United Foodbrands Limited (UFBL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Barbeque-Nation's Q3 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Bijay Sharma. Thank you, and over to you, Mr. Bijay.

Thank you, Sajal. Welcome, everyone, to Barbeque-Nation Hospitality Limited's Q3 FY '25 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. We will begin the call with Mr. Kayum sharing his perspective on overall demand scenario and key highlights for the quarter. This will be followed by a detailed discussion on business performance and outlook by Mr. Rahul. Post that, we will open the forum for an interactive Q&A session. Before we begin, I would like to remind 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 the earnings presentation for a detailed disclaimer. I now hand over the conference to Mr. Kayum Dhanani. Thank you, and over to you, sir.

Thank you. Well, good evening, ladies and gentlemen. I take the pleasure in welcoming you to Q3 FY '25 conference Call of Barbeque-Nation Hospitality Limited. I'm happy to report yet another stable performance in otherwise tough operating environment. Our same-store sales trends have continued to improve. The business recorded an SSSG of minus 2% during the quarter. Each of our 3 business segments are in different life cycle and have performed well. In our Barbeque-Nation India business, our focus has been to establish Barbeque-Nation as a preferred destination for celebration. We have undertaken targeted marketing approach to achieve this. We launched 2 food festivals during the quarter and continue to upgrade and refurbish our older restaurants to drive guest experience. We have seen a positive impact of these initiatives in our overall guest satisfaction scores. These measures have helped us to improve the SSSG trends despite an overall tough demand environment. Our focus has been to protect margins in the existing portfolio rather than expansion and have taken multiple efficiency projects to maintain restaurant operating margins. Despite the decline in sales and possible impact of operating deleverage, we have maintained restaurant operating margins of 14.9%. As consumer demand continues to improve, we have increased the pace of our network expansion in quarter 3. We have added 4 new restaurants in Barbeque-Nation India business and have 4 restaurants under construction. Going forward, we expect to maintain a network expansion of 8% to 10% in this segment. Our International business continued its robust performance with SSSG of over 5% plus and recorded an annualized revenue of INR 100 crores plus during the quarter. The average revenue per restaurant and restaurant operating margins were also very impressive. We have targeted to add 4 restaurants this fiscal year, out of which 3 new restaurants are under construction and 1 is in advanced discussion. We are entering new geographies with launch of these restaurants. We will maintain a calibrated expansion plan for this segment and target to add 4 to 6 restaurants every year. We will continue to maintain our focus on SSSG, operating margin and strong operating cash flow generation. This business segment will continue to be funded by cash generated in the international business. Our premium CDR business has been growing well and has achieved an annualized revenue run rate of INR 175 crores. The revenue increased by 24% on year-on-year basis, led by new restaurant expansion. We have launched our first Toscano in Hyderabad, Delhi and Mumbai this year and have received extremely positive guest feedback. Restaurant operating margins in this segment is strong at 20% plus. We will continue to grow the store count by 30% year-on-year in this segment for next few years. We are also happy to announce our strategic investment in Willow Gourmet, which operates an ice cream brand called Omm Nom Nomm through the delivery channel. The brand has strong guest recall, strong cloud kitchen unit economics and have a significant opportunity to scale. This investment is in line with our strategy of building a portfolio of scalable brands. This will strengthen our existing delivery portfolio and also add another growth vector in future. Our overall performance has been in line with our strategy and is shaping our 3 distinct segments, while the overall demand scenario continues to be difficult. We experienced slow and gradual improvement also with the recent budgetary measures by the government to drive consumption. We are anticipating the discretionary demand to get additional impetus. We are geared to accelerate our network growth and benefit from this anticipated demand improvement over the medium term. We remain committed to our store target of 325 by FY '27. Thank you. And I will now hand over to Rahul to walk you through the performance in detail.

Thank you, Kayum. Good evening, everyone. During the quarter, we added 5 new restaurants and closed 1 restaurant, resulting in net count of 226 restaurants. The network included 190 restaurants of Barbeque-Nation India business, 8 restaurants of Barbeque-Nation International and 28 restaurants of Premium CDR business. During the quarter, we reported a revenue of INR 328.9 crores. The revenues were flat compared to same period last year. Our SSSG for the quarter was minus 2% and continued to be on an improvement trend. Our dine-in business recorded a revenue of INR 277.5 crores, a decline of 2% compared to quarter 3 last year. The delivery revenue for the quarter was INR 51.4 crores, an increase of 9% year-on-year, primarily led by strong growth in volumes. The dine-in delivery mix for the quarter was 84% to 16%. Gross margin for the quarter improved by 30 basis points on a year-on-year basis to 68.2%. This was primarily driven by better realization and efficient management of input cost. Pre-Ind AS restaurant operating margin for the quarter was 16.5%. Despite the operating deleverage, the restaurant operating margins were similar to last year. Our adjusted operating EBITDA for the quarter stood at INR 33.9 crores and adjusted operating EBITDA margin stood at 10.3%. The margin continues to be among the best in the food services industry. Consolidated reported EBITDA margin for the quarter was INR 61.5 crores and reported operating margin for the period was 18.7%. We also maintained robust EBITDA to cash conversion and delivered INR 30 crores of cash profit during the quarter. Barbeque-Nation India business SSSG trend continued its improving trend during the quarter and recorded an SSSG of minus 2.6%. The business recorded a revenue of INR 261.8 crores and maintained gross margins of 67%. The Pre-Ind AS restaurant operating margin for the business was maintained at 14.9%. Efficient cost management helped in maintaining restaurant operating margin at similar levels as last year despite operating deleverage. Barbeque-Nation International business recorded a revenue of INR 25.3 crores during the quarter, an increase of 8% compared to same period last year. The growth was supported by strong SSSG of 5.2%. The international business maintained its gross margin at 75%. Pre-Ind AS restaurant operating margin for the business was extremely strong at 26.2%. Our Premium CDR business recorded a growth of 24% year-on-year to INR 43.2 crores. The gross margin for the segment expanded by 70 basis points on a year-on-year basis to 75%. Pre-Ind AS restaurant operating margin was 20.2% compared to 24.8% in quarter 3 FY '24. The margins were impacted due to new restaurant additions, which are yet to mature. On 9-month year-to-date basis, our revenues have been lower by 1.7% year-on-year, whereas adjusted operating EBITDA has increased by 5%. We also continue to maintain a robust balance sheet with net debt position of only INR 17 crores as on December 2024. All the business segments performed in line with our expectations. We remain focused on building a portfolio of scaled brands and maintaining best-in-category guest experience. We are also committed to our restaurant target of 325 restaurants by FY '27. Thank you. With this, we can open the session for Q&A.

[Operator Instructions] Our first question comes from the line of Manjeet Buaria from Solidarity Investment Managers.

I had 2 questions, both on the 51% stake acquisition in Willow Gourmet. One, whether it's a related party transaction, where either the promoter or anyone from management have any stake in this entity? And second question was given we already have multiple new growth avenues in Toscano, Salt, probably some part of international, right? Why do we look to open this new front at this point of time? These 2 questions, please.

Sure. Thanks, Manjeet. So first, no, there is no related party involvement in any of these. This company is owned by a couple, [ Sreeja Thomas and Pat ]. And they have built this business over the last 6 years, very strong guest feedbacks. So there's no other involvement of anybody related to Barbeque-Nation. On the second point, yes, we have existing vectors of growth. But if you realize -- if you look at our previous acquisitions like Toscano and Salt, these were acquired at a very early stage. And in 5 years, now we have built it to approximately INR 175 crore unit business, right? This will go in a similar sort of direction. I think this will strengthen our delivery segment. There are synergies in back-end kitchens and capabilities. We believe this is a very strong brand with strong economics. This will add a vector of growth in future for us. And also as part of our capital allocation strategy, I think we should allocate some portion of our operating cash flow generated to newer areas, which will help us to give us some vector of growth in the future. And with that thesis, we are investing around INR 17 crores in this business.

Okay. Just 2 follow-up questions, Rahul. One was I read in the presentation that the annual revenue run rate was about INR 4 crores. So if you could just highlight which city or state this is in mainly because it doesn't seem very large at this point of time. And just the second follow-up linked to this, when you think about adding these vectors of growth and you take a primary capital infusion in some of these brands, right? How does the incremental thought process on capital allocation take place, whether you want to put more money behind these brands or not? At what scale? And when do you get that confidence that now we want to put more money in this brand, which we have sort of seeded in the early stage?

So this brand is only based out of Bangalore right now and not in any other parts. So that's how this is only INR 4 crores. They only do 3 cloud kitchens currently, but they have an existing manufacturing facility in Bangalore, which can gear up and take this cloud kitchen from 3 to 10. So in the initial stage, we plan to only launch it in our existing kitchens, which is the existing kitchens of Barbeque-Nation or Salt or Toscano in Bangalore and thereafter take it to other markets. And the current primary investment is good enough for at least next 2 years. And whether we invest more in this will depend on how the business performs over the period of next 2 years, and it is in line with our current base case scenario for this business. The other point on the capital allocation, like I said, largely, each of the businesses generate their own cash flows, the 3 segments that we spoke about. And the new growth expansion has been done from that cash flow itself. Just that some portion of cash we want to sort of also deploy in some early opportunities, which can become a growth vector for us in future.

[Operator Instructions] Our next question comes from Vicky Punjabi from UTI Asset Management Company.

Rahul, just to understand, I mean, in a way, when we look at this quarter, it has come out of a base. I think last year also, the base was weak. The SSGs are still not really up to the mark. How do I rate -- how do you rate the performance of this quarter? Because we're still not seeing the kind of recovery that we had expected?

Sorry, Vicky, your voice was not very clear during the time. It was echoing, but did you say that how do you rate the performance of this quarter?

Yes, yes, absolutely. Absolutely. I mean if you had to really rate it, because you're still seeing a negative SSG on a base that was maybe not that great?

Yes. Look, overall, I think each of these 3 businesses are in different cycles. And when you look at Barbeque-India business, as you know, over the period of last 2 years, we have also consolidated some of our stores, and that has given us very positive results. One thing that we have shied away from doing during the quarter is do a lot of deep discounting and add to just revenues. I think we were consciously looking at maintaining our margins. And despite a 2.5% sort of SSG decline, we have maintained our margins because of various other efforts that we have taken, right? You see that in last 3 quarters, the pace of store expansion has been slightly improving. And now also, we have a very strong pipeline of new stores that are under construction and the discussions. Similarly, international business has been very, very sound, very strong unit economics and profitability. We are very cautious about adding more and just that some of the new stores got sort of back ended, and you will see at least 2 to 3 new stores coming in quarter 4 now in this year. Similarly, on Toscano and Salt side, I think the performance has been very good in terms of growth. We had grown our business around 24% and have also maintained very strong operating margins at the restaurant level. So each of these business on a net basis have done their part. And going forward, I think as we add more stores to each of these networks, you will see some impacts on overall revenues and bottom line.

Okay. And just on this margin thing, I mean, my assumption is that you would look to get into early teens in terms of margins on a sustainable basis. Should we consider that at current levels of throughputs, we need to get there despite the external environment given the prolonged pace of slowdown that we are seeing?

No. I don't think it's not that we can't go to early teens. We have done that in the past, just that last 2 years have been tough for the business, both from the same-store sales growth perspective, and as we consolidate few stores, it has led to the margin decline, and as we've always maintained that the margin will move significantly as same-store sales growth happens. If you look at the performance between quarter 3 and quarter 2, you will see almost 3 percentage point margin improvement, all driven by throughput from the same stores, right? We have also been taking a few measures in terms of guest experience at the outlet, which translates into a same-store sales growth of 3% to 4%, the margins will move to early teens.

Okay. Okay. And just lastly, I think on the acquisition -- I mean, my thought process, of course, Delivery is a structural growth story. My thought process would be, we look to kind of get into segments that could be possibly highly scalable in the future because the current segment looks niche overall, so that Delivery could become a real vector of growth for us. I mean what's the thought process here? Because structurally, it clearly seems that consumers are moving towards Delivery?

So this will strengthen the Delivery. And that's why this sort of fits with us. Plus we can also leverage our existing kitchens to supply this particular product. This is a standardized product, which comes out of the manufacturing facility. So to that extent, operating this particular brand from our existing kitchens also, it will be easier. So that's the thought process here. And I mean, if you look at the unit economics of all these cloud kitchens, they are really great.

My question is different. My question is, how are we thinking of leveraging Delivery in a bigger way to be fair? Because this would be -- this would still remain quite niche even at scale as a percentage of our total revenue, is what I understand?

So look, the current ADS of Cloud Kitchens is 30,000 plus, right? And our ADS of Cloud Kitchens of Barbeque-Nation Restaurant Delivery is around 25,000. So to that extent, if we grow it right, then this can add up to significant way in our overall Delivery business.

The next question comes from Naitik from NV Alpha Fund.

So my first question is we've seen smaller players -- some of the smaller sized players doing, say, a low single-digit SSG or even the QSRs for that matter, we have seen at least doing closer to 0% SSG, but not really a negative SSG. Now I understand that we are not operating in the same like-to-like space, but generally, we are still operating in the food sort of space. So just wanted to understand the scenario from your end. I mean, what exactly are we doing for getting the SSG growth? And are we doing all that we can to get the SSG growth back?

Look, I think we should not be looking at just SSSG in isolation, but also look at the SSSG comes at what cost? Is it done through large amount of discounting or marketing or other stuff, right? So it's very difficult for me to comment on respective players. But like you said, the strategy that we are playing is that we can't just burn money to get sales and report SSSG when it has an impact on our margins. That's not us. And if you look at our numbers in the previous quarter and also during the past quarters, we have shied away from deep discounting and built the brand based on profitability. So I think on a holistic basis, we should look at both SSSG and margins. In terms of other initiatives that we are taking for SSSG improvements, I think there's a lot of work being done on the guest experience side. We have been continuously upgrading and refurbishing some of our older stores. There's a lot of food festivals that has happened last 2 quarters. We have done -- last quarter, we did 2 food festivals. Before that, in 9-month period, we've also done 4 other food festivals. This quarter around, we launched 3 desserts in our menu, also launched rice bowls in our delivery menu. So a lot of new initiatives have been taken to keep the brand fresh. And we believe that there has been obviously improvement in these SSSG trends. And as we go forward, this will also continue.

Okay. Got it. Just I had a bookkeeping question. I just wanted to know what is the ESOP cost for the quarter and the run rate for 9 months? And what was this comparted to...

For the quarter, it would be around INR 2.5 crores.

INR 2.5 crores. And what was this last year, same quarter?

Around similar. There has been no significant ESOPs being issued.

The next question comes from Rohit from ithought PMS.

So the question I had was, sir, so we are at about 225 restaurants. So I think this year, we closed at about 230. So the incremental journey of 70 restaurants over the next couple of years, can you broadly sort of share what would be the split between Barbeque versus the Premium CDR for Toscano and Salt?

So we have 226 restaurants currently and expect the year to end at around 193 for Barbeque India, which is 3 more restaurants in Barbeque India; 10 in Barbeque International, which is 2 more in international during quarter 4; and 30 in Premium CDR, which is 2 more restaurants in quarter 4. So overall, we expect to close the year at 233. And next year, we are targeting around 22 restaurants in Barbeque India, around 5 to 6 in Barbeque International and 16 in Premium CDR, which is both for Salt and Toscano put together. So overall, we expect to close the year at around 270 also.

Got it. So sorry, how much did you say in Premium CDR? From...

16.

Okay, got it. So let's say, 2 years out, the share of Premium CDR in our revenue should be like about 20%, 25%. Is that a fair number? Right now -- it is about 10%, 11% right now on a run rate basis, if I take INR 160 crores?

Yes. No, it should be around 20%, yes.

It will be around 20%. And sir, if you can just maybe help us with the payback that you look at in these restaurants, especially now as you go into newer geographies for Toscano and Salt? If you can just maybe look at when do you think that these restaurants typically breakeven? What is the mature unit economics that you would want to see for these?

Right. So the Premium CDR does around INR 6.5 crores of current TTM revenues. And I think this will settle down at INR 6 crores as we open more stores. In some cases, we're also opening up smaller stores of around 1,600 square feet to 1,800 square feet as against the original ones of around 2,400 square feet. So at INR 6 crores, and we will generate around 21%, 22% restaurant operating margin here, which will be close to INR 1.2 crores. And the CapEx here is around INR 2.75-odd crores. So we're looking at almost 3-year payback period with some time for ramp-up.

And typically, sir, how much time does it take for -- I mean, what is the typical buildup of this INR 6 crores or INR 6.2 crores what you said in terms of restaurant level revenue. Let's say, year 1, year 2, year 3, how does it work broadly?

So I think we start with a revenue pipe of -- front of around INR 33 lakh, INR 35 lakhs per month, which will give us around INR 4-odd crores. This goes up to around INR 40 crores, INR 45 crores and then settle down at INR 50 crores, INR 52 crores by April.

Understood. Understood, sir.

And as the revenues grow, the margin also start increasing in similar proportions.

Right. The gross margins in these would be upwards of 70%?

Yes. In Premium CDR, our gross margins are, on average around 74% -- 74% to 75%.

So sir, then while they would be 20% in terms of revenue from an operating margin perspective or operating profit perspective, they should be much more than the Barbeque brand. Is that a fair understanding, 2, 3 years out? I'm not saying immediately, but 2, 3 years out. Is that a fair understanding?

Sorry, this should be what?

No, I'm saying, sir, the premium CDR brands, both Toscano and Salt, from -- as you said, revenue-wise, they will be 20% from a contribution point of view. But from an operating margin point of view, they should be like significantly more than that. Is that a fair understanding, not now, but 2, 3 years out?

No. As a percentage, yes, that happens today also. I think Barbeque-Nation today operates at a restaurant operating margin of 15%. I think this has a potential to go up to around 18%. And if the Premium CDR is at, say, 21%, there will be disproportionate share on the operating margins from Premium CDR. Yes. And that's also true for International business because that also operates at almost 25% plus restaurant operating margin.

Right. And sir, last question for me -- from my side on the Barbeque-India business. So of course, the last few quarters -- 6, 7 quarters have been tough from an operating environment point of view. But we still maintain our leadership in the category that we operate in. However, just -- I think a few quarters back, you also alluded that there's been an increased amount of supply from various formats. So, from a customer mind share point of view, how do you see the brand in terms of relevance? A lot of our peak day crowd would be from the corporates. But just from anecdotal or from observation perspective, now there are so many brands that come -- that have opened up. So I mean, from a relevance point of view, from a wallet share point of view, how do you see that brand? Even though we may be a leader in the barbecue category, but from an overall relevance point of view, how do you see it? Any thoughts that would be helpful, given that supply has gone up significantly, as you have already mentioned, maybe 3, 4 quarters back?

So look, the supply has gone up and also there are maybe new copycats or the similar format stores that have come up. But like rightly mentioned, we have the leadership position in this particular segment. And over the course of years, we have also done course correction in our operating structures. So like I was mentioning in the early part of my call is we look at a few of the cost initiatives and ensure that in the revised scenarios of the existing throughput that you get from the existing restaurants and the new stores, how do you set your economics right such that on an incremental store basis, you start making at least 18% to 20% restaurant operating margin, even though the throughput is, say, around INR 5.5 crores to INR 6 crores, right? And those initiatives have been taken. These have been also implemented in our existing outlets, and that is the reason why we have been able to sort of maintain our margins the way it is. What it also means is that in the past, if we are doing larger stores, we opted to do it in smaller stores also, which means that we can reduce our store size by around 20%, 25% so that the economics of is maintained. That's on the format front. Also on the guests front or in terms of value creation front, this remains a very value for money driven brand. I realize that there is 2 to 3 percentage point drop in same-store sales growth, but I think these remain extremely important for our balance 98% of our consumers who keep coming to us for all you can eat and for their celebration needs. From brand side, we keep upgrading our restaurant design. So the new ones that have opened up has been far, far superior in terms of ambience and design that we have done in the past. And in the existing ones also, we are upgrading our store assets and [ tremendously ] doing a lot of stuff on our food stuff. So I think this mix of all of these, I'm extremely hopeful that we start seeing positive SSSG in our core India business also.

The next question comes from Madhur Rathi from Counter Cyclical Investments.

Sir, if I look at the longer term, like from 2016 to current year, sir, it seems that our store opening has grown at a faster CAGR than our revenue growth. Sir, that would mean that the unit economics of store has decreased because we have taken price hikes as well during this period. And that is true for FY '16 to FY '20 period as well. So barring this 2, 3 years of slowdown in the economy and all, sir, on the longer-term trend, sir, do we see the store unit economics getting deteriorated or the product appeal getting down? So your thoughts on that?

This will also depend on what size of store that we have opened up, which geographies we opened up and also what throughput have been expected from -- in what markets, we have opened these up on. But overall, if you look at our average throughput per restaurant, these have been pretty stable from 2019 to 2024 right now.

But sir, when you see our average throughput has increased, but we are similarly taking price hikes. So something is going wrong, right? Because we are saying that we are taking price hikes as well as our store opening has increased, but it is not reflecting in our revenue. Sir, so I'm not understanding when we say that our throughput is the same -- our unit economics is the same, but the revenue is not growing. So from that perspective, sir, I'm not able to understand?

So yes, we would have taken on a CAGR basis 2% price hikes. But on a net basis, if I look at 5- to 6-year trend, our average revenue per store had been stable. What it means is that in some of these markets as we open up, say, smaller stores or stores in tier 2, tier 3 market, there the average throughput will be lower. So in the part of the portfolio with SSSG over a 7-year, 8-year period time frame, the average revenue per store in that portfolio will grow and the new ones start with a lower sort of number and the blended number of this is still flattish at around, almost INR 6 crore of revenue per store.

Okay. Sir, so like over the next 3 to 5-year period, considering that the Barbeque India...

Sorry to interrupt. Mr. Rathi, you're sounding a bit muffled. Can you use the handset mode in case if it...

Yes. Is it better right now? Is my voice better right now?

Yes, sir, please go ahead.

Yes. Sir, over the next 3- to 5-year period, sir, where do we see our per store revenue growing considering -- so -- and what are the strategy that we are following to increase this throughput level overall at our stores?

So there are 2, 3 vectors. One, obviously, is price. We have maintained around 2% to 3% price hike over a longer period of time. Second is volume growth. While a couple of -- last couple of years have been subdued, there will be some base impact of this, and you'll see some cover growth from the existing stores coming in. And third vector is delivery, which is -- which last quarter also has grown at around 9% rate. So with these 3 vectors overall put together, should lead to around 4% to 5% efficiency growth.

Okay. Got it. Sir, just a final question from my side. Sir, this Willow Cloud Kitchen that we have bought, we have bought it at 9x sales multiple. So we -- at a INR 4 crore annual run rate, we have bought it, I guess, at around INR 34 crore valuation. Sir, so what gives us confidence that we can scale this segment when players like HUL are demerging their ice cream business to protect their margins? And double-digit margin on a INR 4 crore revenue won't scale when this is going to INR 40 crores. So what gives us the confidence that we can grow this segment? I would like to understand on that. And sir, are we going to pay them by ESOPs of Barbeque-Nation or it's going to be a purely cash transaction as well?

So one, I think you are comparing post-money valuation. So the money that we're investing into the company is also remaining in the company and will lead to growth. So to that extent, I think your comment on multiple is incorrect. This is a cash transaction. This is not a share transaction. And like I also mentioned in the earlier part of this call, this is -- we understand that right now is small because they also operate 2 cloud kitchens. But they also have a product portfolio. They have the recipes set for that [indiscernible]. They have great feedback from the consumers. The average rating on the [indiscernible] platform is 4.8 plus. They also have almost 62% repeat rates of consumers, which is among the best in class in the industry. So I think we have to look at all of these aspects when we try and value something like this. And like I also mentioned, this is not something which is directly going to add to our growth, but we have to keep investing in this in terms of building the business and ensure that this becomes a larger business in the past. So if I look at our past history, we looked at -- we acquired Red Apple, which is Toscano business almost 5 years back when the business was almost INR 30 crores sort of revenue run rate annualized. And today, that business is close to around INR 125 crores annualized revenue run rate. So some of these things will be built over a period of time. And as part of our capital allocation strategy, we will invest some part of our operating cash into these smaller and newer concepts, which will help us to build a portfolio of scalable brands.

The next question comes from Abhishek Nayak from Hexagon Assets.

Sir, my first question, pardon me if you covered in your prepared remarks. My first question is regarding the same-store growth for international. Could you quantify the impact of currency in that same-store growth for me, please?

So I think there's no impact of that. Amit, do you have that number ready with you?

No, Rahul. We have to give that number to them.

Sorry, Abhishek. I think we'll get back to you with this number.

All right. No problem. I'll take it offline. And sir, secondly, I had a question regarding marketing initiatives, particularly with respect to customer data. So when we are looking at trying to grow the dining bookings through your app, for example. Right now, I can see that number is at 31% or something. So how is the company trying to kind of use customer analytics to kind of boost customer targeted marketing? One is that. And second, when it comes to India's operating margins, do you have any other levers because I can see the gross margins are pretty stable. So do you have any other levers? For example, your commissions with your delivery aggregators or any store level expenses that you are looking to control that might help us improve margins in India?

Right. So 2 parts. One, on our consumer data, we do a lot of analytics. And as you rightly pointed out, our app has been going pretty well and a lot of consumers want to book directly with us through either our website or app. We have now a new website that was launched almost 2 quarters back, and we have seen very positive results on that. Apart from the 31% business on dine-in that comes from app and web, around 27% comes from our call center. A lot of large bookings want to talk to our call center representatives to make the booking. And then balance large part is also the walk-in guests. Our data collection rate -- customer data collection rate or the contact number data collection rate is almost 99%. And we do mine this data to retarget some of the existing customers through either SMSs or WhatsApp or through other digital channels on Meta or YouTube. And apart from this, there's similar marketing, digital marketing efforts have been taken to build new customers for the profile. And in some of the communications of Meta, we also have tweaked our communication to make it very relevant for the type of customer profile and for the type of celebration needs that the customer may have. So this is usual and it runs like an autopilot once the customer journey has been set. Overall, in our company, we would have maybe around 50 or so customer journeys that are already mapped from the existing data to mine this and this keeps happening on a regular basis. On operating margin front, there are 2, 3 levers still. One is on our manpower cost. If you look at our store manpower cost, we are still tracking at, in Barbeque India business, around 18% to 19%. We target to bring this by 1 percentage point. Then we have other cost optimization levers of around 0.5%, which will come from sort of supply chain cost. We will also need to work on some of our electricity cost reductions and some other overhead costs that we have. So put together, I think there is around 200 basis point margin improvement plan that we have and some part of it will also flow through from higher SSSGs. So with this, we expect the operating margins to go up.

Okay. And pardon me, again, if you covered this one also in your prepared remarks, but since we are 1 month down in the fourth quarter, can you share some emerging trends that you might have seen this month with regards to, say, traffic or delivery flows or anything that you can help us pinpoint something with customer -- consumer sentiment?

I think it's very early to sort of call out this quarter. We only have 1 month gone and then I think we'll wait for the quarter end to see how it emerges. But overall, the trends have been similar to what we saw in quarter 3.

The next question comes from Resha Mehta from GreenEdge Wealth.

So the first question is basically just extending what one of the previous participants asked that what would be your hypothesis or your informed guess about why is it that QSR is seeing lesser decline now in SSSG versus the past? And there seemed to be at least from what the listed companies have reported, some improvement in numbers, while we are not seeing that for our numbers in the casual dining space. So why do you think this dichotomy is there? And would it be of a real concern to you?

Look, I think QSRs and CDRs are 2 separate business segments. If I can pinpoint a couple of differences which are very apparent is the share of delivery dine-in depending on the company you're talking about, but broadly, QSRs would be at around 50% delivery business. Whereas in our case, it is around 15% to 16%, right? And delivery in general has done better and dine-in has not done that well. If you look at our delivery same-store sales growth, it is in positive territory. It is, in fact, mid-single digits. And on our dine-in business, our numbers have been lower by around 2 percentage points. Now if I look at -- I've not actually seen the dine-in business performance of QSRs. But if you look at that business, I'm sure there is some slow trend in our dine-in business that we're seeing. So if you look at the mix of these 2, you will see the differences. Second, as I said, the SSSG is not -- should not be just looked in isolation. SSSG in our industry also leads to margin expansion and -- because of operating leverage, right? And if SSSG is there without any margin expansion, that in some cases, these SSSGs also come from increased marketing spend or discounts. In our case, it's very difficult for me to speak about the QSR. But in our case, I think all these metrics have been under very tight control. And if I look at our same-store EBITDA performance on a 9-month basis, it's in a positive territory, right? SSSG is important to also protect your margins, right? So I think that's a conscious call that we have taken. And we are happy with that. If you -- does it concern us? Yes. Obviously, we'd like to see our overall store throughput to be on a higher basis. But does it concern me that there's something absolutely wrong? No, absolutely not. I think there's no metrics which I've seen which is giving me that indication. We obviously keep doing our work on guest experience to drive dine-in business. We keep doing our work on margin improvement through various cost initiatives and also keeping an eye on growth through new store expansion. I think in all the 3 verticals, we are happy with the way it's going.

So based on your internal studies that you all may be doing, right, how are you faring in the casual dining space, the dine-in part, right, versus your other like-to-like peers?

So it's very difficult to get the same-store sales data, but in terms of revenue CAGR on a 5-year basis or in terms of margins, I think we are among the best in the industry despite that almost a larger base of 2x to 3x of some of the larger players.

Right. And would you say that the competition the supply side has really intensified in the casual dining space because we see a similar trend and intensifying competition also in the QSR space. So here, would you say that in the casual dining space, there has been much more intensified competition? Or has it now like kind of started cooling off over the last, let's say, a couple of weeks or quarters?

No, it has intensified a lot after the revenge consumption phase that we saw in FY '23. We saw a lot of supply coming in '24, '25 financial years. And now, the demand environment has been tough for pretty much everybody in the food service industry. So a lot of smaller CDR players also are feeling the heat. And at least from the market perspective, some of the sites that we found to be very nondurable from the rental perspective are getting into the realm of something that we should consider for our own brands. So to that extent, I think there has been some green shoots on lower -- reduction on the overall rentals in some of these places. So we hope that the new supply pace growth is not as strong as we have seen last 2 years.

Sir, the line for the current participant has been dropped from the queue. So we'll move on to the next question. The next question comes from Vivek Kumar from [indiscernible] LLP.

Sir, the same question continues with what Rohit has asked, like you had just mentioned that there's a huge supply and we are facing demand problems. So -- and you also mentioned in the previous con calls and across annual reports that you want to be celebration -- destination for celebration. So just wanted to understand that what can we do, because we can't control the external supply nor the incomes or the GDP growth over the short run. What can we -- what are we doing so that the -- are you calculating or do you keep track of how frequently customers visit? How do you make sure that they come to you, and how do you make sure that our brand doesn't get diluted? And that's what we can do, right, better and then how you innovate on you or these things. And also, if you can throw some light on how the competition is faring because you have told that many copy cats have come. So how are they faring? Is there anybody who's doing better and we have to match up to them? So these kind of things, because this is what is in our control. So if you can throw more light on, that's our question. That's my question, sir.

So I think what we need to do is just keep working on our guest experience, and this is what we have done for the last 1.5 decade, to keep ensuring that our food experience and the [ convenience ] experience of guests is among the best in the category. The services that the guests expect from us is also among the best in the category. We have been able to dispense this over 200 of our restaurants in Barbeque-Nation. And also maintain our assets' freshness and look and feel, right? And this is what we have been continuously doing for the last few quarters. In terms of many other formats who are similar Barbeque on the top formats, we clearly are market leader. I think the #2 player would be, maybe 1/4 of our size in terms of store count. And it's not that we have seen any other player who is doing extremely well in terms of this category. I think we continue to be market leader. We continue to add more stores on this and have the widest presence in the country.

You're throwing around INR 100 crores cash -- INR 100 crore-odd cash [indiscernible] but you're trying to add around 50 restaurants next year. So will you go for that? Or you are confident that you will throw higher cash next year?

So we're looking at around INR 40 crores to INR 45, which will lead to around INR 120 crores of CapEx here and another INR 20 crores for maintenance and some refurbishment. So INR 140 crores of expected cash. At last year, say, 10% adjusted operating margin, we would generate this amount of cash. I think the delta that will be there is hardly INR 15 crores to INR 20 crores. So if the operating cash is not as much as INR 140 crores, then we'll take some debt, and our balance sheet is not leveraged. As I said in my earlier part of the call, our net debt is approximately INR 20-odd crores only.

And we have read in some news articles that you have -- not just this, you've also had some new restaurant -- bar and restaurant open, Bricks. Is it true? Or is it some other thing that just got misquoted? Is it a misinformation?

No, it's true. Bricks is a bar and restaurant concept that we have opened up in one of our existing restaurants. We have 2 floors of Barbeque-Nation. We converted that to 1 floor of Barbeque-Nation and 1 floor of this format called Bricks. Again, this is something that has happened without having any incremental rental or any incremental cost towards liquor license. So the payback periods on this are very handsome. And this is just an experiment to see how it goes. So this is anyway very small to even talk about. Initial response is very good. No, but this is not a strategy. I think like I said, we have 3 distinct verticals. We have Barbeque-Nation in India, we have International and we have Premium CDR, and we are focused on growing these 3 from our operating cash.

Toscano -- you have most of the Premium CDRs will be on Toscano or both, Salt and Toscano both equally? Or it will be more tilted towards Toscano?

Around 20 stores is Toscano and balance is Salt.

[Operator Instructions] The next question comes from [ Gopinath Reddy ] from PNR Investments.

Sir, given the present environment, are we looking at the new Barbeque-Nation stores of smaller size than what we have currently? Or is it the same size? And where are we opening them? Which area of the country?

Yes, we are looking at smaller size, a reduction of maybe around 20%, 25%. We are largely looking at the new expansion in metro and tier 1 markets and are very selective about tier 2, tier 3 markets.

Are we looking in the south of South India also? Or how are we going in South India, sir, especially?

No, we look at pan-India. We are already operational in around 25-plus cities. So I think more than any specific region, what matters for us is whether the trade area is attractive for us and what is the throughput that we will take in the new store that we open up and also what are the other commitments like rent and store [indiscernible]?

Okay. Which area of India is having this slowdown in same-store sales growth, sir, especially the maximum, which area is it?

South has been down the most.

Is it because too many copycats are there or any other reason, sir? Specifically South, what may be the region?

South definitely has higher competition than other regions. But the attribution can also be to some decline in corporate demand in all these locations.

Any area in India where we are growing, sir, in terms of sales growth?

Oh, yes. We are growing in 2 of the regions out of 4 and 1 region is flattish.

The next question comes from Pritesh from Lucky Securities.

Sir, can you enlist the reason for store closures, these 3, 4 stores in the year?

No, some of these were not performing to the extent that we wanted. They were loss-making. And based on our numbers, we believe that they will not turn profitable in the near future.

And the comment that you made about regional growth and regional decline. So 2 regions in India growing, one is flat and one is declining. So that one decline is so significant a decline for you to have a minus 2 SSG?

Yes. No, the other 2 positive also at low single digits.

Yes, it's okay. Even if it is low single digit, it matches your SSG -- closer to your SSG, right? So the question is this 1/4, so 25% decline is has to be a double-digit decline. So can you give out the key reason for such a large decline? And what exactly should happen in the system for it to rectify or what you should do to rectify, either the system or you, whatever be the case?

No, one, I think we don't give regional level same-store sales growth numbers. So I won't be able to comment on your double-digit number there. But like I said in the earlier part of my call, the efforts that we're taking for same-store sales growth has been consistent across all locations. And we are working on guest expenses to increase the cover growth on the dine-in side.

These are the efforts -- so what efforts has to be taken then?

No. Like I said, you have to keep working on the guest experience. You have to keep upgrading your food experience. Like I said, we did 2 food festivals during the quarter, which is -- we launched 3 dessert menus, keep up with your service levels in the restaurant.

But sir, these efforts are normal for casual dining -- sorry, for a dining business. These are normal efforts that typically goes in for a customer experience, right?

Right.

Any other areas of improvement that should happen in your opinion? Or it's just environment?

No. See, it's very difficult to pinpoint which is what, but we have to keep delivering the same experience to the guests and keep improving on it every time so that guests keep coming back. And to some extent, it is also environment.

Can you just tell the 9-month operating cash flow? How much cash did you generate in the 9 months?

I think it's around INR 65-odd crores. So Bijay or Amit, can you please confirm that number?

Yes Rahul, that is around INR 65 crores.

And for the full year, did you say INR 140 crores is what I heard or I did some error in this?

For next year. For next year, I'm saying the CapEx target at 40 stores is INR 140 crores. And if we do around double-digit EBITDA margins, we will have enough cash flow to fund that. If the margins are lower, to that extent, we'll have to borrow debt.

Okay. So next year, store addition is INR 40 crores and to which the total CapEx is INR 140 crores with some INR 15 crores, INR 20 crores of maintenance included in it, right?

Yes.

So the store CapEx is 40 x INR 3 crores, about INR 120 crores, plus INR 20 crores for maintenance.

Yes.

Okay. And what is the store addition this year?

We have done 13 new, and we expect to add around 7 more in quarter 4, so around 20.

The next question comes from Manjeet Buaria from Solidarity Investment Managers.

I have 3 questions. One was, do we have any agreement to buy out the remaining stake in Willow at a predetermined valuation and within any predetermined time period? The second question I had was while I understand the need to experiment to create growth vectors, as you explained, but is there any formal policy or a cap where you say, let's say, over a rolling 5-year period, we won't invest more than x percent of our operating cash flows in these experiments, was the second question. And finally, if you could just explain what synergies you were mentioning on the kitchen side, et cetera, because they were not clear to me. And how does this brand go from only INR 4 crores revenue to, say, INR 100 crore revenue brand? It might take a longer time period. These are my 3 questions.

Yes, Manjeet. So there is pre-agreement to buy, but not in terms of shareholding, but in terms of quantum of rupees. So we have an option to buy a stake worth INR 2 crores to INR 4 crores over the period of next 10 years from them, but no obligation to even invest this amount of money in adding to more of stake. In terms of -- there's no formal policy as such. But at a Board level, we don't want to invest more than, say, approximately 20% of our operating cash in some of these newer initiatives. And in terms of efficiencies, like I said, they have an existing setup from which they run their existing 3 cloud kitchens in Bangalore. As a Barbeque-Nation group or a company between all the 3 brands, we have around 35 kitchens in Bangalore. We expect to take this particular brand in at least 15 to 20 of our existing kitchen depending on space to carve out for these brands. And then for the balance part of the city, we'll have to contract cloud kitchens, which have got attractive economics. So that is our plan on this particular brand.

So Mr. Rahul, if I got this correct, you mean that you'll sell this brand via your existing kitchens and BBQ or other restaurants via the aggregators. It's not to sell in your existing restaurants basically?

Yes. Yes, not in the existing restaurants. These are premium artisanal ice creams. So I think since Barbeque-Nation is all you can eat, we can't.

No, that makes sense. Then it makes sense. Sorry, I was confused. So Rahul, let's say, you take this across whatever 30 stores you have roughly, right, what is your expectation on how big will the revenue be on this brand within, let's say, next 1 year?

So look, at 30 cloud kitchen, even at, say, average of INR 7 lakhs to INR 8 lakhs per month on each cloud kitchens, this can become approximately INR 25-odd crores sort of run rate business for us. But we'll have to see through the journey of this particular brand. I think we are very happy with what we saw in terms of guest experience right now, and we'll have to obviously execute this. This comes with the execution risk that we will take.

Got it. And just one last one. When we take these [indiscernible], why do you take a 51% stake and not a sub-50% stake? Because, let's say, if an experiment does not work out, as the majority owner or the promoter, exits become much more complicated. So why won't you first experiment with a sub-50% stake and then if it starts working out, have the option -- call option to buy more stake?

Look, we are long-term holders of these brands, and we don't expect to sell this. We expect to build these brands over the years as we have built, say, Barbeque-Nation or Toscano and Salt now. And you're right that some of these may not work also. And if it doesn't work, then we obviously have an option to sell this or divest this from our portfolio. And to that extent, if you have an operating control or the shareholding control at 51%, this becomes all the more easier to do that. So that's the broad philosophy with which we operate.

The next question comes from Naitik from NV Alpha Fund.

I just had a bookkeeping question. I see your adjusted EBITDA, which is down 4% year-over-year. And at the same time, your employee cost is up at a similar amount. This is despite adding 4 new stores. So I just wanted to ask, is the rental expense of these new stores not yet kicked in fully?

No, rentals have kicked in. But like I said, we have done a lot of cost efficiency projects, which are all sitting in occupancy and other costs. And employee costs have gone up largely because of the new store that we have added.

The next question comes from Rohit from ithought PMS.

Just a couple of questions. So sir, incrementally, as we open stores, especially in Barbeque, would you have any mix in terms of tier 2, tier 3 versus the tier 1 cities? That was one in your mind. The context being, I'm assuming maybe the competition would be much lower in the tier 2 and tier 3 markets. So if you can share that. In the past, I think you've mentioned some of these concepts have not worked in these tier 2 and tier 3 cities. So I just wanted to get your sense, have we changed anything for these formats? Or is that even something that we're looking at? That was the first question. And second, typically, for us in the Barbeque format again, what is the rent to sales that we have? And how would that be different from, let's say, top 8 cities versus the rest of the markets?

So in terms of our expansion, we'll continue to largely operate in metro and tier 1 markets. Tier 2, tier 3 markets, it's not that they don't work. We still have around 45 to 50 restaurants in tier 2, tier 3 markets, and they're doing very fine. Just that some of these markets takes longer to grow and mature, and that's why we prefer some of these new markets that are developing in metro and tier 1 markets. So going forward also, I expect to sort of have the same ratio of [indiscernible] in metro and tier 1 markets. In Barbeque-Nation, rent to revenue ratio for overall Barbeque-Nation would be around 11% to 12%, out of which top 8 cities would be, maybe a couple of percentage points higher than the rest of the country.

Ladies and gentlemen, we'll take that as our last question for today. On behalf of Barbeque-Nation, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.