Where do you see the margins settling going forward because it is something that a lot of prospective investors will focus on? Are these levels sustainable? Could they improve further?
Vijay Jain: If we look at things in perspective, over the last five years, we were able to build scale as well as profitability. Our EBITDA margins in Q1 of this financial year was impacted by the second wave of Covid, especially in April and May. Revenue-wise, we will still be operating below pre-Covid levels.
Last year’s (FY21’s) annual margin was 18.9%, which was a 450 bps improvement over previous year. In spite of the year being impacted by Covid, we have been delivering some efficiencies almost every year through our cost efficiencies, in-house excellence programme — be it our zero base budgeting and some of the other costs having been thrown out of the system. We expect the process to continue. So the process is sustainable.
If we continue to focus on the process and the execution, one can see improvements as we move forward. However, I would not like to give any specific guidance due to the protocol we need to follow right now. But last year’s margins of 18.9% is right up there amongst the industry benchmarks.
Sanjay Purohit: If I just were to add a little bit, as we built scale, we get further operating leverage and the EBITDA margin should translate into better net profit margins also.
How are the demand trends? What are the footfalls that you are seeing now? Is the scenario right now back to pre-Covid levels?
Sanjay Purohit: Let me give you a quick picture of the last 18 months. The first half of the last financial year was quite bad/ Sales were down from the three channels that we operate — dine-in, takeaway and delivery. Dine-in was completely absent and therefore we had to rely only on delivery and takeaway. But as restrictions started to ease in the second half, we saw dine-in also come back strongly and overall sales came back to almost pre-Covid levels.
In the first half of this year, in April and May, because of the second wave of lockdown, sales were impacted and we had to rely largely on delivery. Today our delivery sales are significantly up over pre-Covid levels and are continuing to sustain, but as restrictions ease and malls and cinemas open up, we are finding dine-in coming back very strongly. Therefore we are back to pre-Covid levels of sales, perhaps a notch above it.
What are the plans as far as expansion is concerned across geographies?
Vijay Jain: Over the last five years, the initial period was to make sure that we get our economic model right, the omni channel strategy right and once that was fixed, we were confident of our profitability levels at the restaurant level. In both the brands,our pace of expansion has constantly increased over the last 12 months or so. Last year, we opened 36 restaurants but within that, 27 restaurants came in H2 of last year.
This year in H1, till September, we have already opened 46 restaurants out of which 32 have come in Q2 of this financial year. This gives an indication of our pace of expansion. I would not like to put a specific number going forward but this is a reasonable level where we are comfortable and confident of maintaining both growth as well as profitability.
Sanjay Purohit: Our expansion is not only limited to the brands that we currently operate. While KFC and Pizza Hut are exceedingly strong brands and there is a multiyear opportunity in terms of expansion on these brands, we are building ourselves up to be a platform player. What I mean by that is the capabilities that we have got — both of delivering outstanding customer experience and the operational excellence that fuels this customer experience — is the IP that we are building in the organisation and that could be translated to other brands and other geographies as well.
So that is the inorganic growth opportunity that also exists for Sapphire Foods being able to either go into new geographies with KFC and Pizza Hut or within India to be able to acquire scalable QSR brands and then take them to the next level.
