as you said, that if we total India's international business, that would not actually go to the consol business. So is the adjustment for the ForEx loss that is reflecting in the international business and that is why the difference is there?

Yes, the ForEx loss also gets treated differently because, for example, let's say, when we consolidate, there is some element of ForEx loss, which gets into OCI. There is some element which comes into the P&L line item. Whereas at the Nigeria level, everything is supposed to be recognized in the P&L. So.

Got that. And sir, if you can help us out what kind -- what is really driving the operational performance improvement in the International business? Because if we go by the last year -- the last quarter run rate, it was around [ 10%, 11% ] and it's a sharp jump this quarter you know. So what is really driving that?

Gaurav, if you see, the ADS has improved across all of our brands and the operations. So let's say, KFC India, the ADS is better, it's INR 104,000 versus INR 93,000 in the previous quarters. If you look at Pizza Hut, India, it is INR 36,000 versus INR 32,000. If you look at Nepal, Nigeria and Thailand, the ADS is better versus the previous quarter, and therefore, that gives you a better leverage from a P&L perspective. At the same time, we've been kind of unrelenting as far as the cost-saving measures are also concerned. And there's some element of cost contract because of the better [indiscernible] so on and so forth. .

Anything specifically related to Thailand here, I mean because you know that business was only acquired by you in the last quarter. And because now we have a solid 1 quarter that we sort of assumed it. So any particular one-offs that you've been getting in terms of benefits that will be sustainable going ahead?

No, there are no one-off benefits from Thailand.

The next question is from the line of Percy from IIFL.

So just reconfirming what you said. So basically, the sales of India plus international minus consol, the difference I'm getting is INR 77 million. So does this mean that basically, the services that the parent is providing to the Thailand subsidiary for which it is getting charged. That is roughly equal to about INR 77 million, which comes into the sales of India and probably goes into the cost line item of Thailand.

Yes. So it is basically Thailand, Nepal, Nigeria. So that is how it kind of comes in the separate this thing and then.

Got it. Got it. So if I have to actually evaluate the India performance, I should be deducting INR 77 million from the pre-IND-AS EBITDA or the post-IND-AS EBITDA to get the true performance of India. Would that be -- would that understanding be correct?

So it's a regular income Percy. And because, as I said, I mean, there are costs that are incurred by India on account of the other subsidiaries in terms of the supply chain services in terms of central negotiations and all. So basically, it is the cost which gets kind of [ mummified ] in a way.

Okay. Okay. Understood. And where does that cost sit in India, it would not be sitting in any of the four major brand contributions, right? It would be outside that, right?

It will be spread across various sets basically.

But would it be part of, let's say, a KFC brand contribution because that's a service provided for an entity outside India, no need to have it as part of the brand contribution of KFC India or Pizza Hut India, right?

See, there could be some small elements, which could be there because, for example, we do nominate some of our store guys to go and visit there. So therefore, it could well be.

Okay. Understood. Secondly, I just wanted to understand on the India margins that you have reported in your PPT on pre-IND-AS basis, the India margins have declined by 70 basis points from 12.6% to 11.9%. But on post-IND-AS basis, they have increased from 20% to 20.5%. So there is 120 basis points kind of differential or rather a swing, which is happening. So what is causing that?

Percy, as you know, the IND-AS calculations are based on how many new stores you've opened. What are the stores you've shut, what is the variable attention teams which are there, what are the fixed rend -- rental deals which are there. And therefore, it kind of gets completely operated differently versus what flows in from the pre-IND-AS numbers. So that's a completely independent lease accounting standard calculation and the entries are passed like that.

Sure. I got that. But generally, the rough basis point change in the pre-IND-AS and post-IND-AS, I mean, roughly speaking, is similar. This time, the direction only is different. So is there any particular reason for this quarter or?

Because our store openings have been relatively lower. So that is the reason.

Okay. Okay. I'll probably take this offline.

We've talked about 7% to 8% difference in the pre-IND-AS and post-IND-AS numbers. So it's pretty much close to that.

The next question is from the line of Shirish Pardeshi from Centrum Broking.

I have one question on KFC India. I think directly last two quarters, we have been seeing that the ADS and also the same-store sales growth is also under pressure. Obviously, it's a function if the SSSGs are higher, you will see the ADS will improve. And obviously, the overall business will improve. So I just wanted to understand the product interventions and whatever we are doing, is it enough giving us the confidence that the recovery will happen if the festive season come back with a strong momentum?

CDC product innovation is always a continuous process. But at the same time, if you look at the ADS numbers and the SSSG numbers, we've been able to deliver the margins very well. And obviously, it's a combination of how do we optimize as far as the marketing spends are concerned, how do we optimize from a value layer menu instruction perspective, what are the promotions we run, and therefore, all of that result into the margin numbers. So there are multiple equations at play, which is what we need to balance and that's how we kind of make sure that even though, let's say, the SSSG is negative, we are able to deliver the margin. And obviously, let's say, once we see the ADS and the SSSG coming back, the margins will improve ahead of that.

The reason why I'm asking, is when you look at the Pizza Hut, which is most affected and people had seen a higher decline of SSSG, but we have been able to maintain the revenue. So what is it about the change consumer is seeing between KFC and Pizza Hut. That's what my bigger question is.

So Shirish, for Pizza Hut, we are spending from extra because, as you know, I mean, we've seen a continuous decline in this brand over the last, whatever, almost about 12 to 18 months. And we've taken a conscious call to up our marketing spend on Pizza Hut and as well as the product innovation. So therefore, that is what is kind of happening. But again, because of that, you will see that the brand contribution margin for Pizza Hut are still low. So we are trying to -- it's like we are going back to basics and building the brand again.

So therefore, my larger question on Pizza Hut is that in the medium term, we have taken a pause on our number of stores opening? So as a management priority, what is the important thing, is it the ADS or is profitability is important?

See, Pizza is the largest QSR category. So there is no reason why we should not play Pizza Hut brand or we should not be present in the pizza category. So it is important. Pizza Hut is a national #2 brand. And therefore, it is important that we -- and it still has a very high consumer recall, very high consumer confidence. So therefore, it is important that we should be able to bring the plan forward.

Okay. My last question on Thailand, since we have done the acquisition and you gave us the logic why we have taken Thailand under our side. Just wanted to be more curious, what are the changes we have made, what are the things which has not yet happened. And whether you think -- because somewhere when you did the acquisition, you said there is a gross margin opportunity and there's a margin improvement, which can happen. So in that journey, if you can give some qualitative comments.

See, I mean it's been a recent acquisition. The team there is very stable. The business is doing well. We got it at a great valuation. So there is no need to kind of tinker the model, which is there on a huge basis. Of course, I did say that we will be able to improve the margins. And I also said that it will happen over a period of time. So we are going to be starting that journey. And fundamentally -- and again, remember that structurally, the gross margins in Thailand for KFC brand are lower because the brand positioning is more mass premium versus premium compared to India. So it addresses a far bigger consumer space. And therefore, the number of transactions in Thailand are higher than the number of transactions in India. And we don't want to tinker it because KFC is very well positioned from the overall brand hierarchy point of view. So -- but again, I mean, there are margin opportunities. Let's say, if I were to look at, say, brand contribution or at the EBITDA level, which we will gradually capitalize on as we go along.

That's helpful, Manish. Just one suggestion, like you have started giving much more information on Vaango. Can you start giving such more -- such details for Thailand business at least for next 2 to 3 quarters?

We will evaluate that, Shirish.

The next question is from the line of Latika Chopra from JPMorgan.

My first question was on KFC India. Could you give us some flavor of how the month-on-month trends behaved during the quarter? It seems the April month will have been a little tougher because of the shift in Navaratri. But any color on how May and June progressively looked for you?

So Latika, obviously, as you know, I mean, there are seasonal months in between the quarter. So let's say, whenever there is a summer holiday season, whenever some sporting event is happening, those months kind of pick up. So the same thing has played even in the. Whatever the current -- the last quarter between April, May and June. So it's, no, very, very different trends.

Okay. So it doesn't give much color on whether sequentially you have sensed any change in consumer behavior?

Not yet.

All right. The second question was when you analyze or in case you have the data on market share of KFC on third-party aggregator platform revenues, have you seen any discernible change?

See, overall, Latika if I were to look at our ADS numbers, the revenue, whatever the percentage contribution from the aggregators have remained similar. Obviously, we don't kind of formally measure the market share on the aggregator platforms. I think we have an opportunity to improve on the dine-in for KFC and Pizza Hut, and we are working on that piece as well.

Sure. The third question was, would it be possible for you to give us a play -- some color on what is the in-store sales growth for Thailand in the quarter?

So we've not disclosed the Thailand numbers. And as Shirish mentioned, we will evaluate. But just to give you a comfort for Thailand, the same-store sales growth is positive. And at the same time, the kind of geopolitical impact that we have seen in India, we have seen the same in Thailand, our stores in South. And if I were to negate that, the overall SSSG is even more healthier. So even including our -- these South stores, the Thailand SSSG is up there.

All right. And since you brought up -- you talked about the geopolitical issues. I remember in the previous quarter, we were kind of spoken about some stabilization from this impact. But is it now -- is there any change in that expectation given the recent development?

Let's see. I mean, because there is again big news flow, which has started to come in whatever last couple of days and today and so on and so forth. And therefore, obviously, as these things happen, there's this whole WhatsApp campaign, which again tends to builds up. So let's see what happens. We'll keep you posted.

Sure. And last one was any incremental update on the food court partnership?

We've incorporated the company. I don't know whether you've noticed that or not, which is between Inox and PVR. And you will see some business to start coming in from the last quarter of the current calendar year, which means October, November, December.

The next question is from the line of Nihal Mahesh Jham from AMBIT.

Three questions. First is on the PH revolving. is it [indiscernible] Even if I look to say the market the product launch of a long with a lot of campuses side, the major the efficiency ratio that is happening even by [indiscernible].

Nihal, sorry, your voice is echoing a lot. So therefore, I'm not able to make out.

Nihal, sir, if you are using the speaker mode, may we request to use the handset mode, please.

I'm so sorry, is it better now?

Much better.

I was asking in case of Pizza Hut, is it the launch of [ Mirch ] along with the marketing campaign around that, the initial driver of revival that you're trying, or there are other aspects also in the backdrop that are happening to get the band back on its -- to its earlier performance.

So we've launched Melt, Nihal. We've launched Thin N Crispy Which were new dough basically. And we are supporting it well with the new marketing campaign, and that is helping us.

Maybe the SSSG numbers that you reported, still point the overall weakness, but anything over the last few months that is pointing to the brand showing improvement also with these specific product launches helping you out?

Let's see, because sequentially, the SSSG numbers are better. So it's too early to kind of call out, but we are moving in the right direction after whatever continues almost 3, 4, 5 quarters, we started Pizza Hut moving in a positive direction. So let's hope it continues.

Until then, is there a thought on the number of stores you plan to open or that remains depending on how the performance [indiscernible]?

So Nihal, as I have mentioned earlier on Pizza Hut, we are kind of approaching a little cautiously. And you would have seen in the current quarter also, the new store openings are relatively very small versus what we used to do in the past. So the whole objective is to kind of make sure the brand comes back. Overall, I mean, we remain bullish on the category as well as the plan.

Understood. Second question was on KFC Thailand. And during the acquisition, you mentioned that the 3 player market in terms of [indiscernible]. If I look at India and experiences globally, there are a lot of places where the 2 franchises that are opening. Is there a possible future that you are interested that you could acquire one of the franchisee or would that be a possibility we should think of from our side?

We have seen there are multiple types of markets and Yum! has all kinds of models. So there are markets which are operated by a single franchise. There are markets where there are dozens and dozens of franchise partners. There are markets where, let's say, one franchise partner operates multiple countries also. So as such, therefore, that does not give us any trend that could happen in Thailand. So I mean -- so there's nothing we are able to kind of get anything out of it. So.

And last is on the TVR. You alluded to some kind of outlook in terms of the number of Food Courts in the planning. Any change on your side, what is the ballpark opening of the Food Courts you are trying for this year and next.

It's a similar number, Nihal. Obviously, I mean, because it's a joint business plan.

[indiscernible] so the clarification because it was not a ultimate that number was console. It's obviously been 3 months and I thought there is no clarity in there.

Yes, yes. So let's see because as I said, I mean, you will see in quarter 4 of the current calendar year that we will start to see some of the food courts opening there. And let's see because, I mean, to construct the business plan is one. Second is it actually lies in improving. So we want to kind of experiment with the Food Courts. We want to see how the JV is progressing. We want to test that out before we kind of go with a big bang expansion.

The next question is from the line of Devanshu Bansal from Emkay Global.

Congratulations on a good margin performance. Manish, if we look at channel performance, KFC's optimized channel has grown faster at about 19-odd percent, while Pizza Hut has seen about 4% to 5% decline. What is the reason according to you for this different consumer behavior across Pizza Hut and KFC.

Devanshu, sorry. Can you please repeat your question? I just missed the initial part.

Yes. Manish, the question is on optimized growth for KFC and Pizza Hut. KFC has seen about 19% growth in Q1, while Pizza Hut has seen a 4% to 5% decline. What is the reason for this different behavior across Pizza Hut and KFC?

So if you look at KFC, our optimized consumption was 41% in the current quarter, and it has more or less remained the same over the last 3 to 4 quarters. So the uptick that you're seeing is basically coming from a higher ADS and therefore, with the higher ADS, your percentage on optimized remaining the same, you are seeing the improvement. So whereas, let's say, if you look at, say, Pizza Hut, the improvement on the overall ADS is better, and therefore, you are seeing a better one. Because otherwise, if you look at, let's say, from a contribution perspective in terms of optimized and on-premise, even Pizza Hut also remained the same on 55%, 56%.

Okay. So you're saying last time around in Q1, optimized was 37% for KFC, which has moved to 41%. But over last 3 quarters, it is about 40%, 41%. So maybe lower base was there, right? Is that 40 [indiscernible] ?

And even Pizza Hut also if you look at, I mean, last 4 quarters, it's been pretty much in the same zone 55%, 56%.

Right. Okay. Got it. And second is on Costa Coffee, as you see has sort of moderated this time around in Q1 versus high single digit in past few quarters. Anything to call out here? Or is this some one-off because of what the performance has been impacted?

So one is, obviously, we are expanding on Costa, and we are seeing some impact because of this aggressive store expansion, which is coming into Costa. And then there were some disruptions on our food supplies in between which was a one-off, and therefore, we will see those numbers coming back.

Any call on the store openings for Costa or they are expected to continue?

They are expected to continue. But again, I mean, as you know, I mean, Costa, it's a much more moderate target versus, let's say, a KFC or a Pizza Hut.

Third, a bookkeeping question. If I look at your overhead costs, they have largely remained stable sequentially this year versus a significant pickup last year. So have we deferred our annual increments, et cetera?

No, we've not deferred our annual increments. It has been on time. We've been kind of on time as far as our variable pays are also concerned. So that is not an issue. But obviously, we've been kind of -- we initiated some cost-saving measures. And therefore, we are trying to kind of control the cost in the environment we are in. So.

The next question is from the line of Dhiraj Mistry from Antique.

So first question is on Pizza Hut. I'm looking at sequential numbers where your ADS has improved from INR 32,000 to INR 36,000 but we have not witnessed that kind of margin improvement at the store level EBITDA despite not material store addition during the quarter also. Can you explain that, sir?

So Dhiraj, as I mentioned earlier on, we've invested back in marketing, and that's how we are trying to kind of get the brand back. So we invested in the innovation. We've invested in the marketing campaigns. And that's the reason we are able to see a better ADS numbers and not yet on the planned contribution side. So as we go along, the marketing cost will taper down once we've managed to reestablish the brand. And therefore, you will start to see that the brand contribution also will come back.

Got it. And sir, if I go back in the history, let's say, 2 or -- 2 years, 3 years down the -- before, where your average daily sales was somewhere around INR 38,000 and last time you were making a big store level EBITDA margin of almost mid-teens type of numbers. And currently, we are at mid-single digits. So can we expect that once the ADS process INR 40,000 or INR 42,000 a double-digit EBITDA margin can be made in this Pizza Hut franchise?

Yes. At that level of ADS, we will be able to easily get into the double-digit margin.

Got it. And sir, second, another question on KFC. During this quarter, there was a Navratra, which was there in April also geopolitical tensions, which impacted KFC sales. Excluding number, can you give us what kind of SSSG decline we would have witnessed during the quarter.

See, Dhiraj, I mean, if, let's say, this was a onetime event in a year, I would have given you those numbers very happily. But again, I mean India, if you see, I mean, during festival seasons, we are getting into Sawan this time, although it is not a festival season and where people turn vegetarian. So there are multiple -- I mean, Navratra, for example, are twice in a year. So there are multiple such occasions, which are passed around the full year that will be kind of difficult to measure by those blocks.

Okay. So what I mean to ask was like, if I -- Navratra was in April and then May and June was relatively much smoother month. The SSSG growth or decline during those 2 months versus April month would be materially different amount?

It is different. It is not material, but obviously, it is different. So let's say, whenever Navratras are there, whenever, let's say -- so for example, if you look at, let's say, kolkata, Durga Puja time, the sales actually go up. Similarly, for example, during Sawan time in North, it be is a different time during Sawan time in south, it behaves differently. So I mean, there are multiple such variables which are there.

Got you. Okay. And sir, can you give you guidance on KFC store addition for the year? Is that -- yes, we have maintained our conscious stance on store addition. But what are the expectations for KFC during the year?

So we are looking at 100-plus to account for KFC. So therefore, for the full year.

Okay. And for Costa Coffee?

Costa Coffee will be about 50, 60 stores.

The next question is from the line of Maroof Chaudhry, who is an Individual Investor.

Am I audible?

Yes, you are.

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We will take the last question from the line of Tejash Shah from Avendus Spark.

Just one question from my side. When you are looking for recalculation in the 2 statements that come on Pizza Hut. You said that...

There is some disturbance in your voice. Are you on speaker for -- by any chance?

Is this better?

Just say again, sorry.

Yes. So I was just looking for a reconciliation and two statements that you made on Pizza Hut margins. We said that despite higher ADS, the margins were under pressure because we -- there was heightened marketing activity. And I think at some point, we also said that brand was slightly under-invested or perhaps we wanted to add on the branding franchise. So should we see this heightened activity as a normal spend. So that brand doesn't suffer again in future, and then we don't have to go through this volatility on brand franchise from the consumer perspective.

Tejash see whatever post COVID, there have been multiple exceptional situations. There was a very, very strong inflation. We had reduced intensity on promotions and so on and so forth. And then we had issues on the Fun Flavor pizza. So there were multiple such issues, which kind of impacted the brand. We've corrected most of that. We are now putting a new innovation in the market. and we are supporting that innovation to build the brand back. So we don't think it's going to be required on a continuous basis. So it's a matter of just kind of bringing the brand to a stability level, and then we will see the margins coming back again.

Sure. Can you a bit elaborate on the nature of the spend? Is it like we actually increased ad spend or we support innovation with slightly lesser margin discounts. What exactly do you think it is?

It's predominantly the ad spend across mass media and digital and plus heightened one around the stores in terms of outdoor media and so on and so forth. And perhaps we kind of tweak promotions also a little bit so that the consumers are able to get a good value when they walk into the store. And therefore, you would have seen that there is a small impact on the gross margin as well. So.

Sure. And just last one on this. Has the larger proportion of this hike in spend goes into food aggregator platform? Or is it equal between amount to platforms?

It's mainly on mass media.

Thank you. Ladies and gentlemen, I'd like to turn the conference over the management for closing comments.

Thank you so much. I hope we have been able to answer all your questions satisfactorily or should we need any further clarification or would like to know more about the company, please feel free to contact our investor relations team. Thank you once again for your interest and support and for taking the time out to join us on this call. Look forward to interacting with you soon. Thank you very much.

Thank you. Ladies and gentlemen, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.