Barbeque Nation Hospitality Limited has informed the Exchange about Transcript of Earnings Conference Call held on Monday, May 29, 2023 at 11:00 AM (IST), post announcement of financial results of the...
To
The Manager Listing Department BSE Limited P.J. Towers, Dalal Street, Mumbai – 400001
Date: June 3, 2023
The Manager Listing & Compliance Department National Stock Exchange of India Limited Exchange Plaza, Bandra Kurla Complex, Bandra East, Mumbai – 400051
Scrip Code: 543283
Scrip Symbol: BARBEQUE
Dear Sir/Madam,
Subject: Transcript of Q4 FY23 Earnings Conference Call held on May 29, 2023
Ref: Regulation 30 of the Securities and Exchange Board of India (Listing Obligations and
Disclosure Requirements) Regulations, 2015
We hereby enclose the transcript of Earnings Conference Call held on Monday, May 29, 2023 at 11:00 AM (IST), post announcement of financial results of the Company for the fourth quarter and financial year ended March 31, 2023. The audio recording of the Earnings Conference Call along with the Transcript have been uploaded on the Company’s website at www.barbequenation.com.
This is for your information and records.
Thanking you.
Yours faithfully,
For Barbeque-Nation Hospitality Limited
Nagamani C Y Company Secretary and Compliance Officer M. No.: A27475
Encl.: As above
BARBEQUE-NATION HOSPITALITY LIMITED Registered & Corporate Office: “Saket Callipolis”, Unit No. 601 & 602, 6th Floor, Doddakannalli Village, Varthur Hobli, Sarjapur Road, Bengaluru-560035, Karnataka, India. T: +91 80 69134900, E-mail: corporate@barbequenation.com,CIN: L55101KA2006PLC073031 www.barbequenation.com
Barbeque-Nation Hospitality Limited
Earnings Conference Call Q4 and Full Year FY2023
May 29, 2023
Management:
Kayum Dhanani – Managing Director
Rahul Agrawal – Chief Executive Officer & Whole Time Director
Amit Betala – Chief Financial Officer
Bijay Sharma – Head of Investor Relations
Moderator:
Amar Kedia – Ambit Capital
1 | Barbeque Nation
Barbeque-Nation Hospitality Limited Earnings Transcript Q4 and Full Year FY2023
Moderator:
Ladies Ladies and gentlemen, good day, and welcome to the Barbeque-
4, 2021
Nation Q4 and FY2023 Post Results Analyst Conference hosted by Ambit
Capital. As a reminder, all participant lines will be in the listen-only mode
and there will be an opportunity for you to ask questions after the
presentation concludes. Should you need assistance during
the
conference call, please signal an operator by pressing ‘*’ then ‘0’ on your
touchtone phone. Please note that this conference is being recorded.
I now hand the conference over to Mr. Amar Kedia from Ambit Capital.
Thank you and over to you.
Amar Kedia:
Thank you, Yashashvi. Good morning, everyone. And welcome to the
Q4FY23 earnings con-call of Barbeque Nation. We have the management
today being represented by Mr. Kayum Dhanani and his team. I will now
hand over the call to the management for their opening remarks, post
which we will open up the floor for Q&A. Over to you, sir.
Kayum Dhanani:
Thank you. A very good morning, ladies and gentlemen. I take the
pleasure in welcoming you to Q4 and full year FY23 conference call of
Barbeque Nation. FY23 was a milestone year for Barbeque Nation brand.
The brand crossed INR 1,000 crores plus annual revenue to become the
first Indian food service casual dining restaurant brand to achieve this
milestone. Despite the prevailing demand softness across the industry, we
reported strong annual growth of 43.4% in our revenues and 49% growth
in our EBITDA.
As I reflect on the previous year, the team has executed well over our
strategy. Our prime focus was Barbeque Nation India business, which has
grown by over 40% compared to last year with 36 stores additions. After
almost 3x growth in FY22, our delivery business declined by 16% in FY23.
While the order volumes were relatively flat, the average order value
declined. We launched a dedicated Biryani brand called Dum Safar last
year, which is gaining traction and has crossed INR 2 crores monthly
turnover. Toscano business continues to deliver strong SSSG, revenue
growth and margins. Similarly, our international business has delivered
strong SSSG and EBITDA performance. As a leading food services
company, we will continue to invest in our core Barbeque Nation business
and simultaneously grow other brands. For example, Toscano is already
very close to crossing annual revenue mark of INR 100 crores.
2 | Barbeque Nation
Barbeque-Nation Hospitality Limited Earnings Transcript Q4 and Full Year FY2023
4, 2021
We also remain focused on continuously enhancing our guest experience
through upgraded restaurant designs, elevating culinary experience and
further strengthening service culture. The benefits of these initiatives are
evident from our all-time high guest satisfaction index score for the year.
We are also conscious of the prevailing weak demand scenario, our
aggressive expansion over the last 2 years and its impact on our latest
quarter operating margins Therefore, in the short term, we have reduced
our new store opening target in FY24 to 20 restaurants. Our focus would
be driving SSSG through increasing capacity utilization of our existing
Barbeque Nation restaurants and selectively open 20 new stores across
Barbeque Nation in India, International and Toscano. However, if the
situation improves, we will consider accelerating our growth plans as well.
Our relentless focus in the past has resulted in creating multiple growth
levers for the company such as Toscano, international business and
delivery vertical. We believe the share of contribution of these businesses
will further increase in the overall revenue and profitability which will further
strengthen our position as a diversified food services company.
With this, now I hand over to Rahul to take you through the performance
during the year. Thank you very much. Over to you, Rahul.
Rahul Agrawal:
Thank you, Kayum. Good morning, everyone.
Our revenues for the year grew by 43.4% to INR 1,234 crores, which was
primarily driven by growth in dine-in business and offset partially by a
decline in our delivery revenues. Our dine-in revenues grew by 61.6% to
reach INR 1,066 crores. Delivery revenue for the year was INR 165 crores,
a decline of 16.5% compared to the previous year. While the delivery
volumes were flat, the decline in delivery revenues was primarily attributed
to the lower average order values.
SSSG for the year was 27.5%, which was primarily driven by dine-in SSSG
of over 40%. Against our target of 40 restaurants, we closed the year with
39 new restaurant openings, taking overall network to 216 restaurants.
This includes 196 Barbeque Nation restaurants in India, 6 Barbeque
Nation restaurants in international markets and 14 Toscano restaurants.
3 | Barbeque Nation
Barbeque-Nation Hospitality Limited Earnings Transcript Q4 and Full Year FY2023
4, 2021
Consolidated gross margin for the year was 66.3% compared to 64.6% in
FY22. Despite an inflationary environment, we were able to improve our
gross margin as compared to last year, primarily driven by calibrated
pricing growth and cost management.
Reported EBITDA for the year was INR 239 crores as compared to a
reported EBITDA of INR 160 crores in FY22. The reported EBITDA margin
increased from 18.6% in the previous year to 19.3% in FY23. Our adjusted
EBITDA margin, which is pre-IND AS 116, was 10.3% during the year
compared to 7% in FY22. In FY23, we reported adjusted EBITDA of INR
127 crores and cash flow from operations post lease expenses of INR 115
crores.
In terms of our quarterly performance, we recorded a revenue of INR 280
crores in Q4FY23, which is an increase of 11.6%. This growth was
primarily led by network expansion. Our SSSG for the quarter was
negative 2.6%. Our dine-in revenues for the quarter was INR 241 crores,
an increase of 16.8%. Our dine-in business SSSG was positive 2.1%,
despite a suppressed demand environment.
Our reported EBITDA for the quarter was INR 42 crores with margins of
15% compared to reported EBITDA margin of 20% in Q4 FY22. Our pre-
IND AS 116 EBITDA for the quarter was INR 13 crores with a margin of
4.6%. Our margins for the quarter were impacted due to a combination of
decline in SSSG and higher mix of yet to mature restaurants.
Out of total network of 216 restaurants, 154 restaurants were operating for
more than 2 years and are classified as matured restaurants. And the
balance 62 restaurants are classified in the new restaurant category. Out
of this, 39 restaurants were added only in the last one year. The core
portfolio of matured restaurants continues to do well. In FY23, our matured
portfolio generated annualized revenue of INR 6.65 crores per outlet
despite the prevailing industry-wide demand softness. This was 5% lower
than our expectation of INR 7 crores per outlet. The restaurant operating
margins in the portfolio was 19% in FY23.
We have also successfully created multiple levers of growth for our
business. 6 years back Barbeque Nation India dine-in business was
contributing to almost 97% of our business. Now we have added additional
4 | Barbeque Nation
Barbeque-Nation Hospitality Limited Earnings Transcript Q4 and Full Year FY2023
4, 2021
pillars of growth such as Toscano, international business and delivery,
which collectively account for almost 25% of our total revenues in FY23.
Going forward, while Barbeque Nation India business will continue its
growth trajectory on higher base, the new verticals are anticipated to grow
at faster pace resulting in further diversification of our revenue contribution
across these levers of growth.
At macro level, the last few quarters have been challenging in terms of
demand situation. Further, we have been aggressively expanding for the
last 2 years, which resulted in short-term margin pressures on our
performance. In the short term, we have recalibrated our store expansion
target to open 20 new restaurants in FY24. We'll be focused on driving
same store sales growth through higher volumes and higher capacity
utilization. We continue to remain focused on enhancing guest experience
through upgraded store design, elevating culinary experience and service
culture, therefore becoming a preferred destination for celebrations.
On the back of above initiatives, we are experiencing early signs of
improvement in terms of month-on-month volume growth. We are closely
monitoring this positive developments and are hopeful of recovery over
the next 2 quarters.
Median to long-term growth story of our company remains intact. Our
growth going forward will be driven by SSSG and expansion led growth for
Barbeque Nation and Toscano business, calibrated growth
for
international business, coupled with increase in average daily sales of both
UBQ and Dum Safar.
Thank you. We can open the session for Q&A now.
Moderator:
We have a first question from the line of Kapil Jagasia from Nuvama
Wealth Research. Please go ahead.
Kapil Jagasia:
Sir, just rechecking with the restaurant guidance that you have given, 20
restaurants, is this 20 Barbeque restaurants and plus 5 Toscano
restaurants, and plus 3 international restaurants, which you gave in the
presentation? Or it is 12 Barbeque and plus 8 for the rest? What would be
the number? Can you please help me with this?
5 | Barbeque Nation
Barbeque-Nation Hospitality Limited Earnings Transcript Q4 and Full Year FY2023
Rahul Agrawal:
Thanks, Kapil. Today, we are looking at 20 restaurants consolidated,
4, 2021
which is including Toscano and Barbeque International. But as Kayum
mentioned, we will watch this for a couple of quarters. And if things
improve, then we can also accelerate this target.
Kapil Jagasia:
Okay, fine. And could you just help us with what all promotional activities
the company has undertaken to increase the footfalls over the last 6
months or so. And as these had a positive impact on increase in footfalls
for this April and May months?
Rahul Agrawal:
Yes. There is a lot of focus on improving the guest experience. A lot of
work has happened on the overall products side. In terms of promotions,
we have rationalized pricing in some of the markets. We have also
launched offers for our weekdays, recently we are running an offer called
Happy Monday, Tuesday, which is giving us very good results. We're also
running beverage offers in few of the markets, which is one plus one on
beverages. And in some cases, which have got latest liquor license, we
are doing promotional offers on the entire liquor bottles. These are the few
ones that we have undertaken.
Kapil Jagasia:
Okay. And just last question from my side. 5 extension kitchens having
closed during these last 2 quarters, so is the delivery channel like losing
ground over here as this quarter, the revenue run rate for delivery negates
the pickup seen in last quarter?
Rahul Agrawal:
Yes. As I've also mentioned in the previous calls, our extension kitchen
strategy would work at a particular sales per store. While delivery is a very
challenging business in terms of margins, it can be accretive if you do it
from your existing restaurants, but in the cloud kitchen model, it is very
challenging unless a particular threshold of revenue is met. We saw over
the period of last 2, 3 quarters a decline in average revenue.
And therefore, we stopped that for some time. We are seeing some pickup
in our delivery business but we will restart the extension kitchen model
only if we reach a particular target of ADS from that extension kitchen.
Otherwise, the focus would be to utilize the balance 216 kitchens and try
and grow ADS in that segment.
6 | Barbeque Nation
Barbeque-Nation Hospitality Limited Earnings Transcript Q4 and Full Year FY2023
Kapil Jagasia:
Okay. What should be the quarterly revenue run rate for delivery volumes?
4, 2021
Like would 40 be the base here? Or it would be picking up towards 45-50.
So what should we take for FY24?
Rahul Agrawal:
It's difficult to say. I think last year was around 41. But in the current
quarter, in the first 2 months, we're already seeing good traction. So I think
my sense is for the entire year, we should be looking at almost INR 200
crores, but we'll wait for numbers to come for maybe in a couple of more
quarters. But first quarter is very good. So I'm just cautious about calling it
out completely.
Moderator:
We have our next question from the line of Vicky Punjabi from UTI Mutual
Fund. Please go ahead.
Vicky Punjabi:
From the dine-in segment, if I see, I mean I heard you saying that it's 2%
SSSG. To understand, base year was also impacted by Omicron. So in
the context of relative performance, how have we done against other
restaurants? Because to my mind, the growth should have been better at
least given the base?
Rahul Agrawal:
You're right. But in terms of our channel checks from other industry
players, unfortunately, for a lot of them numbers are not in the public
domain but this was similar situations. January still was okay, but February
and March were pretty bad for the overall industry. So in line of that, I think,
2.1% was a decent number.
Vicky Punjabi:
And secondly, just on the pace of closures increasing in the last 6 months,
I think we saw 7 store closures there, anything to call out on that side?
And is that also leading to the moderation in the pace of expansion?
Rahul Agrawal:
So 2 things there. One is out of 7, around 5 of them are in Tier 3 markets.
In the Tier 3 markets; one, average revenue was lower, and it was a drag
on profitability and didn't cross the threshold that we have for these
markets. So that is one, and if you note in the last 2 years, we had not
expanded in Tier 3 markets or Tier 2 markets consciously. Our growth is
most skewed towards metro and Tier 1 cities.
The second one is a couple of malls closed in which we are present. That's
why we had to shut down those stores. In future, does it impact our store
growth? Not really. I think in the short term, while we are saying we are
7 | Barbeque Nation
Barbeque-Nation Hospitality Limited Earnings Transcript Q4 and Full Year FY2023
4, 2021
reducing the target is because the focus today is driving same-store sales
growth from the existing capacity that we have created. I don't think just
adding store networks will also lead to just doing your top line and EBITDA
growth. I think you have to keep growing and at the same time, keep
consolidating so that overall metrics of each restaurants remains intact.
I think maybe a couple of quarters would be slow in terms of expansion
but once we get margins back, I think store openings are not difficult part.
For context we added 10 restaurants every quarter last year and going
back to that number will not be that challenging for us.
Vicky Punjabi:
Sure. Sir, just one follow-up on this. I mean. We are per se, not worried
about unit economics and the store closures were just big pockets of
issues that we faced. Is that how I look at it?
Rahul Agrawal:
Absolutely. If you look at the overall portfolio of the 154 restaurants, we
still continue to do around INR 6.65 crores, right? I know you're looking at
INR 7 crores, but given last 2 quarters or second half of last year was not
that great. And 5% revenue decline on that is easy to sort of cover up. So,
on the unit economics model, I have actually no doubt at all.
Vicky Punjabi:
Sure. And just lastly, I mean this is related to corporate overhead. I think
the Y-o-Y growth seemed quite sharp. I mean, if I have to just back
calculate from EBITDA margins and restaurant operating margins.
Anything on that, is one-off sitting there? Or is it completely normal?
Rahul Agrawal:
So, absolute number has not grown, but given the top line has come down,
the percentage number would have grown. But absolute number was
pretty much in line.
Moderator:
We have our next question from the line of Harit Kapoor from Investec.
Please go ahead.
Harit Kapoor:
So I just had 2-3 questions. I think, Rahul, firstly, if you look at the matured
store number, specifically, even you've seen while SSSG is declined
slightly and dine-in SSSG has actually grown, the profitability on the
matured store has come up quite sharply. And this is at a time, the gross
margins were actually improving Y-o-Y. So would you attribute this entire
piece to operating deleverage because of SSSG? Or is there anything else
also that we can kind of think about?
8 | Barbeque Nation
Barbeque-Nation Hospitality Limited Earnings Transcript Q4 and Full Year FY2023
Rahul Agrawal:
So this is largely SSSG. And in some pockets, there also have been
4, 2021
cannibalization from a few new stores. Like I said, if you look at like-to-like
numbers, dine SSSG number is around 3.5%, subject to in some cases,
where we opened the second store in the city. But largely, the margin
impact has been on account of operating deleverage.
Harit Kapoor:
Got it. So what level of -- so if you've already seen -- as you spoke about
delivery, where you said you look forward to INR 200 crores kind of a
number, which means you're probably seeing some of that traction already
kind of coming through, which currently you are at INR 40 crores of quarter
run rate, hopeful of INR 45 crores, INR 50 crores update going forward,
which means that SSSG will start to pick up probably from Q2 in delivery.
Is that where we also start to see kind of pickup in overall matured store
profitability? Or you still think that's a little bit away going forward.
Rahul Agrawal:
No. So there are 2 questions there. I think one is same-store sales growth,
right? Historically, same-store sales growth has been driven by 3 factors,
which is pricing, volume and delivery now. Last year, the SSSG that was
largely driven by some price increase and delivery revenue growth versus
previous year. And I'm talking about a 3-year CAGR, which is around 5.6
- 5.7%.
This year, my expectation is that the pricing growth will be lower. I think
the SSSG will be largely driven by volume growth and some acceleration
growth. So that will have some positive impact on the matured portfolio
margins.
Harit Kapoor:
Okay. Okay. Got it. The other thing was on the expansion. I think you didn't
mention that it's a 2 quarter and then kind of revisited. This year also with
the 20 stores that you are looking -- restaurants you're looking to do, would
the mix be similar like a 70-30 mix between metro Tier 1 and Tier 2, Tier
3? Or it will be more metro Tier 1 focus given you've seen some pain points
in Tier 2, Tier 3?
Rahul Agrawal:
I think Tier 2, Tier 3 will be lower. In the current 20 guidance, Barbeque
India, we're only saying 12 as of now. We are looking at 5 from Toscano
and 3 from international. So Toscano and international, obviously are
metro markets only. They don't even go to Tier 2 right now. And out of 12
Barbeque India, I don't see more than 3 or 4 in Tier 2 markets.
9 | Barbeque Nation
Barbeque-Nation Hospitality Limited Earnings Transcript Q4 and Full Year FY2023
Harit Kapoor:
Okay. So the 20 is at a consolidated level, your guidance is 20?
4, 2021
Rahul Agrawal:
Yes. As of now, consolidated level, but we will definitely revisit this target
after 6 months.
Harit Kapoor:
Got it. Got it. And last question from my end is, have you seen a significant
pickup in profitability in Toscano? And in fact, revenue per store also seem
to have sharply gone up, which is probably even ahead of pre-COVID
levels when we had acquired the business? So could you just speak a
minute or two about what's happening there? Is it a lot of the pricing-led
or, have table turn seen sharp increase?
Rahul Agrawal:
So one, the customer feedback has been absolutely great. Pricing growth
is at par with what we've taken in other brands also. So pricing growth is
not more than 7- -8%. Balance is led by increase in volumes in these plus
also increase in delivery. Also, the beverage segment is doing very good
in Toscano.
Also Toscano is expanding into other cities. This has historically been a
Bangalore brand and now going into Chennai, Pune and currently
exploring also a couple of other metro markets, so the impact of new store
and cannibalization in this market is slightly lower. I think the business is
absolutely run in a fine manner, and we expect to continue seeing at least
25% CAGR growth over next few years.
Moderator:
We have a next question from the line of Aliasgar Shakir from Motilal
Oswal. Please go ahead.
Aliasgar Shakir:
Question on the outlook again. So if I got you right, you said that this
quarter, you saw some weakness in revenue trends and therefore we are
also reducing our target of store addition. But you also mentioned that
there are early signs of some recovery that you are seeing. So if you could
just elaborate what do you mean by that early sign? I mean, and how
should we see the outlook in terms of revenue trajectory?
Rahul Agrawal:
So if you look at our monthly revenues, months of February and March
were very low. And post that, the months of April and May have been
gradually increasing month-on-month. And all of these are actually led by
volume growth, which is a very good sign for us. But also seasonally,
quarter 1 is a good quarter. Our revenues last quarter, for example, have
10 | Barbeque Nation
Barbeque-Nation Hospitality Limited Earnings Transcript Q4 and Full Year FY2023
4, 2021
dropped to around INR 280 crores for the entire quarter. So the first target
is to at least bring it back to around INR 320-odd crores sort of numbers,
and I'm seeing that trajectory right now. But year-on-year basis, this is still
slow because last year first quarter had a very good base.
I think while this quarter, a couple of months are looking very good, and
I'm very excited about how the efforts that we have been taking has been
paying off. But before calling it out complete recovery, I think we'd like to
watch it for at least 2 quarters to see how it performs before giving some
number or guidance for the full year.
Aliasgar Shakir:
Understood. This is very helpful. Just a quick follow-up here. So if I
understand what you mentioned correctly, are you seeing base effect as
a bigger problem than actually month-on-month recovery basically last
year was way too good probably, and that's why we are seeing that base
effect seeing an impact on SSSG or month-on-month also, things are not
very great?
And also, what is the factor that will drive this recovery? Is it cooling of
inflation you think? Or particularly anything structural, which is seeing an
impact?
Rahul Agrawal:
It's a mix of all. I think base impact might work for quarter 1, but overall, I
think there was industry-wide demand softness. If I look at my historical
numbers, pre-COVID, the mix of H1, H2 actually changed this year.
Typically, in quarter 4, we are normally down by only around 3- - 4% of
what we do in quarter 3, and this is data over last 5 years pre-COVID. But
this quarter, we're down around 15%, which is in my view is abnormal.
Also quarter 3 numbers, typically we see around 12%-13% higher than
quarter 2 which we didn't see this time around.
So I think my sense is that last 2 quarters or second half of last year had
been really low for the business. Obviously, that was also coupled by our
store expansions. Over the last 15 months, we added almost 30% new
capacity. So right now, as I see things going, very happy to see the
response in the first 2 months. But I think maybe after quarter 1, the base
impact will start playing out positively in our business also.
11 | Barbeque Nation
Barbeque-Nation Hospitality Limited Earnings Transcript Q4 and Full Year FY2023
Aliasgar Shakir:
Understood. This is very helpful. Second question is just on your store
4, 2021
additions. So you mentioned you may revisit after a couple of quarters.
What is typically the time line you require for new stores. So if you revise
then, will you be able to, I mean, further add in FY '23 or that may go into
FY '24? And is the impact so concerning that you may have to kind of
revise your store addition, which is more a long-term strategy?
And just last thing on this is that we are in somewhere about 81 cities,
right? So given that we have a larger store size, broadly, if you help us,
what is the number of cities you think you have a target for 3- or 5-year
opportunity that we can grow into a number of cities?
Rahul Agrawal:
When we are saying that we looking at opening 20 as of now, it doesn't
mean that our evaluation criteria or our teams, which are on the ground
looking for good sites has reduced. I mean what we're doing is that
tightening screws around some of the evaluation criteria right now. And
we are saying unless the threshold is this, we'll not sort of contract that
site.
It doesn't mean our pipeline will come down or the active pipeline that our
team has got has come down. So within 2 quarters, if we start seeing the
numbers that we want to see in terms of both top line and margins, then
obviously, we'll start putting more capital towards our store expansion
target i.e., on a long-term in the 3 brands or 3 segments of growth that we
have right now, and we will start expanding on these areas.
I think in terms of opportunity or the white space that we believe is there is
definitely available. And I still sort of think of looking at 500 number target
that we have. I think recalibrating ourselves for a couple of quarters is only
a sensible thing to do from a capital allocation perspective at this point of
time. And that's what we are trying to do.
Moderator:
We have a next question from the line of Khush Gosrani from InCred Asset
Management. Please go ahead.
Khush Gosrani:
I just wanted to understand overall on the industry side, are we facing very
strict competition from lot of the stand-alone restaurants as well in the
casual dining space? Because the customer pool is the same that we are
targeting yearly.
12 | Barbeque Nation
Barbeque-Nation Hospitality Limited Earnings Transcript Q4 and Full Year FY2023
Rahul Agrawal:
See, the competition is very localized in our segment. It could be in a
4, 2021
particular trade area, in some cases, it's like within a 500-meter radius of
where we're operating. Yes, there are more and more CDR players coming
in, but this is something which is not new to our business. We have seen
this pretty much in the entire 15 - 16 years of our existence.
I think what we are focusing on is our offering, our experience. And like
Kayum mentioned, we are very happy to say that last year on our dine-in
segment side, we had all-time high guest satisfaction score. So that's we
have been taking care of on the entire guest experience which has been
playing out.
And also, I think the pie is large enough, there is room for multiple other
players to sort of play. I think as Barbeque Nation brand, INR 1,000 crores
top line is something which was good to achieve, but the scope is much
more. And maybe more players can also achieve this target. Has the
competition increased from what it was say pre-COVID or what it was 1
year back? No, I don't think so.
Khush Gosrani:
Sir. And are you seeing any behavior change on the customers?
Rahul Agrawal:
No, not really. I think our repeat business numbers are still very strong. I
think whatever decline we saw was more from the new customer base.
And the repeat customer business, coupled with obviously strong guest
satisfaction scores are very encouraging to our business.
Khush Gosrani:
Sure, sir. And last question, sir, will we be able to maintain adjusted
EBITDA margins around 10% levels going ahead? Or we could see some
improvement as SSSG improves?
Rahul Agrawal:
No, actually 10% is not our base. I think we target to do around 16% in
matured portfolio. And then we believe that there will be 1% drag from the
new portfolio, which in the short term will be maybe around 2%. So I think
my long-term range would be around 13- - 14%. This year around, with a
factor of whatever, the softening of demand and as it picks up, I think the
business has a potential. The way the operating leverage has worked
against us maybe this quarter and adjusting this multiple times apparently
was working for us also in the past. So as we see some course correction
13 | Barbeque Nation
Barbeque-Nation Hospitality Limited Earnings Transcript Q4 and Full Year FY2023
in terms of our revenues per outlet, I think the margins will automatically
4, 2021
start coming in.
Khush Gosrani:
Sure, sir. And one last bookkeeping question. Sir, how many Barbeque
India stores were opened in FY '23?
Rahul Agrawal:
We opened around 36 this year.
Khush Gosrani:
36. And how many were closed, just in India?
Rahul Agrawal:
Overall, full year, we closed 8.
Moderator:
We have our next question from the line of Percy Panthaki from IIFL.
Please go ahead.
Percy Panthaki:
My first question, again, on margins. And we have seen many QSRs, also
seeing some impact on their margins in the last couple of quarters. But the
impact that we have seen has been significantly higher. So we were doing
margins of 13-14%. In the latest quarter, they have come down to 3% to
4%. So how do we look at your margins? I mean, you said that you're
targeting 13 - 14% again going into the future. But what is going to drive
the 1,000 basis points expansion from here, if you can give some clarity
on that, please?
Rahul Agrawal:
So like I said, there is 2 impacts largely. One is the negative SSSG that
you saw, which is, again, operating deleverage playing out and the second
is impact of new stores. Specifically, in last quarter, average revenue even
from matured stores was hardly INR 5.5 crores, and that brought it down.
But if you look at a full year basis, we did still INR 6.65 crores, which is
around 5% lower than our target of around INR7 crores. And on this
matured portfolio, we did 19% core EBITDA margin. And I think the 5%
revenue gap would impact our margins around 2%. So overall, 21%
margin on this portfolio is intact.
On the new portfolio side, out of 60-odd restaurants, around 40 of them
are less than 1 year old. This specifically, in this quarter was loss making
as an overall portfolio. But on the stores which have already crossed 1
year, we are at around 8.5 - 9% EBITDA margin already, which is in line
with our trajectory of year-on-year improvement in margins on the new
portfolio. So by and large, I think, a mix of both improvements in your
14 | Barbeque Nation
Barbeque-Nation Hospitality Limited Earnings Transcript Q4 and Full Year FY2023
existing matured portfolio driven through SSSG and change in mix
between old and new will guide this margin expansion.
4, 2021
Percy Panthaki:
Rahul, you mentioned that the matured portfolio is instead of INR 7 crores
did INR 6.65 crores, that is going to affect margins by 200 basis points. So
the total impact is like close to 1,000 basis points. So should I understand
that remaining 800 basis points is because of the maturity profile of the
stores sort of being tilted towards the new ones?
Rahul Agrawal:
Also mix of what is the proportion of matured portfolio and the new
portfolio. So this quarter, it's around 23-77, right? Once it tilts again
towards say 85-15, that will change.
Percy Panthaki:
Right. So basically, what you are saying is that the matured stores sort of
increasing 10 percentage points in the total mix will improve margins close
to 7 to 8 percentage points. Is that understanding correct? Because that
math doesn't seem to sort of intuitively makes sense to me.
Rahul Agrawal:
The rest of our matured portfolio will do around INR 7 crores, with 21%
store level EBITDA margin. Our new portfolios will come to say around
10% EBITDA margin. And if this mix is, say, 85-15, we would be around
16 - 17% from the matured portfolio and another 1.5% coming from the
new portfolio, which is around 18.5%. And around 5.5% would be around
corporate expenditure, which is around 13% EBITDA margin. Percy
Panthaki:
Yes, yes. I understood. Second question is on the store
opportunity. So you mentioned that the store closures that you've done are
mainly into Tier 2 and Tier 3 kind of towns where the sales per store has
been lower than what was expected. So I mean our original thought
process that we feel that the total store opportunity is like 450, 500 stores,
does it still stand in light of the fact that the sales per store in the smaller
towns is not ramping up to the extent that we expect?
Rahul Agrawal:
As of now, yes, the sales per store is not ramping up. And that's why if you
look at the entire year, we haven't expanded much on Tier 2, Tier 3 towns.
And while you said 75% will come from metro Tier 1 and 25% will come
from Tier 2, 3. So 25% base is still in fact there. So that doesn't change
our stores opening or opening potential.
15 | Barbeque Nation
Barbeque-Nation Hospitality Limited Earnings Transcript Q4 and Full Year FY2023
4, 2021
The only thing is that over the period of last 6 quarters, we have added
almost 30%. Maybe this right number is around 15% every year. So on a
very short-term basis, we're taking a small pause to course correct some
of the performance on the existing matured portfolio and the new portfolio
stabilization and post that will come back to the same number.
So does it mean that my overall opportunity for growth has reduced? No,
I think one, there is Barbeque Nation. We should also take into account
the impact of Toscano's growth that will play in and also international
growth that we play in.
Percy Panthaki:
Right. And last question is on phasing or seasonality. Basically, if I look at
the full year, the sales per store is INR 6.65 crores, but Q4 on an
annualized basis is much lower. And consequently, the restaurant
operating margins also in Q4 are much lower versus what you have done
in the full year. So this decline or this gap between Q4 and the full year, of
course, there is a seasonality, and Q4 will always be lower than the full
year number. But in FY23, do you think that this sort of gap is higher than
normal or it is a normal gap which you are seeing in FY23 as well?
Rahul Agrawal:
No, this is definitely higher. So like I said, , Q4 is typically 3% lower than
quarter 3. And this is based on 5-year data before COVID period. But this
year, that number is around 15% lower.
Also, if you look at H1 versus H2, we are pretty much 49%-51% or
something historically. In fact, this would be more skewed towards H1 in
FY23, but historically, H1 used to do around 47%, H2 used to do around
53% for us, which has not played out in FY23.
Percy Panthaki:
Sir, the reason is just a slack demand environment? Or is there some other
reason attributable to this bigger gap?
Rahul Agrawal:
No. I think it's only demand and maybe to some extent, on a blended
number, our new store. But apart from demand, I don't see any other
reason. We track our guest satisfaction scores very closely. So I'm pretty
fine with that. And also on the cost side, just to complete the thought, if
you look at our absolute number apart from food cost, between the 2
quarters, quarter 3 and quarter 4, we have reduced that also by around
16 | Barbeque Nation
Barbeque-Nation Hospitality Limited Earnings Transcript Q4 and Full Year FY2023
8% despite the fact that we added 8 new restaurants this year. So I think
4, 2021
it's just demand.
Percy Panthaki:
Right. So in which case, my only concern is that when we did this
calculation of INR 6.65 crores, and 200 basis points coming from there
plus portfolio of new restaurants changing, etcetera, we did all those
calculations with FY23 full year number in the base. But the fact is that the
demand environment right now is worse than what it has been for FY23
full year. And therefore, the catch-up from current levels is higher to that
extent, which will be required.
Rahul Agrawal:
No, sorry. Right now, as I said, my first 2, say, April and May months, we
have seen improvements. Improvements is led by volume, so that's a good
trend. And if this continues also in H2, which is typically a better year for
us. What we lost in say H2 or quarter 3, the recovery will be far better.
And on this matured portfolio of INR 6.65 crores, just assuming a 5%
growth on this will take me give me to INR 7 crores and cost structure are
pretty much under control. In our business, a 5% increase will flow at least
50% of that to your margins, right? So coming back to 21%, it should not
be a challenge. So I'm actually very hopeful of this scenario.
Moderator:
We have our next question from the line of Pritesh Chheda from Lucky
Investment Managers. Please go ahead.
Pritesh Chheda:
Yes, sir. just two questions. One, if you could analyse specifically for price
cycle, so especially this year, when you added about 15% over to your
existing portfolio, and the impact that you saw on the margin vis-a-vis a
situation where between '17, '18, '19, '20, those 4 years also, you had
added a quite substantial number of stores to your network. So at that
pace, there was a doubling of store in like 3 years. But the impact on
margin did not flow through. So in this space and what we see specifically
for FY23, what is the difference in your strategy? And what were the impact
areas?
Rahul Agrawal:
I think while we added in the pre-COVID era, 3 years, we were also
supported by external environment in terms of demand. We did not see
our volumes coming down to the same extent as we saw in FY23. I mean
barring that structurally, does anything change in our business? No,
17 | Barbeque Nation
Barbeque-Nation Hospitality Limited Earnings Transcript Q4 and Full Year FY2023
Pritesh. I can maybe sit with you post this offline to look at those numbers
and try and give you exact aspects of this.
4, 2021
Pritesh Chheda:
And from your comments in the call, what you're eyeing incrementally is
an improvement in delivery followed by recalibration of store expansion to
about 10% of your network getting added instead of a higher number,
which you were initially thinking? Are these 2, 3 changes sufficient enough
for you to improve your margin metrics?
Rahul Agrawal:
So look, one is increase in volumes in our dine-in business, so that is the
prime for us. I think that increase in volume will help us to also drive SSSG.
Our dine-in business and delivery business are not exactly same, so we're
looking at also enhancing our delivery portfolio. So that's second. And third
is also stabilizing our new stores and it is an impact of any new stores that
might have on the existing portfolio in the short term. So those are the 3
sort of targets.
My plan is very simple. Right now, we have seen margins declining in our
overall portfolio, which means that there's less cash flow generation that
is happening. So instead of allocating more capital in just adding more
stores, my first priority is to increase margins in the existing portfolio so
that the cash flow starts flowing in and then maybe start looking at the
expansion.
Like I said earlier, adding new stores is easy. I can add 50 stores also in
the current year. But I think the focus that the business needs is more
towards existing business as and improvising the team which could also
stabilizing the new stores. So that is absolutely the short-term call that we
have taken. And like I said, we'll revisit this after 6 months.
Pritesh Chheda:
The new expansion of 20 stores, have you taken care of non-
cannibalization from it?
Rahul Agrawal:
We continue to look at around 60 - 70 stores, which are in pipeline. It's not
just the cannibalization, it is also a function of is there any demand? Is
there mall store, is there natural flow of traffic, what is the rental, what are
the lease terms? So multiple factors. I think cannibalization is just one part
that you are referring to.
18 | Barbeque Nation
Barbeque-Nation Hospitality Limited Earnings Transcript Q4 and Full Year FY2023
Pritesh Chheda:
Lastly, how much of your margin performance impacts in FY23 on your
matured store? Would you attribute to cannibalization?
4, 2021
Rahul Agrawal:
So overall revenues in matured store is down by around 5%, right? Of that,
maybe 1.5% would be cannibalization. There are some 7 - 8 outlets, which
are close to the existing outlets. But apart from that, it is reduced sales on
these. So typically, if we see 5% extra revenue from these stores, then
obviously, margins would have been positive, but would have been more
by 2 percentage points.
Pritesh Chheda:
Okay. And this 13% guidance that you, the calculation that you think for,
do you think you'll be able to achieve it in FY24?
Rahul Agrawal:
FY24 looks difficult because there will be some stabilization period for
moving from new to old, and I'm talking about the full financial year. But
like I said, if things improve, I think the business has potential to do that.
We've done that in the past many times.
Pritesh Chheda:
Okay. And lastly, what are you driving -- what efforts are you putting to
enhance the sales in the matured store? What efforts, new efforts or
anything that you want to highlight?
Rahul Agrawal:
We spoke about some of the promotional activities. So we have
rationalized price in few of the markets. We are working on our lean day
sales, weekday sales. We have come up with an offer called, Happy
Monday, Tuesday, which has given us very good results in terms of
volumes. Obviously, the experience bit in terms of new stores look and
feel, the customer experience, the culinary experience, all these are up to
mark. So, in some cases, we're also working on our beverage offers, which
have given us good results, it is a mix of all these. It's very market specific
for each of these.
Moderator:
We have our next question from the line of Mythili Balakrishnan from
Alchemy Capital Management. Please go ahead.
Mythili Balakrishnan: Can you help us with the cash flow pre-IND AS. Just a sense of operating
cash flow and capex?
Rahul Agrawal:
Full year, we did cash flow from operations of approximately INR 115
crores. Cash profit for the year was around INR 106 crores. Capex for the
19 | Barbeque Nation
Barbeque-Nation Hospitality Limited Earnings Transcript Q4 and Full Year FY2023
full year was approximately INR 145-odd crores. Out of that, INR 145
crores, around INR 7 odd crores was on account of increase in capital
4, 2021
work in process.
So full year charge would be around INR 140-odd crores of gross block.
Of that, around INR 10 crores have gone towards maintenance, INR 10
crores have gone towards our biryani project and water project. And
balance, INR 120 crores has gone to open up 39 new sites and around 3
renovations.
Mythili Balakrishnan: Got it. So going ahead into this year, what would be the sort of capex
expected given that the number of stores reduced quite a bit?
Rahul Agrawal:
So if I look at just 20 stores and maybe including some renovations which
keep coming up, we would have maybe around INR 60 crores capex and
other INR 10 - 12 crores for maintenance and INR 8 crores for other such
new projects that we might do. So overall, INR 80 crores on a 20 store
target.
Mythili Balakrishnan: Got it. Got it. And coming to delivery right. I just wanted to get a sense
from you that given that Dum Safar is something that we have sort of
obviously started and is probably getting rolled out into more restaurants.
So this AOV getting down or the overall UBQ per se the contribution? Is
that under big pressure and also like your view on how to sort of improve
upon it? Or how are you sort of thinking about it?
Rahul Agrawal:
So AOVs have been stable now for almost last 4 - 5 quarters. We are at
around 500-odd number. Transaction volumes were lower, definitely, in
quarter 4 also.
Mythili Balakrishnan: That is across both the brands, yes. Across...
Rahul Agrawal:
Dum Safar is very young. So the base effect is very small right now. And
as Kayum mentioned, Dum Safar has been doing very good month-on-
month growth. We already crossed INR 2 crores monthly number in Dum
Safar across, we are now at around 150 outlets. And the stores that we
had opened up in the earlier months are growing on a month on basis,
plus most importantly, the product feedback that we are getting, the overall
rating that we have is far higher than what we had in our UBQ business
20 | Barbeque Nation
Barbeque-Nation Hospitality Limited Earnings Transcript Q4 and Full Year FY2023
when we started. I think as a brand, Dum Safar is already at a INR 25
crores annual sort of brand and UBQ is a INR 100 crores brands.
4, 2021
So like I always said, our DNA is largely dine-in, we had zero delivery
business. We have a lot of catch up to do. But overall, while the numbers
look lower, I'm happy with the rating improvement, I am happy with the
product improvement that has happened on the delivery side. And maybe
it will take a few more quarters or years, but it is on the right track in terms
of building our delivery business. And our delivery and dine-in business
are not same unlike QSR players where products are same. In our
business, it's actually incremental revenue stream for us.
Mythili Balakrishnan: Got it. And in terms of this April and May improvement, could you sort of
just give us a sense of what is dine-in like, what is delivery like? Is delivery
also picking up on a month on month basis? Just some more colour on
this would be useful.
Rahul Agrawal:
As compared to our previous quarter, we have seen improvement across
both dine-in and delivery, pretty much at the same level. So it has been
almost month on month improvement of 15 - 16% in April and May. And
both are improving, both delivery and dine-in.
Moderator:
We have our next question from the line of Gaurav Jogani from Axis
Capital. Please go ahead.
Gaurav Jogani:
My question is with regards to, that we have been doing good businesses
earlier in terms of the day parts as well in busy days, as well as you had a
strong traction from this IT crowd as well as the business people. So how
is the traction there? Is that still continues to lag versus the pre-COVID
levels, any colour on that front?
Rahul Agrawal:
So volume-wise, yes, I think maybe the hybrid structure is a new normal
now. But we are now starting to look at creating new pockets of demand
on a weekday basis. And that's why when I talk about Happy Monday,
Tuesday offer, we have brought it at a level which becomes very attractive
proposition for a lot of friend segment, family segment which could not
come to us on weekends, and happy to sort of come to us for dinner on
weekdays for their celebrations. And so that has come up.
21 | Barbeque Nation
Barbeque-Nation Hospitality Limited Earnings Transcript Q4 and Full Year FY2023
4, 2021
But on the core IT side, that still continues to be lower than the pre-COVID
numbers. But I think now we are not looking at our business from that
perspective. As I said this is what it is, so our focus is on how do we create
new demand.
Gaurav Jogani:
Sure. And my next question is -- as you mentioned, you have also taken
some cost saving measures over the past 6 months. So you said that while
the stores have increased by 8%, all your costs are still down by 8%. So
in a scenario when you see the demand coming back in the future, do you
see the margin profile can even go back versus the earlier periods even
the cost structure will now be leaner?
Rahul Agrawal:
Yes. That will be there. So like I said, what negatively impacted us in the
year because of lower sales, I think we have seen also affecting us
positively because of high sales. So if demand comes back to the same
levels that we were, this will have positive impact on our margins.
Gaurav Jogani:
Sure. And my last question is with regards to -- I think the overall demand
scenario. I mean, while you alluded the fact that you have seen a month-
on-month improvement during the months of April and May, and I think
some bit of this is also to do with the seasonality because Q4 being weaker
in Q4 -- Q1 maybe will generally be better. But if you see on a steady-state
basis, how would you rate this demand? Are you happy with this? Are you
still like this to go further up from here on?
Rahul Agrawal:
So from where we were in quarter 4, this is obviously better, and if this
continues for the rest of the year, we are in good place. So that's why, like
I said, I'm happy to see the improvement in the first 2 months, but it's very
difficult for me to call out how this will pan out for the rest of the year. We
are also seeing some cooling of inflation. We're also seeing the volumes
coming back but it has to sustain in future quarters, I'm more positive than
I was maybe 1 quarter back.
Moderator:
We have our next question from the line of Harit Kapoor from Investec.
Please go ahead.
Harit Kapoor:
I just have a follow-up on the cost side. So you had inflationary challenge
about in the last fiscal. Just wanted to get your sense of where we are on
key costs, input costs. And also, when we are looking at this SSSG growth,
22 | Barbeque Nation
Barbeque-Nation Hospitality Limited Earnings Transcript Q4 and Full Year FY2023
bringing it back in FY24, are we saying it will be entirely volume-driven or
any pricing you expect to initiate in FY24?
4, 2021
Rahul Agrawal:
On the cost side, the meat basket is stable and we haven't seen significant
changes upwards or downwards. I think that will remain at the same level.
In terms of our price increase, we are not looking at any price increase.
And in fact, as I said, in some markets, we have rationalized the prices.
So in the short term, my focus is to increase volumes rather than just price.
So at least for the next couple of quarters, I'm not looking at any price
hikes in the business. To that extent, maybe we might have some marginal
impact on our gross margins. But overall, SSSG will be largely driven by
volumes and some bit of delivery.
Moderator:
Ladies and gentlemen, that was the last question for today. On behalf of
Ambit Capital, that concludes this conference. Thank you for joining us,
and you may now disconnect your lines.
***
23 | Barbeque Nation
Barbeque-Nation Hospitality Limited Earnings Transcript Q4 and Full Year FY2023
4, 2021
For further information, please contact
Bijay Sharma Head of Investor Relations Barbeque-Nation Hospitality Ltd.
+91 080 6902 8721 Investor@barbequenation.com
Note: This transcript has been edited to improve readability and is not a verbatim record of the proceedings.
Registered & Corporate Office:
“Saket Callipolis”, Unit No. 601 & 602, 6th Floor, Doddakannalli Village,
Varthur Hobli, Sarjapur Road, Bengaluru - 560035, Karnataka, India
CIN: L55101KA2006PLC073031
Website: www.barbequenation.com
Cautionary Statement: This release contains statements that contain “forward looking statements” including, but without limitation, statements relating to the implementation of strategic initiatives, and other statements relating to barbeque Nation’s future business developments and economic performance. While these forward-looking statements indicate our assessment and future expectations concerning the development of our business, a number of risks, uncertainties and other unknown factors could cause actual developments and results to differ materially from our expectations. These factors include, but are not limited to, general market, macro-economic, governmental and regulatory trends, movements in currency exchange and interest rates, competitive pressures, technological developments, changes in the financial conditions of third parties dealing with us, legislative developments, and other key factors that could affect our business and financial performance. Barbeque Nation undertakes no obligation to publicly revise any forward-looking statements to reflect future / likely events or circumstances.
24 | Barbeque Nation