United Foodbrands Limited (UFBL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to United Foodbrands Limited Q2 FY '26 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, Shweta. Welcome, everyone, to United Foodbrands Limited Q2 FY '26 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'll open the forum for a Q&A session. Before we begin the presentation, I would like to remind you that some of the statements made in today's conference call may be forward-looking in nature and may involve risks and uncertainties. Kindly refer to earnings presentation for a detailed disclaimer. I will now hand over the call to Mr. Kayum Dhanani.

Good evening, ladies and gentlemen. It's my pleasure to welcome you all to the Q2 FY '26 earnings conference call of United Foodbrands Limited. While overall consumption demand remains subdued, we remain cautiously optimistic about our performance. For the past few quarters, both the industry and our dine-in segment have faced challenges with flattish or negative same-store sales growth. During this period, we implemented several initiatives aimed at enhancing guest experience and driving footfall, which has enabled us to outperform the industry. We are pleased to share that we are now witnessing an uptick in both dine-in volumes and delivery transactions, resulting in a return to positive SSSG. For Q2, SSSG stood at positive 0.8%, excluding Navratri days. While for the 4-month period from July to October 2025, it was 0.3% positive entirely driven by transaction growth. We are confident that improvement trend continues supporting our performance in the upcoming seasonal strong quarters. Our focus will remain on driving sustained volumes growth across formats. During the quarter, we reported revenues of approximately INR 305 crores, a 2.6% increase over Q1. Despite Q2 being a seasonally softer period and impacted by Navratri, gross margins were affected by lower realization from value-based group offers and the higher food cost associated with our month-long Khau Galli Food Festival. Nevertheless, we maintained strict cost control discipline and achieved a reduction in 6% of the overhead cost within our Barbeque India business. Our international operations continued to perform strongly, delivering 27% revenue growth and a sustaining 20% restaurant operating margin in the mature portfolio. The Premium Casual Dining segment also performed robustly with 17% year-on-year revenue growth, mature store margins of around 50% and continued expansion into the new metro markets. We added 6 new restaurants during this quarter, taking our total network to 241 outlets. We remain on track to open 35 restaurants in FY '26 and are firmly progressing towards our full FY '27 target of 300-plus restaurants. Thank you. And with that, I will now hand over to Rahul, who can take you through the operating performance in greater detail. Thank you.

Thank you, Kayum. Good evening, everyone. During the quarter, we added 6 new restaurants, taking our total portfolio to 241 restaurants. This includes 195 Barbeque Nation India restaurants, 12 international restaurants of Barbeque Nation and 34 Premium CDR outlets. Additionally, 15 new restaurants are currently under construction, and we remain on track to open 35 new outlets in FY '26. For the quarter, our same-store sales growth stood at 0.8%, excluding the impact of Navratri, which was not part of the base quarter. Over the 4 months period, July to October 2025, SSSG was 0.3%, driven entirely by approximately 4% transaction growth. We reported consolidated revenue of INR 305 crores, a 2.6% sequential increase despite quarter 2 being a seasonally weaker quarter. This reflects continued positive revenue momentum. Our dine-in business grew by 1.6% quarter-on-quarter with approximately 2% transaction growth over the 4-month period, while our delivery business grew 7% sequentially, supported by 12% transaction growth during the same period. Gross margin for the quarter stood at 66.2%, down by about 150 basis points sequentially, primarily due to culinary initiatives and value-driven group offers. We expect our consolidated gross margin to stabilize between 67% to 68% range going forward. Pre-Ind AS restaurant operating margin were 8.2%, temporarily impacted by the softer gross margin, around 1.2% increase in marketing spend and ramp-up of new stores. Despite this, we maintained a strong cost discipline, achieving 1.3% year-on-year reduction in overhead costs in our consolidated business. Mature restaurants delivered around 9.6% pre-Ind AS restaurant operating margins. Consolidated reported EBITDA stood at INR 37.7 crores with 12.4% margin, while adjusted operating EBITDA was INR 3.3 crores at 1.1% margin. Barbeque Nation India business. Revenue from India stood at INR 230 crores, approximately 0.5% quarter-on-quarter increase with the SSSG for the segment being minus 1.1%, excluding Navratri and around minus 1.6% for the 4-month period, even though the transaction grew by around 3.7% in our India business. We maintained tight cost control across existing units while continuing to invest for future growth. Marketing investments increased by about 1.2% of sales this quarter with a focus on driving volume growth. While this temporarily impacts margins, we are confident that these investments, combined with operating leverage, will strengthen performance in upcoming quarters. Operationally, we remain focused on enhancing guest experience through culinary innovations and engagement activities across all our restaurants. During the quarter, we enhanced focus on value-led campaigns such as Sizzling 7, Big Buffets and Grill and Chill, which were well received by guests. These offers reinforce our value proposition while driving traffic. We also rolled out a deal module to promote value offers through our own app and website, leading to a higher share of our direct digital sales. Our international business recorded revenue of around INR 28 crores, representing 27% year-on-year growth, supported by a strong same-store sales growth of 8.4%. Gross margin for the segment stood at 22% and pre-Ind AS restaurant operating margin was around 18% with mature restaurants achieving 20% plus margin. We successfully opened our first restaurant in Riyadh, Saudi Arabia during the quarter, which was very well received by our guests. This experience positions us well to deepen our presence across the Middle East. We plan to open 4 to 5 new restaurants in FY '26, while maintaining focus on same-store sales growth and operational excellence. In our Premium CDR segment, we delivered a revenue of around INR 47.3 crores, up 17% year-on-year. Gross margins were 23% and pre-Ind AS restaurant operating margin stood at around 13%. While new restaurants are still maturing, the established network continues to deliver 20% plus margins in this business. We added 2 new restaurants in Hyderabad during the quarter and continue to expand the business. We target to open -- to add 30% network growth in FY '26 in the Premium CDR segment. Our focus remains on scaling Toscano and Salt in new metro markets, while sustaining guests delight through continuous primary culinary and service innovations and maintaining strong operating discipline. Our strategic focus remains unchanged. We'll continue to strengthen the Barbeque Nation brand, both in India and overseas through best-in-class guest experience, culinary innovation, curated value offerings and tight cost management. Simultaneously, we'll expand the Premium CDR business to build a robust portfolio of scalable brands that complement our core. Thank you. With that, we can now open the session for Q&A.

[Operator Instructions] First question is from the line of Devanshu Bansal from Emkay Global.

I wanted to check on...

Mr. Devanshu, your line has been unmuted. Please go ahead.

Are you able to hear me?

Since there is no response from Devanshu, we will proceed to the next question from [ Rishabh ] from Pravin Ratilal Wealth.

Yes. Am I audible?

Mr. Rishabh, your line has been unmuted. Please go ahead with your question.

Yes. Am I audible? Rahul?

Since there is no response, we will proceed with the next question. Devanshu Bansal from Emkay Global.

Yes. Am I audible now?

Mr. Devanshu, your line has been unmuted. Please go ahead with your question.

I hope there's no technical glitch here because...

No, sir, there is no glitch. We will proceed with the next question from Viraj Mehta from Enigma.

Yes. Rahul, my first question is regarding our India business margins. In spite of doing INR 5.6 crores revenue per quarter in barbeque, our margins saw significant decline even at gross levels. So can you talk a little bit -- and you did allude it to a little bit, but what exactly do we want to do with that? Because see, our growth is also not coming and now we are compromising margins also for growth in spite of that growth is not coming. So like I'm a little confused what is the strategy per se?

So if you look at our margins are down by -- gross margins are down by approximately 2 percentage points. And like you mentioned, there are 2 impacts here. One is the impact of higher food cost because of this food festival that we ran for a month. And on a percentage basis, there's almost 1 percentage point impact, which has subsequently been removed from the numbers. So if I look at October, 1 percentage point has been recovered from gross margin. The second impact is because of some of the campaigns that we run, which promotes group offers like Sizzling 7 and Big Buffets of the world. This has helped us to achieve transaction growth. So in the 4-month period -- and why I'm using 4-month period is because there's a like-to-like data given between 2 different quarters. We are growing at around 3.7% on the transaction side, right? So I think we are in a stage wherein we are investing some bit in terms of either gross margin or in terms of some marketing spend to ensure that we start getting back the traffic that we need. Obviously, not that the industry is at its best wherein there is a lot of other players who are really exciting. So in that context, I think we'll have to invest some amount to build this business, and we'll see that traction coming in as this rolls over. Also, if you look at our overall margin performance, so broadly between last year's quarter 2 and this year quarter 2, we would have lost around INR 13 crores, INR 14 crores of absolute number of gross margin, which is where we also lost in our operating -- overall Ind AS operating margin, right? There has been a very strong cost discipline on our operating cost structure. It's not that we are over-investing to get sales. But if you look at the current quarter, I'm actually extremely happy with the way quarter-on-quarter we have shown slight improvement in our traffic and also in our overall revenue.

Right, right. And I mean, we have now seen festive season go by in Diwali in October. And you have shown a little bit that our SSSG is slightly positive for these 4 months put together. How do you see the traction? Like from this quarter onwards, should we see low-single-digit kind of SSSG growth? And because also because last year, Q3 was a terrible quarter in terms of negative SSSG. So it's a very low base when we are anyway starting with. So what are your thought process on that?

So Viraj, so last year, quarter 3 was around 2% negative. In this industry scenario, I don't think 2% is an extremely terrible scenario, but I respect that. But overall, as you see in the current 4-month period that we have given a flavor of, on the reported basis, the entire quarter is at minus 2%, right? And on a 4-month basis, we are on positive territory. So that's because October was up by approximately 6% to 7% on same-store sales growth on a consol basis. And my India business was also up by upwards of 5% in the month of October. So I think October has gone by. November has just started. The momentum is continuing. But quarter 3 is very peculiar because a lot of business happens from around second, third week of December and continues till first week of January, right? I think we'll have to wait and watch how that period stands out. But like I said, overall, there has been some good positive momentum, and I'm not comparing it with 1 month part of the month. I think comparing for a period of 4 months and moving to a negative territory is a very, I think, decent performance given where the industry is right now.

Absolutely. And in terms of your CapEx, because let's say, we do around 265 -- 60, 65 total restaurants end of the year. What is the total CapEx, Rahul, you think we will end up spending this year?

We plan for close to INR 125 crores in this financial year to meet our plan of around 35 new restaurants. And this also includes some maintenance CapEx, some renovation CapEx that we do and some corporate CapEx that we end up spending. So INR 125 crores is the number.

So then your debt because our cash flow will be in the region of INR 60 crores to INR 80 crores. So you will see a significant increase in your debt this year. That's correct?

So yes, and that has already happened in the first half because in the first half, the cash flow generation was lower given the margin got impacted. And as of the current date also, September end, we have borrowed additionally around INR 40-odd crores. The second half, given that there is also seasonally stronger quarters and we're also seeing some positive momentum, the cash flow generation will be higher. And we expect that the gap between cash flow generation for the next 6 months versus the CapEx requirement should not be more than INR 15-odd crores.

Next question is from Milan Shah from Pravin Ratilal Investments.

I have some questions. My first question is on ROM. Since Q3 FY '25, there is a gradual decline in ROM and it is down by 50% already. It is mentioned in the earnings presentation on Page 8 that ROM is impacted by lower gross margin and higher marketing spends and some new restaurant ramp-up. So can you guide from when any improvement in ROM is expected? And any comments on marketing spend? Are you going to increase marketing expense or will be at the same level going forward?

So I think it's not correct to compare quarter 3 of the business which is seasonally the best quarter for us with quarter 2 which is seasonally one of the worst quarter for us. So the right comparison would have been quarter 2 of last year versus quarter 2 of this financial year. There is definitely a drop of around 4 percentage points as we have reported on our ROM, restaurant operating margin. And like we mentioned, out of this 4%, broadly a couple of percentage points have impacted because of gross margin. Some part of it we're already seeing coming back in the current quarters. And then as I mentioned, we have increased our marketing spend by close to 1.2% and the balance has happened from new restaurant ramp-up. In the new restaurant ramp-up, categorically, we had some higher initial dampener because of -- in our Premium CDR business. So I think directionally, all of these are moving in the right direction. I think gross margin impact is a short-term investment that we have made to increase momentum in our transaction growth. Marketing spend overall at a company level is approximately 3%. This is something that we will maintain at this level. I don't expect a reduction from 3% in the coming quarters. Also not at a point of time and the core focus of the business is to drive transactional growth in the company. New restaurant ramp-up is directionally okay. That's the way it happens. And this also will come back in our business. So if you look at quarter 3 of this financial year, you will obviously see improvement. And the right metrics to compare would be quarter 3 of last year with quarter 3 of this year.

Understood. Yes. And my second question is on SSSG. On Page #5 in earnings presentation, it is mentioned that pre-Navratri SSSG was 0.8%. And for the entire quarter, it was 2.2% negative SSSG. So is it the right understanding that these 9 days of Navratri has impacted the business that much heavily that entire quarter SSSG turned negative? And any further like explanation if you can give?

No, you're right in that. So we are -- at least our Barbeque Nation business is a predominantly non-veg-heavy business. We get almost -- our non-veg ratio is between 70% to 75%. So during those 9 days period, there is a drop in non-veg consumption and the impact is specifically because of that. And that's the reason why we have also compared it with the 4-month period so that 4-month period versus last year 4-month period has actually no abnormality and covers pretty much every differences of the calendars that happen in the business.

Next question is from Devanshu Bansal from Emkay Global.

So Rahul, in Q1, we were on a consol basis, SSSG was about minus 3%. And then over the last 4 months after that, it's closer to flattish. But then we had to sort of make certain investments or leave certain offers on the table for consumers, right? So I wanted to check whether do you see this as a structural thing that has happened to the business where consumers need additional value to sort of come back to the stores? And secondly, obviously, we will not be happy with -- as a business, you may not be happy with this flat SSSG performance, and we would be targeting, say, mid-single-digit type. So do you foresee a need for further such investments in the format to sort of revive mid-single-digit kind of SSSG growth? So that was the first question.

Yes. So on the margin front, if you look at quarter 1 also, we have started this group offers in quarter 1. And last quarter also, we had started to do some marketing investments. There is obviously a lag impact of that. We also -- I think at an industry level, there's been some positivity from the GST debt reductions, right, that has been impacting the business. So I think on gross margin level, like I mentioned in the opening remarks, the guidance for us is around 67% to 68% margin level. I think that's achievable number and we don't need to go further down from that. Business, they need to go down because our format is a certain level of menu, which kind of delivered at this particular gross margin. Your second question was on SSSG. I think we're definitely seeing a good trend on a 4-month basis. And there has been, on a sequential basis, a good improvement of around 4 percentage points, right? We are frankly extremely happy about that. I'm extremely happy about the transaction growth that we are seeing. Like I said, October month has also delivered around mid-single-digit. The momentum is there right now. And like I mentioned, we have to see how November, December pans out. But the focus of the business would be to build transaction growth. Also in our format, in any of the restaurant format, the operating leverage is very high, right? So we might be sacrificing some bit of gross margin here. But if we could deliver better same-store sales growth from this to our consumer, the operating leverage impact will be more than the gross margin sacrifice that you will see here. So I think we have done good -- we've seen good traction over the last 2 quarters and would definitely like to continue this. And...

Maybe actually, Rahul, I got your point, but because you've provided us SSSG numbers for 4 months, but you've not provided operating margin numbers for 4 months. So maybe it's becoming hard for us to correlate what you are saying. But the -- exactly my point was that if operating leverage would have been high, then gross margin obviously has been impacted, SSSG has seen a recovery, but there is a very strong impact on the restaurant operating margin, at least for Q2 FY '26. I don't have the number for 4 months. So that was there. Anyways, second question, what I wanted to understand that you mentioned that from a difference between CapEx and debt increase for the year, it is about INR 15-odd crores. For H2, according to you, what is the margin improvement that you are sort of factoring in for such kind of outlook, right? So it definitely is indicating that you are expecting a healthy rebound in the margins because you said INR 125 crores, so that requires additional INR 75 crores of CapEx and then you have to repay, say, INR 40 crores. So you're expecting like INR 110 crores, INR 120 crores of EBITDA. So I just wanted some thought process there.

Yes. So on H2 basis, which generally is a stronger quarter for the business, I'm expecting around 8% corporate level EBITDA margin pre-Ind AS. So the number that we have discussed right now is based on that assumption.

The next question is from Rishabh from Pravin Ratilal Wealth.

So Rahul, the first question is on the number of restaurants that you have in Bangalore. So can you just quantify the number of restaurants that you have in Bangalore? And can you just split it between Barbeque and Premium CDR?

So we have around 20 of Barbeque Nation. And for Premium CDR, we would have around 15 in Bangalore.

Okay. So out of the total restaurants that we have, 240, we are having 20 plus 15, so around 35 restaurants we're having in Bangalore itself, right?

Right.

So just following up on that question. So we have a negative SSSG of 4.3%. Can you just give me a split between what is that number in South India and non-South, that SSSG?

So I can't give you that split right now. But what I can tell you is South have been one of the struggling markets for us. But in the previous quarter, we have seen that South has also performed pretty much similar to how other regions in the country has performed. So I can't -- so some of the impact that we saw on our revenue numbers, South India has reacted better to some of these offers.

So are you -- so help me understand if I got you right. So what you're trying to say is that the negative SSSG number is similar in South and non-South? Are you -- is that what you're trying to say?

Yes.

Okay. No, we were under the assumption that the rest of India has actually started to do well. So we obviously had a QSR report numbers some time ago, and they said that they have extreme problem in Bangalore. So can you then just let me know how -- what would be the SSSG in Bangalore particularly since we have 35 restaurants?

I can't give you the specific number, but if you want to have some instance, our Premium CDR business has done an SSSG of around 5%, right, for the quarter. And out of 34 restaurants, 15 are there already. So that portfolio is 5% and Barbeque Nation portfolio is at minus 4% for the entire quarter. Barbeque Nation gets more impacted because of Navratri. But broadly, I think Bangalore, if I look at all 35 restaurants, my sense is that we would be actually better than pan-India because the Premium CDR portfolio has done better.

Okay. So just one more question on the -- so from Q4 onwards, can we start seeing positive same-store sales growth in the Barbeque India business?

So look, like I said, the focus is on transaction growth, same-store sales growth. We are seeing some positive momentum. We have seen that in the period during pre-Navratri. We are seeing that also in the month of October. We have seen that over a period of last 4-month period. So I think that momentum is continuing. We'll just build up on that.

[Operator Instructions] Next question is from Madhur Rathi from Counter Cyclical Investments.

Sir, I'm trying to understand that it has been now almost 3 years, that is 12 quarters since our SSSG is a negative, so which is an achievement in itself that on such a low base also we are continuously clocking negative SSSG. So it seems that we were already loss-making on a net basis, but very soon, even in operating level, we will start making losses, because in the second quarter, it was hardly -- company is hardly broke even. The EBITDA was really INR 3.3 crores. So I think there is something that the management is missing because there is no point in continuously opening new restaurants when your existing SSSG growth is negative for 12 quarters continuously. And on top of that, now I can see that we have a net debt on our balance sheet. So it is like there is already a fire and you go and start a new fire at some other place. So that's what I think the direction that the company is moving in. Please correct me if I'm wrong.

So we don't see it obviously in that fashion. Yes, SSSG has been negative for quite some time. And the negative numbers in the current financial year, previous financial year is broadly in line with where the industry is, right? It is not exactly poles apart wherein the industry is really growing at a very handsome number and we are dragging behind. Obviously, the margin numbers in the current quarters are lower with a specific mindful thought process on where to invest money and where not to invest money. We have very thoughtfully invested in some of our consumer offers and campaigns. And we have also very thoughtfully spent some bit on the marketing spend. And that too continues to remain on a -- at a very lower end of the entire industry average spend on marketing. Similarly, on our overall portfolio, we have been very, very cautious about our cost control. I think -- and in the current quarter, like I've been mentioning throughout, we are seeing some positive momentum in transaction growth, which is I'm building. Yes, we did increase some of our debt as we are -- as we have expanded our network base. But expanding network base and SSSG are 2 different things. SSSG is in our product trade area. And we have a separate team who develops stores and manages the new store that opens up till the time it's integrated with the existing ops team. We obviously don't see this business on a 1 quarter or a 1-year basis. We have been around for almost 2 decades now and have built a very strong business that we are extremely proud of. I'm very happy to see the current momentum that we are seeing in the business, and we hope that this will turn positive.

So basically, to the best of my knowledge, the rest of the industry, at least the listed players, they turned SSSG positive 2 quarters back, whereas we are still clocking negative SSSG. So do you believe that from Q2 was the bottom or there is still a few more quarters of negative SSSG growth remaining for us?

Madhur, look, I can't compare with the listed numbers. It's all in the public. Some brands have done positive, some brands have done negative. So there's no point discussing that. Obviously, there has been a negative trend since -- till quarter 1, and that trend also has been only plus/minus 2%. A 2% number doesn't mean that there is fire all around. And more importantly, you have to see the trend, something will not turn positive immediately. There is a momentum that sort of build-up. And what I've been trying to say till now is that whatever we have seen in the last 4 months, we have been happy with that, right? Would you see minus 2% turning into suddenly positive 10? That won't happen. I think there's step-up that keeps happening in the business, and I'm very happy with the current momentum that is there.

Got it. Sir, on the -- so when we try to think about this volume versus value strategy, sir, so when can we expect this reduced realization to reflect in volume numbers? Can it happen over the next 2 quarters and we'll start seeing some improvement on margins as well with operating leverage or how should we think about that?