Devyani International Limited (DEVYANI) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Devyani International's 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 Q2 and H1 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 from the Chairman, followed by key financial highlights from the CFO. Post that, we will have the forum open for a question-and-answer session. Before we begin, I would like to point out that some statements made in today's call may be forward-looking in nature and a disclaimer to this effect has been included in the results presentation shared with you earlier. I will now request Mr. Ravi Jaipuria to make his opening remarks.

Good afternoon, everyone. I warmly welcome you all to our earnings conference call to discuss the business performance of DIL quarter 2 and H1 FY '25. We are thrilled to announce the expansion of DIL brand portfolio with the addition of 3 new lifestyle QSR brands. We proudly welcome Tealive, a renowned Malaysian tea and beverage brand; New York Fries, a Canadian quick service snacking brand, celebrated for its French fries, hotdogs and poutine; and SANOOK KITCHEN, a popular Singapore-based brand, specializing in Thai and Asian cuisine to the DIL family. With our exclusive rights for these brands in India, DIL is consolidating its strategy of food on the go and house of brands. The expansion will further strengthen our market presence, and hence, we'll offer our customers a wider variety of food and beverage brands. Coming to the current quarter, we remain consistent with our store expansion strategy. In the first half of the year, we added 139 new stores, bringing the total store count to 1,921 as of September 30, 2024. We added 85 net new stores in quarter 2, thereby further strengthening our brand presence. We are investing in new stores across our brands and expanding our reach to collect -- to connect with our target consumers. DIL consolidated revenue for the quarter was INR 1,222 crores, reflecting a 49% year-on-year growth. For the first half of the year, consolidated revenue stood at INR 2,444 crores, making a 47% growth over H1 of last year. Q2 is typically a softer period for QSR industry in India because of Shravan/Sawan month during which a significant portion of the Indian population temporarily switches to vegetarian food consumption. Q2 also reflects continuing cautious consumer spending amidst high inflation in the country. Macroeconomic factors such as international conflicts and the declining naira in Nigeria continue to have an impact on the company's operations. We believe these factors are temporary in nature, and therefore, we continue with our growth strategy of store expansion and menu innovation. Our core brands have continued to innovate, both by refreshing existing menus, items and reintroducing popular favorites as LTOs. In preparation for the festive season, KFC launched new variations of value meal roles featuring a range of national and international flavors, including Korean, Thai and Indian. Pizza Hut brought back the Momo Mia Pizza in a new and improved version. To meet evolving customer preference, Costa introduced seasonal and regional menu adaptations, also featuring international flavors that resonate with consumer trends. Vaango, our homegrown brand, is also on a growth trajectory with 90 stores as of September 30, 2024. We are delighted to introduce Vaango's new lineup of traditional snacks, including banana chips, murukku and Madras mixture alongside our filter coffee decoction, all designated to engage and resonate with our target audience. I'm glad to share that DIL has achieved remarkable recognition at the Indian Restaurants Award 2024. Our brand, KFC and Vaango have been recognized for their exponential growth with KFC winning QSR Chain of the Year. And our very own homegrown brand, Vaango, has been honored as Food Court Restaurant of the Year. This is because of the hard work and commitment of our incredible teams. With the addition of new brands, DIL is well-positioned to become India's leading QSR operator, ready to offer an extensive and diverse range of food and beverage options throughout the country. With strategic positioning, enables DIL to meet the evolving pace and preferences of customers -- consumers, solidifying DIL's position in the competitive fast food market. With this, I would like to conclude my address, and now, I hand over to Manish for the financial highlights. Thank you very much.

Thank you, Mr. Jaipuria. Good afternoon, everyone. A very warm welcome, and thank you for your valuable time for attending DIL's Q2 and H1 FY '25 earnings conference call, our 13 such call since the listing. As at the end of Q2 FY '25, DIL's total store count stands at 1,921 stores. Our core store's footprint has now exceeded 1,800 stores. These consist of 999 stores for KFC across the entire ecosystem, 599 stores for Pizza Hut and 207 stores for Costa Coffee. The operating revenue for Q2 FY '25 was INR 1,222 crores, representing a growth of 49% versus quarter 2 of FY '24. The current year numbers are inclusive of the Thailand business, which was acquired in January of 2024. The Indian business witnessed a growth of 7.3% year-on-year, mainly due to store expansion. Revenue was flat versus the previous quarter as Q2 generally is a soft quarter owing to the number of vegetarian-only festival days. The gross margin for the consolidated business of 69.3%, an improvement of 10 basis points versus the previous quarter. Gross margins were lower by 1.5% versus Q2 FY '24 because of the consolidation of Thailand business, which, as you all know, operates at a lower gross margin versus the Indian KFC business. The brand contribution for Q2 FY '25 at 13.6% was lower by 1.7% versus the previous quarter. Drop in brand contribution is mainly on account of lower ADS, and hence, the deleverage impact, impact of the new store openings and higher brand marketing support in the Indian operations. Consolidated operating EBITDA on a post-IND-AS basis was INR 114 crores versus INR 141 crores in the previous quarter. The pre IND AS margins for the quarter on the consolidated basis was 9.4% versus 11.6% in the previous quarter. The sales deleverage impact resulted in lower EBITDA margins. The consolidated reported EBITDA on a post IND AS basis was 16.3% versus 18.3% in quarter 1 as a result of flowing the numbers from operating EBITDA line. The Nigerian currency continued its weakening trend in quarter 2. During the quarter, Nigerian naira got depreciated by approximately 9% versus USD, and hence, impacted the results accordingly. The PBT for Q2 FY '25 on a consolidated basis was minus INR 4 crores versus INR 31 crores for the previous quarter. The reduction in PBT is on account of lower margins in quarter 2 and further currency devaluation impact on Nigeria. Taking the discussion to our core brands, KFC in India added 28 new stores in quarter 2 FY '25. With this, the total store count for KFC in India stands at 645 stores as at the end of quarter 2 FY '25. Average daily sales for quarter 2 FY '25 at INR 96,000 was -- versus INR 104,000 in the previous quarter. Revenues at INR 543 crores, declined 2% on a quarter-on-quarter basis. Gross margin for KFC during the quarter was 69%. Brand contribution margin was 16.6% for the current quarter, thereby reflecting the impact of lower ADS over the previous quarter. During the quarter, Pizza Hut added 23 new stores, reaching a total count of 593 stores in India. Revenue for quarter 2 FY '25 was INR 185 crores versus INR 182 crores in the previous quarter. ADS for the brand was INR 35,000 versus INR 36,000 previous quarter. Gross margin for the quarter was 76.6%. Brand contribution for the quarter was INR 6 crores with a margin at 3.1% because of the additional marketing investments on Pizza Hut. Costa Coffee added 15 new stores during the quarter, reaching a cumulative store count of 207 stores. Q2 FY '25 revenue was INR 49 crores, which grew by 7.9% over the previous quarter, and 41.6% on a Y-on-Y basis, mainly due to the expansion of new stores and positive SSSG. The gross margin for the quarter was flat at 75% versus the last quarter, and the brand contribution in quarter 2 stood at 14.5%. Total number of international stores was 364 with the addition of 1 new Thailand KFC store in quarter 2. The international revenue for the quarter was INR 394 crores, giving a gross margin of 65.1%, an improvement of 1.4% over the previous quarter. Brand contribution margin was 16% versus 14.8% in quarter 1 FY '25. The reported EBITDA was 13.4% during the quarter. As the Chairman briefly alluded to, we are happy to announce that DIL has signed the exclusive master franchise agreement for the 3 brands. All of the 3 brands are going to be addressing modern food and beverage categories and have the bandwidth to operate well in small formats. Tealive is Southeast Asia's largest lifestyle tea brand with over 900 outlets worldwide. New York Fries established in '84, operates in more than 156 locations, predominantly out of Canada. SANOOK KITCHEN, launched in 2002, is an evolving modern Thai and Asian cuisine chain, originating from Singapore. On that note, I would like to request the moderator to open the forum for any questions or suggestions that you may have. Thank you very much.

[Operator Instructions] Our first question comes from Aditya Soman from CLSA.

Sir, 2 questions. Firstly, in terms of KFC, can you sort of break down what actually impacted SSSG in the quarter? So how much of it was because of sort of the geopolitical issues that we faced earlier? How much of it is just the quarter where there's been a weakening of consumer sentiment? And secondly, on the new brands, I just want to understand what sort of -- what level of investments would this entail over the next couple of years, any sort of early sense on this?

Aditya, so talking about the new brands first, and then, I will answer you on KFC. So we've signed a master franchise agreement. And as you know that all of the brands and brand strategies are normally sensitive in nature, and therefore, the brands were not willing to share too much detail in terms of the localization of menu and the stores, and therefore, what will be the India business plan. So our plan is to now kind of work on the entry brand strategy for these brands into the country. As I said in my comments that all of these brands, our focus is going to be on small formats. And therefore, they'll be very, very capital efficient in nature, along with very attractive paybacks because that was our prime consideration when we were evaluating the new brands, and we signed the agreements. At the same time, the way we've kind of signed the agreements and given the commitments also. So first year is primarily going to be more of an experimentation phase. So the CapEx involved will be very, very small. And let's say once we've experimented, we've seen the good results. That's where we'll kind of expand the portfolio. But having said that, once we finalize the business plans, along with the brand owners, we will come back to you guys and share all the details.

No, I understand. Maybe just a follow-up on that. Just in terms of the small format, would this be still -- it will still be a consumer-facing format, right? It's not dark kitchen or that's still to be decided.

Yes, it will be a consumer-facing format. It will not be a dark kitchen model. Because all of these, as you know, and let's say, if you are able to kind of do some search on that, all of these are retail prime consumer-facing brands with very good brand equity in the respective locations that they operate. So coming to your other question, Aditya, on KFC...

They're all small format and low CapEx.

Aditya, coming to your second question on KFC, in terms of SSSG, as you would have seen the numbers, overall, it is continuing at minus 7% versus what it was the previous quarter. But let's say if we were to dissect the numbers by states or by cities and all, obviously, it's a mixed bag. But the happy part is that some of our important markets have given us much better SSSG numbers, whereas the other states that continue to get impacted with the overall geopolitical situation. That is kind of more or less the same in some states. We've seen a heightened impact also. But I think we are seeing some green shoots in terms of our larger markets. So let's see how it pans out over the next couple of quarters. But right now, it is more of the same that we are seeing.

Okay. Clear. And maybe just one small follow-up here. So in terms of the impact of new stores, are we seeing that? Or in other words, as some companies classify, I mean, would there be a difference between sort of SSSG and like-for-like growth, if you were to remove the impact of split stores?

No. So we are reporting SSSG numbers. We are not talking about like-for-like. So it's absolutely on the same basis and absolutely consistent to whatever we've communicated in the past.

The next question comes from Jay Doshi from Kotak.

Just a small follow-up on these 3 new brands. As a part of your master franchise developed agreement, is there any commitment in terms of how many stores you have to open in a certain period, let's say, 1 year, 3 years, 5 years? And how are, in general, these contracts versus the contracts that you may sign with Yum! brands and more -- essentially the larger U.S. brands?

Jay, your one question is with respect to the store opening commitment, so obviously, any DA entails a store opening commitment, which is there for these brands as well. But as you know, these are confidential documents. We've been very, very conservative, and the brands have been very receptive to the way we are approaching the entire business. So our commitment levels are very low. But if, let's say, after having done the testing phase and after having experimented with the brand, we want to go really aggressive with these brands. And, therefore, the way we anticipate that once we've done the business plan, we could easily be looking at much more than what we've committed in the DA. So, therefore, that is no challenge at all. To your other question in terms of how the agreements are different versus, let's say, the agreements that we've signed traditionally with Yum! brand, these are much more attractive agreement terms because, obviously, we've also had our learnings over so many years, and therefore, the royalty rates are more attractive. In terms of marketing, we are going to be controlling the marketing. We are going to be sending the marketing. So, therefore, from that point of view, these are much more favorable versus whatever agreements we've signed in the past.

Understood. One more, if I may, on this topic. These brands are relatively niche versus the other brands that you have in the portfolio. So is this a conscious -- is there a conscious strategy to acquire rights for some very, very niche QCs or brands, partially because you are now foraying into food courts as well or we are reading too much into this?

Jay, very clearly, if you look at, let's say, the Western QSR space today, and if you were to kind of go back in terms of whatever we are doing, we are present in most of the large categories of Western QSRs, right? So be it, let's say, pizza, which is a largest category, fried chicken, burgers and so on and so forth. And obviously, because of the competing businesses' restrictions, we are not able to kind of expand within the same set. However, if you look at, let's say, what is happening outside countries, we evaluated in terms of, let's say, beyond the traditional categories, which are the categories which are performing extremely well, which are high-growth categories, what is happening with these categories in other parts of the world and how they've grown over the last few years. So, therefore, we think that going forward, these could be well the next set of potential categories, and therefore, the brands that we've signed, they absolutely address the young categories, as I'm saying. So that gives us the room to kind of one maneuver in terms of how we approach the brand. Second, as I said, I mean, these are much more attractive and favorable terms. And thirdly, these categories could well be the growth categories for future. So...

Sure. And one question I have on store additions for KFC and Pizza Hut. You're -- generally planning for store addition typically tends to be on a calendar-year basis and -- with Yum. So can you give us some color on how we should think about calendar year '25? Or is it a bit early to sort of discuss that?

So for the current year, which is '24, as we've kind of communicated, Jay, in the past that KFC, we are looking at about 100, 110 stores. And we are sticking to the same number for '24 and the same number for next year as well. Pizza Hut, we've talked about 60, 70 stores in the past. So, therefore, on a roundabout basis, we'll be close to those numbers. So...

So there won't be any moderation in Pizza Hut next year? Or you're just right now sticking to this year's numbers?

Let's see, we are evaluating. So we want to kind of make sure that at least we meet our commitments for this year and how the brand shapes up in the next 1 or 2 quarters and then take a final call. So -- because this quarter, for example, we've put in additional marketing investment also behind Pizza Hut. We've launched, as you know -- we brought back Momo Mia Pizza, the festival season is on. So we want to see the results and then take a final call in terms of the plan for next year. So we will communicate, and we'll come back to you on that.

The next question comes from Gaurav Jogani from JM Financial.

Sir, my question is with regards to KFC, and in particular, the brand contribution margin. I mean the drag in the brand contribution margin this time around is much higher despite the SSSG decline or the ADS decline being similar to one of the previous quarters. So anything specific that there's a sudden decline? And how should we think about the margins ahead?

Gaurav, as you know, quarter 2 is typically a slow quarter. So if you look at, let's say, therefore, the quarter 2 of KFC, while the SSSG numbers are very similar to the previous quarter, but the ADS numbers are lower. So if you look at the ADS numbers for the previous quarter was almost 104,000, whereas current quarter is lower, and therefore, that kind of sets in the deleverage impact also because your expense ratios obviously tend to lead up, even though, let's say, your absolute numbers are similar or they are a little lower. Having said that, one is obviously a brand deleverage issue because of the ADS. The other one is the delivery in the current quarter was slightly higher. The third one was we were actually doing some experiments with respect to some marketing initiatives and with respect to some pricing promotions and all just to see some sensitivity analysis around how sensitive is this category in some markets from a pricing perspective. So, therefore, that is the other piece we are experimenting. And -- I mean, it's too early to kind of talk about it. But let's say, in case, for example, we do not see a significant benefit in the transactions, we will kind of withdraw that and the margins will come back. So we just started doing those experiments in the current quarter.

Okay. Sir, just one follow-up on this, the KFC bit only that you have highlighted that there have been some community-related issues, which has been impacting the performance for KFC. So ex of these states, where the impact is higher, would it be fair to assume that now we have come back to a positive SSSG in KFC in those other states?

Gaurav, see as far as the vegetarian days are concerned, what we've seen post COVID that, for example, earlier, there used to be pockets in different regions, whereas now whenever, let's say, some festival is there, we've seen a broader impact. So let's say -- earlier, let's say, around Ganpati Puja, it used to be West, whereas now we've seen the impact of Ganpati Puja comes in North also. Similarly, for example, earlier, the Shravan impact used to be predominantly in South. We've seen the Shravan impact coming in other regions also. So the SSSG predominantly, as I said, one is obviously the vegetation days and the impact of those. And the other one is this whole geopolitical situation, which kind of continues. So let's see with the overall realignment of global politics, things should improve. So let's see because as the new regimes come in the U.S. and all, we all are hoping that probably we'll thaw the situation, and therefore, that situation should get better.

And sir, my second and last question is with regards to the Thailand business, if you can throw some light here on how the performance has been during the quarter? And we have also seen some margin improvement on a Q-o-Q basis in the international business. So what has led this to?

So Thailand business, obviously, also, as I've communicated in the past, got impacted because of the geopolitical situation. So there in South of Thailand, for example, we are seeing a little better performance, which has helped us from an SSSG perspective. At the same time, in Nigeria, the currency impact is lower versus the previous quarters, and therefore, the numbers are better. If you see -- I mean, we've seen much more volatile currency in the earlier quarters. Although the currency has depreciated in the current quarter also by 9%, but it is better. So, therefore, there also we are seeing some better numbers. So it's a combination of basically both Thailand and Nigeria that you're seeing a better international business number.

The next question comes from Devanshu Bansal from Emkay Global.

Congratulations on signing of 3 new brands. Manish, what is the typical drop in KFC ADS during -- in auspicious days, if you could just highlight a ballpark number versus the normal average?

Devanshu, sorry, can you please repeat your question again?

I'm saying what is the typical drop in KFC ADS during the vegetarian consumption days versus the typical days.

See, it is more or less in line. It's not that this year the vegetarian days have been kind of any different. But the number of vegetarian days has been kind of different in different regions, higher in some cases, lower in some cases. That is where the impact is. So it's because of the number of days rather than the absolute drop from that perspective.

Understood. Still any ballpark numbers, sir, typical drop in ADS just to sort of help us project the future quarters?

So let's say, during ADS -- sorry, during vegetarian days, depending on whether it is a weekend, depending on whether it is a weekday, obviously, the numbers change, but the impact will not be more than 10%.

Understood. Understood. Secondly, Manish, I wanted to check on this news flow around drop in urban consumption across FMCG companies. So wanted to check if in your case there is a material difference in performance of metros versus non-metros, if you could highlight that?

See, if you look at, Devanshu, overall, consumption is slow, and you've seen this in the FMCG numbers. You've seen this in the QSR numbers. Now obviously, if you look at where we are present, we are addressing probably about top 15%, 16% of the population, which is largely metro and Tier 1 and 2. So, therefore, we are not there in rural. So let's say, this whole thing, which is going, that probably rural consumption is coming back. One, the rural contribution, obviously, is very small. And in our case, we are not present in rural areas, so, therefore, the overall consumption has to kind of pick up and which we think so should happen because if you go back a few years, all of the economy was getting driven by consumption, the investments were constrained, whereas last few years the investments have picked up, and therefore, we are hoping that cycle should get corrected and the investment should result into consumption. Obviously, job creation remains a big opportunity, so let's see. I mean, overall -- I mean, if you were to look at, let's say, our view from a medium-term perspective, we are absolutely bullish on the food consumption outside home, and that's how we are looking at the overall portfolio and our overall strategy.

Understood. Manish, there is some, about INR 940 crores of gross debt, right, across India and Thailand. Obviously, this is because of that acquisition that we have done. So what is your thought process on reducing this debt going ahead?

See, given that, we are in a comfortable space, because if you look at in terms of the debt-to-equity ratio or the gearing ratio and so on and so forth, it's a good comfort space, plus whatever we've communicated in terms of our overall gearing also, we are well within that. So it is not a cause of worry as of now, but if required, let's also see how the new brands kind of shape up. If required, we will kind of look at our options.

The next question comes from Percy Panthaki from IIFL Securities.

A couple of questions from my side. So firstly is on the KFC SSSG. On the call, Sapphire had said that for Q3 SSSG of minus 4%, minus 5% would be a fair way to sort of think about the numbers for Q3. Of course, they caveated it saying it depends on how demand pans out, et cetera, et cetera. But at that point of time, the best estimate that they could give is about a minus 5% kind of a number. Would you largely agree with this direction of thought for KFC as a brand?

So, Percy, you'll have to kind of go back to Sapphire for whatever they are committing. But as you know, in the past, also, we never gave any future guidance. And so, therefore, we will not be able to. But let's see how the quarter pans out. Obviously, we will come back to you.

And how has been the experience in the quarter so far?

It's more of the same thing.

Okay. Fair enough. Secondly, I wanted to ask on the 3 franchises that you have taken. These brands are almost completely unknown in India. So is it really that much of an advantage taking a franchisee of someone rather than launching some brands of your own? Because the largest benefit of taking a franchise is that the brand is known and that helps you get customers and sales without having to build up the brand in a big way, smaller things like research on menu and things like that. I'm sure that is something that you yourselves can also manage.

So, Percy, see, you have to evaluate between what is that you have to pay for the band versus developing your own brand, right? Because that comes with all of the innovation, that comes with the continuous innovation engine and pipeline that you get that comes with the identification of all the sources of whatever you are. So let's say, just to give you an example, although let's say bubble tea is a niche market in the country. But if you go back and look at the quality of bubble tea that you get in India versus what you get outside, it's very different because they have been through that journey because that category started many years back in the other countries. So we also want to kind of ride on this whole development phase apart from whatever you are saying, where people have learned, people have evolved, people have developed, and they kind of put that into their processes in terms of a better quality product, and that is how the brands are built. So therefore -- I mean, it's not going to be a significant cost, as I mentioned to Jay earlier, that the newer agreements are at far more attractive terms than what we have in our existing portfolio. So it's well worth kind of taking a brand and growing that in the country rather than your own brand.

Understood. And are you at liberty to tell us whether the marketing and ad spend will be sort of handled by us or that is an extra amount you will pay to these brands, and then, they will do it like Yum! does it in India?

It will be handled by us, Percy. All of the 3 brands that we've signed, the -- so what we are supposed to pay to the brand owners is basically the royalty and rest we manage on our own.

Understood. And largely, this SANOOK KITCHEN, is that like a proper QSR brand because like Asian food, what we have seen here, there have been some attempts to sort of QSR, make it like a QSR kind of a format, but with limited success. So this is like a -- would you say this is more comparable to a Mainland China kind of a brand in India or it is a proper QSR brand?

So let me explain you where SANOOK KITCHEN stands and why did we find this brand to be an attractive brand. So let's say, if you're comparing to, say, Mainland China, this format is going to be a much smaller format. So what -- the fundamental story behind SANOOK KITCHEN is they've actually reduced the serving time versus, let's say, any of the fine dining or casual dining outlets. They operate virtually like on the QSR format. And they put that in a very small-format casual dining restaurant. So which means the consumer are able to kind of experience and get a good quality product, and they've maintained authentic flavors in the entire process. So a combination of fast serve time, a combination of small formats, attractive pricing is basically where the brand comes from. And therefore, we thought that you can actually have this format run in a very efficient manner in the food courts. And you can also have small casual dining outlets also wherever required and without having to kind of tweak with the menu, without having to tweak with the processes and so on and so forth.

The next question comes from Shirish Pardeshi from Centrum Broking.

I have 3 questions. Starting from the international business. I think we have 3 businesses; Nigeria, Nepal and Thailand. All the 3 businesses over last 2 to 3 quarters have seen a volatility. I agree that Nigeria currency has been a challenge. But then I was more curious that Thailand would have started showing because we had a lot of hopes to improve that. So tell us something how these businesses we should look at for next 3 to 5 quarters. Will the demand situation is like similar to India or these businesses, are we trying to turn around something? If there is some turnaround strategy, maybe if you can spell it out.

So, Shirish, if you remember, our communication around Thailand acquisition, we have said there's a great management team out there, which has been absolutely stable since the time this business was set up, and we had communicated very clearly that we would like to continue with the same team. We also said that they are doing a good job, and we would not like to kind of tweak that because we are happy with the way the business has performed, the way the business has grown. Having said that, we also mentioned that we do see some bit of margin opportunity there. And, therefore, there is a room for improvement in that margin in terms of where Thailand operates. And we also mentioned that typically, the positioning of KFC there is more mass than a premium brand because chicken is a large market. Fried chicken constitutes a great part of the street food and so on and so forth. So if you look at all of those analogies, we are not changing. And as you said, we are not disappointed with any of those things. We are happy with the team. We are happy with what they are doing. As we had said that there had been some margin opportunities, we've started to work on that. Obviously, what we did not anticipate when we acquired was this whole geopolitical situation, which kind of came back later. And that has impacted the Thailand business also, typically in south of Thailand. And obviously, that is something we have to live with and live by and make sure that it kind of goes back. And obviously, Thailand is not in a similar situation like Indonesia or Malaysia. It's in a far better situation. So, therefore, in hindsight, probably that decision was a good decision. So, otherwise, I think we are on course. We do believe that we'll be able to kind of improve the margins over a period of time. But again, as you also know the South Asian economies and the South Asian cultures and so on and so forth, you cannot be absolutely aggressive on day 1 and you have to go with the flow and gradually change things. So we are working on the same strategy.

Okay. Just one follow-up here, Manish. Can you step out the business or break INR 394 crore because last quarter also, we did about INR 390 crore and this quarter also INR 394 crores. So maybe country-wise, if you can split out what is the revenue momentum? Because I'm sure if you adjust the Nigerian currency, both -- every business would have declined.

See, from an SSSG perspective, obviously, the SSSG continues to be a challenge across. Obviously, Nepal for us, which is a small business, is SSSG positive. But as far as Nigeria is concerned, it is negative. As far as Thailand is concerned, it is almost at a breakeven level with slight negative bias. Thailand, April, May, June, which was the previous quarter, obviously, was a strong quarter, where SSSG was positive. So, therefore, in the quarter gone by, there was a promotion that we had done, which has not worked. But, otherwise, to your earlier comment that is it more or less in line with what is happening in there, what is happening across the world, it is very similar. So Thailand or Nigeria, no exception to whatever is happening in QSR across the world or in India's facility. The impacts could be higher or lower, some bit here and there, but directionally, it's similar.

Okay. My second question on the margin front. We are now at around 16%, 16.5%. How we should look at in the second half of this year because SSSG is going to be challenged for Indian business. And I would expect that the situation is not going to change drastically. Maybe some positive momentum would have happened in the last 30, 40 days. But then how we should look at this number for the full year for India business specifically? Maybe if you can give some indication on company gross margin, EBITDA margin, restaurant margin, something like that.

So, Shirish, as you know, we don't give the guidance for future. But having said that, let me just tell you, whatever we've lost in the current quarter, we will be able to recover that back. So that is one. But at the same time, for example, to go back to the traditional margins that we were at, the consumption trends and the consumption patterns have to undergo a change. And obviously, that is something which we do not have so much control. So -- and again, I mean, we are an important constituent of the QSR industry now. So, therefore, let's see how the industry behaves. We will be in line. But whatever we've lost in the current quarter that we should be able to recover.

See, the reason I'm asking because we have seen a similar momentum opening store expansion in KFC and Pizza Hut. So I think what I was trying to understand, have we changed, tweaked the format? Because if I look at the regional breakup, I think we are now focusing more on Tier 2, Tier 3 markets. So is the nature of that business will help? And why more important because the input raw material doesn't look inflationary at this time?

Yes. So I agree with you. But again, for example, a deleverage impact or the ADS number or, let's say, in the given impact, given scenario whatever we are trying to do. As I said, I mean, on Pizza Hut side, we kind of supported the brand with additional marketing. On KFC side, we are experimenting with some pricing options, some promotion options and so on and so forth. Now obviously, these are not immediate. They will not give you immediate results because you know the frequency of consumption in the country. But all of these are kind of more from not only short-term, but medium-term perspective also. So let's see how it pans out. Obviously, I mean, in terms of the improvement areas, in terms of what can be done better, there's always an opportunity. So -- I mean, we are further evaluating the formats. As you know, we've kind of cut performance in the past, and it's not that we are sitting at the same level. We continue to evaluate given what the delivery situation is and what the right format is. We are continuously in discussions with Yum!. So these are all continuous things.

Okay. My last question on Costa Coffee. A year before, we had about 146 stores, and we have 207 stores. But the ADS is cut, and the SSSG look positive. So I was just more curious this 27 number looks because of operating deleverage. But if I need to ask these 146 stores, which were existing last year, would the ADS would be a similar level or would it be higher at 31 or would it be lower than 31?

See, the ADS numbers are a little higher because obviously, the airports for us are doing very well. Typically, we've seen, let's say, the new city stores that we've opened take some time to kind of take off. And, therefore, there the ADS numbers are lower. But, otherwise, captive locations, otherwise, for example, the small formats are doing extremely well for us.

The next question comes from Latika Chopra from JPMorgan.

My first question was on KFC. If you look at the SSSG trends, and if you could share some qualitative flavor when you compare it to the previous quarters, if you have to break it up in terms of transaction growth and average ticket size growth, how have these 2 elements behaved? Because you've talked about giving more promotions. So if you could give some qualitative color on are you seeing any improvement in transaction growth? And are you seeing any underlying deterioration in transaction size growth just to understand how this SSSG is panning out? And also, if you could add and elaborate a bit more on a comment that you made earlier around green shoots in some of your larger markets? Is that comment related to Q2? Or are you talking about how you exited the quarter? And that's the first question.

Sure, Latika. So, Latika, the comment that I made was with respect to Q2, which is the quarter gone by, because obviously, I mean, the business does not operate uniformly across all cities and across all states and so on and so forth. The fact that, for example, the overall number remains at minus 7%, there will be pluses and minuses. So we have seen a positive impact in some of our larger markets, which is a good situation to be in. We've seen that where the geopolitical impact was there in some of the states, it's gone worse. And that's the reason I made the comment that with the new global political scenario emerging, let's see how that pans out. And how the entire thing kind of reacts to that, that is yet to be seen. So, therefore, on an overall basis, it's kind of more of the same. But within pockets, obviously, it is behaving differently. To your other question in terms of the transactions versus the APC, we've taken special efforts to kind of upsell and cross-sell. So, therefore, we are maintaining the APC. There have been some decline on the transaction side, but we are trying to kind of compensate it through the APC level because wherever, let's say, this whole geopolitical situation is there, that is mainly impacting the transactions rather than the value per se. So I think -- do you have anything also?

Yes. Just a follow-up on this. This issue of -- external issue started in Q3 of last year. So would it be right to assume that in a way some of this negative impact gets lapped out starting the December quarter?

Let's hope so because, obviously, I mean, at the local area in terms of the messaging, in terms of the campaigns that are still on. But let's see. I mean, we are hoping that it should because obviously, in these kinds of situations, it is difficult to predict the consumer behaviors and the consumer trends.

Sure. The second question I had was -- you had made an announcement of appointment of Mr. Shivashish Pandey as CEO of Yum Brands from October 28. I think he has a pretty extensive experience in the QSR industry. Any initial color or thoughts on any specific measures or change in business strategy, any high-level thoughts at his end or it's still very early?

See, it's very early. And in fact, Shivashish had worked with us in the past for a very brief period. And then he had some family compulsions for which he had to kind of go back and settle, which he has kind of managed to put behind. And, therefore, he is very pleased and happy to kind of join back, and we are very happy to take him back. But having said that, it's too early days. And obviously, there will not be a big change in strategy because there are multiple other stakeholders as far as we are a franchise partner, we are not the brand owners. So there is a limited room to maneuver as far as the overall strategy is concerned. But we do hope that with this focus, and Shivashish coming in, obviously, the execution rigor and the operational rigor should improve and should give us positive results.

The next question comes from Nihal Mahesh Jham from AMBIT Capital.

Just 1 question. Over the last 12 months, we've seen the large acquisition of KFC Thailand business in December and now these 3 sign-ups. Just wanted to understand internally what is the kind of template or thought process in terms of maybe incremental opportunity that you're going to evaluate. Is it going to be large international geographies? Or is it going to be these niche brands which can potentially then become much larger?

Nihal, as we've mentioned in the past, our greatest opportunity and the greatest potential remains India. And we are absolutely unwavering on that. Having said that, I mean, Thailand came as a good opportunity, and we've discussed the reasons for acquisition in the past. So it was more of an opportunity-led acquisition rather than a strategy-led acquisition. Our strategy continues to be India. We continue to be bullish on India, and we continue to kind of expand the business in India. So, therefore -- I mean that is where, let's say, the niche categories come in because we think these are the categories for future. Let's say, for example, if you go back, say, whatever, when we started the business, 25, 26 years back, I mean the categories which are big today were a very small category. So we beat the pizza category or let's say, chicken category later on. So, therefore, we think that these could be the emerging categories for future. And that's the reason we've kind of taken a bet to kind of experiment with those. And once you've experimented, we will try and grow these categories.

Understood. Just a final follow-up. So currently, I think the India portfolio has around 7 brands taking into account Vaango also. It's not as if that there is a limit in terms of the number of brands you want to operate more. If an attractive opportunity comes by in the domestic market, we would want to go ahead and take that ahead.

Yes, as long as it is not just about the brand. It also depends on what category it is operating in, what is the future of that category and how has it performed, let's say, outside the country, because, as you know, I mean, we are getting one on a global space with all the Internet penetration and so on and so forth. So, therefore, that gives us a good proxy that if a category is doing well outside the country, it should kind of pick up in India also. And having said that, as I've said in the -- I mean, I have just said a few moments back, that -- I mean, the current categories that we operate in pretty much covers the QSR space, so, therefore, you have to look at the new categories.

The next question comes from Ashish Kanodia from Citi.

Manish, the first question is around the consumer behavior. So you talked about taking some -- doing some experiments and initiatives around pricing, discounting, branding. So I just wanted to check, like this is your experience, what are you seeing? Is it that if there are more discounting then you are seeing more customer interactions or just across the pricing pyramid as well? Are you seeing more demand at the top end and kind of a slowdown at the lower end? And just a related question, between dine-in and delivery, if there is a difference in the consumer behavior, if you can talk a bit about that as well?

Ashish, we are doing these experiments in typically small towns because, obviously, you cannot do big experiments in your large markets. So these are not experiments, which are being done in the metro or the large cities. We are trying to kind of do some experiments in smaller cities, which may or may not be ready for, let's say, a brand like KFC, whether, let's say, if we take some initiative on pricing, whether the consumers start to behave differently. So it's too early to kind of comment on that. Let's see, because if it works well, obviously, we can have a differentiated strategy for the larger cities and smaller cities. Because, as you know, India is not one country. I mean there are multiple regions and multiple geographies. And as people say there are multiple countries in this one country. So we have to have some bit of localized strategies running in local way of looking at things. And unless and until we experiment with these things, we will never learn and we'll never have it as a strategy.

Sure, Manish. And on Pizza Hut, you called out there are some extra marketing spend, which is also kind of impacting the brand contribution margin. So is it significant enough to call out? And maybe not looking at numbers, but do you see this trend kind of continuing for the next, say, 2, 3 quarters just to make sure that the brand gets stronger?

Let's see. We have to see the results because in our scheme of things, obviously, when we spend money on marketing or any initiatives, we continuously track and we continuously monitor whatever results we are getting. And then we accordingly continue to tweak our strategy in terms of how to spend money, where to spend the money, so let's see. I mean it's like we are monitoring this almost on a daily and a weekly basis. So let's see how it pans out. And then we'll take a call whether we need to kind of extend this, whether we need to kind of discontinue it. So it's too early to kind of call that out and give a definite answer.

Sure. And just last bit on the 3 new brands tie-up. So while I understand a lot of strategy you will maybe discuss later, but from a -- purely from a pricing perspective, what are the thoughts? Because some of the -- I mean, for example, fries is something which is available in India. But when you look at -- so some of the products are new as well. But from a pricing perspective, what are the thought process? Is it going to be slightly premium positioning? Or is it going to be equivalent to what you have seen in KFC or Pizza Hut kind of a positioning? So compared to Western QSR, what kind of a price positioning you are planning on this?

So, Ashish, our positioning is mass premium so that we are able to -- so obviously, therefore, if you were to look at where Pizza Hut is positioned and where KFC is positioned, this will be more mass, but it will not kind of go down to the absolute local brand's pricing because there needs to be some bit of premiumization available. So with -- so the combination of smaller format, lower CapEx, better positioning and differentiated and new categories is what gives us the confidence to be able to signing the brands.

Ladies and gentlemen, we will take that as a last question for today. I now hand the conference over to the management for closing comments.

Thank you very much. We hope we've been able to answer all your questions. Should you need any further clarifications or in case you'd like to know more, please feel free to contact our Investor Relations team. Thank you so much once again for your interest and support and taking the time out to join us on this call.

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