Sapphire Foods at new high; soars 18% in 4 days as large funds raise stake

Shares of Sapphire Foods India rallied 6 per cent on BSE to hit a record high of Rs 1,616 in Wednesday’s intra-day trade on expectations of a healthy outlook of its KFC franchise.

In the past four trading days, the stock of the restaurant company has surged 18 per cent. It has surpassed its previous high of Rs 1,565.30 touched on September 11, 2023.

In the past one month, institutional investors have increased their stake in the company by nearly 3 percentage points.

On March 7, 2024, HDFC Mutual Fund acquired 1.45 million equity shares, representing 2.28 per cent of Sapphire Foods, via open market.

The aggregate holdings of HDFC Mutual Fund in the company increased to 7.54 per cent from 5.25 per cent. As on December 31, 2023, the MF held 4.05 per cent holding in Sapphire Foods, data shows.

Earlier on February 27, 2024, GIC Private Ltd on account of Government of Singapore (GOS) and the Monetary Authority of Singapore (MAS) purchased 329,695 equity shares or 0.52 per cent stake in Sapphire Foods via open market acquisition.

Post this acquisition, GIC’s stake in the company increased to 8.08 per cent from 7.56 per cent.

Sapphire Foods started operations in September 2015, acquiring about 270 KFC and Pizza Hut Stores in India and Sri Lanka, by a group of leading Private Equity firms and is managed by a team of professionals.

Sapphire Foods is a leading YUM franchisee operator in the Indian subcontinent with presence in India, Sri Lanka and Maldives.

As of December 31, 2023, the company owns and operates 406 KFC and 319 Pizza Hut restaurants in India, 112 Pizza Hut and 9 Taco Bell restaurants in Sri Lanka and 2 KFC and Pizza Hut each in Maldives.

Sapphire, akin to most of its peers, saw continued weakness across most growth metrics, given the challenging demand environment. Sapphire remains on track to double KFC store openings (over Dec’21) in 2024.

Severe competition in the pizza category continues to severely impact PH, with SSSG falling by 19 per cent leading to RoM compression of 950 bps to 4.6 per cent in December 2023 quarter (Q3FY24).

With all three parties (Sapphire/Devyani/Yum) having initiated collective efforts to turn around the brand, Sapphire has toned down the store opening outlook for Pizza Hut.

In a weak consumer sentiment scenario, Sapphire KFC continued to perform well. It delivered robust performance with Restaurant Sales growth of 16 per cent YoY (-2 per cent SSSG) and Restaurant EBITDA at 20.1 per cent (down 10 bps YoY).

Pizza Hut had a challenging quarter with restaurant sales declining 4 per cent YoY (-19 per cent SSSG) as the overall environment remains difficult for the pizza category.

"Revival of this key brand in Sapphire’s portfolio will require persistent execution (product innovation and building consumption occasions) with enhanced marketing investments over the medium term (update laid out in the subsequent slides). The management said it is being cautious on the company’s restaurant expansion approach," said analysts.