Barbeque Nation Hospitality Limited (NSE: BARBEQUE) Q2 2025 Earnings Call dated Nov. 12, 2024
Corporate Participants:
Bijay Sharma — Head of Investor Relations
Kayum Dhanani — Managing Director
Rahul Agrawal — Chief Executive Officer and Whole Time Director
Analysts:
Kush — Analyst
Tanish Mehta — Analyst
Naitik — Analyst
Palash Kawale — Analyst
Giriraj Daga — Analyst
Sakshat — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to Barbeque Nation Hospitality Limited Q2 FY ’25 Earnings Conference Call. [Operator Instructions]
I now hand the conference over to Mr. Bijay Sharma, Head of Investor Relations. Thank you, and over to you, sir.
Bijay Sharma — Head of Investor Relations
Thank you, Sajal [Phonetic]. Welcome, everyone, to Barbeque Nation Hospitality’s Q2 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’ll open the forum for an interactive Q&A session.
Before we begin, 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 the earnings presentation for a detailed disclaimer.
I now hand over the conference to Mr. Kayum Dhanani. Thank you, and over to you, sir.
Kayum Dhanani — Managing Director
Thank you very much. A very good evening, ladies and gentlemen. I take the pleasure in welcoming you to quarter two FY ’25 conference call of Barbeque Nation. Over the quarters, we have relentlessly focused on maintaining best-in-category guest experience to drive dining growth. This has helped us in delivering same-store dining growth, which is better than the industry. The company reported same-store sales growth of minus 2.5%, which was an improving trend on a month-on-month basis. This was a remarkable feat, given that the operating environment continues to remain challenging, particularly for the value segment, we are optimistic that this improvement trend will continue and will benefit us in upcoming seasonally strong operating periods.
During the quarter, we reported revenues of INR306 crores, an increase of 1.3% year-on-year. Second quarter is a seasonally weaker quarter and has historically been lower than the quarter one year revenues. However, this year, we reported flat sequential sales in quarter two. We continue to report positive same-store sales EBITDA growth. Our relentless focus on cost efficiencies, productivity, menu engineering and better management of input cost has helped improve margins despite the negative SSSG.
Our reported pre-Ind AS operating EBITDA increased by 23% compared to same period last year. Pre-Ind AS EBITDA margins improved by around 100 basis points in a year-on-year basis. Margin improvement was stronger in Barbeque Nation India business and international business. Our margin in premium CDR segment reduced due to the impact of new stores. Same-store’s margin in the premium CDR segment continues to track well.
We remain committed to enhance our guest experience through culinary innovations, food festivals, restaurants upgrades. We undertook Chettinad Kitchen Festival across our Barbeque Nation restaurants in India to celebrate the heritage and flavors from South India. We have celebrated World Senior Citizen’s Day with senior legends offer where we had special packages for all the guests of above 60 years of age. In Toscano and Salt, we curated various special menus such as Pesto Special, [Indecipherable], Chef Special, Monsoon Mocktails, etc. The guest feedback from all these initiatives have been very encouraging.
We added eight new restaurants in H1 and are on track to add another 25 new restaurants for FY ’25. With a focus on building a portfolio of scaled CDR brand, we expanded our premium CDR brands Toscano and Salt to Hyderabad. Further, we will take Toscano to Mumbai and Delhi this year. We have received very encouraging response from the guests for those brands in Hyderabad. While we are facing industry headwinds, we continue to work towards enhancing our guest experience to drive dine-in growth. Over the medium term, we will target to add 100 new restaurants to reach 325 restaurants by FY ’27. We have built strong tech-driven back end process over the years and are in very strong position to leverage these to scale the existing brand portfolio.
Thank you. And I would like now to hand over to Rahul, who will walk you through the performance in detail. Thank you.
Rahul Agrawal — Chief Executive Officer and Whole Time Director
Thank you, Kayum. Good evening, everyone. During the quarter, we reported a revenue of INR306 crores, a growth of 1.3% on year-on-year basis. The revenues were flat on sequential basis despite a seasonally weak quarter two. We reported negative same-store sales growth of 2.5% during the quarter. Despite the prevailing slowdown in consumption across mass-category discretionary spend, we have been able to improve our SSSG trend on gradual basis. We continue to expand — experience month-on-month improvement in this SSSG trend.
Gross margin for the quarter increased by about 140 basis points on a year-on-year basis, net of the reclassification investments. This was primarily driven by cost efficiencies, menu engineering and efficient management of input costs. Restaurant operating margins grew year-on-year by 12.5%. That is an increase from 11.2% in quarter two FY ’24 to 12.4% in quarter two FY ’25. Same-store EBITDA growth was positive for the second consecutive quarter.
Pre-Ind AS operating EBITDA grew by 23.1% to INR16.6 crores. Adjusted operating EBITDA margin for the quarter was 5.4%, an improvement of 96 basis points compared to same period last year. Consolidated reported operating EBITDA for the quarter increased by 3% year-on-year to INR46 crores. Reported operating margins for the period was 14.9%. We also maintained robust cash to — EBITDA to cash conversion and delivered around INR15 crores of cash profit, an increase of 17% compared to the same period last year.
We added four new restaurants in the quarter and closed one restaurant. At the close of the quarter, we had 222 restaurants, which included 187 restaurants of Barbeque Nation in India, eight restaurants of Barbeque Nation in international markets, and 27 restaurants in premium CDR segment. In October ’24, we have already launched another three new restaurants and another six restaurants are under construction and expected to be launched in the coming months. We are on track to add 25 new restaurants in FY ’25. We are excited to build a portfolio of scaled CDR brands and believe that these initiatives undertaken by us coupled with network expansion would further enhance our operating performance.
Thank you. With this, we can open the session for Q&A.
Questions and Answers:
Operator
[Operator Instructions] The first question is from the line of Kush from InCred Asset Management. Please go ahead.
Kush
Yeah. Thank you for the opportunity. Hope I’m audible. I wanted to understand how is the on ground demand situation post the festive season, because we are seeing some divergent commentaries from QSR and unlisted CDR players. So if it could be helpful to understand how the demand situation is?
Rahul Agrawal
Thanks, Kush. This is obviously a question which is in everybody’s mind. But I’ll tell you, in quarter two, things continue to remain challenging and this is what we have heard across various spectrum. But there’s lot of inward measures that has been taken, which has helped us to at least gradually report on to our improvement in the same-store sales numbers. Subsequent to quarter two, festive season for us is not the great period because Navratris [Phonetic] are also within specific days which impact our business. But barring that, there is no significant improvement that we have seen on ground, which tends to sort of believe that the SSSGs would generally come under positive territory. But the one comment that I also make is, there has been some regional shift at least that we’ve seen our business, especially in North and East India, we have seen good improvement in our SSSG numbers. In fact, those rate is also in positive territory now. South India is specifically struggling for us and continues to be in a negative territory.
Kush
Sure, sir. And sir, one question is, you used to — what would be the margins from the newer stores you used to give in the presentation earlier?
Rahul Agrawal
Did you say margin from the newer stores?
Kush
Yeah.
Rahul Agrawal
So our restaurant operating margin, which is the brand margin from newer stores approximately 6% in the previous quarter.
Kush
If that could be 100 basis point improvement from Q2 FY ’24?
Rahul Agrawal
Yes.
Kush
Got it, sir. And last question is, how many — out of the 27 premium CDR, how much would be Salt and Toscano?
Rahul Agrawal
We have nine salt and 18 Toscano as of quarter end.
Kush
Sure. Got it. I’ll get back in the queue. Thank you.
Rahul Agrawal
Thank you, Kush.
Operator
[Operator Instructions] The next question is from the line of Tanish Mehta from ithought Financial Consulting LLP. Please go ahead.
Tanish Mehta
So my first question was with regards to our mature sales store and store margins. So you’ve been giving the numbers over the last two years and it has been consistently decreasing. So if you could just provide a little bit more clarity on as to why this is happening? And do you think it will go back to the earlier numbers, which was sales for stores for mature is INR7 crores and restaurant operating margins of 21% or 22%?
Rahul Agrawal
So the matured portfolio will behave in pretty much similar trend as the same-store sales data. So if you look at last two years, at the industry level, the same-store sales data has been negative, which is then also impacting our matured store sales data. And given that the operating leverage in our business is extremely high, a drop in sales across this portfolio over a period of 1.5 years would lead to decline in your margins. Otherwise, structurally in terms of cost efficiencies, in terms of maintaining a great guest experience on the store, we are on track. So that number of matured market and SSSG will be in direct propotion to each other.
Tanish Mehta
Okay. So in an ideal scenario, it should go back to INR7 crores per restaurant and 21% margins. Is that right?
Rahul Agrawal
Yeah, absolutely. So it is right now a function of revenues and sales.
Tanish Mehta
Okay. Right. Understood. Understood. Also, sir, how many of our stores are in Tier 2 and Tier 3 markets? And is there any major difference in store-level economics between, let’s say, metro Tier 1 and Tier 2, Tier 3 markets?
Rahul Agrawal
They’re around 24%, 25% of our stores in Tier 2, Tier 3 markets. Tier 2, Tier 3 markets have lower throughput and they have a slightly lower gross margins because the pricing is slightly lower. But this gets compensated by lower manpower cost and lower rent cost. Otherwise, at a lower throughput of, say, 20% also, this will deliver a 20% EBITDA margin at store level.
Tanish Mehta
Okay. Also, I think you have given a guidance of 100 stores, right, in the next three years, so how much debt would be required to fuel this expansion or we’ll be able to do it?
Rahul Agrawal
No, historically, we have done it through internal cash flows. So even if in the tough environment of current period, we have used our internal cash flows to grow. From now on, 100 stores would require approximately INR300 crores and in the next 2.5 years, 3 years, just based on the last year’s operating cash that we generated, it is enough to deliver that.
Tanish Mehta
Okay. Also one last question if I can before I join back in the queue. So what is our average 4% pricing at the moment? And what has been the average realization growth for us over the, let’s say, last few years?
Rahul Agrawal
For the different brands for Barbeque India, it’s approximately INR830 odd. For international markets, it’s around INR1,500 odd. For Toscano and Salt, it’s around INR1,100 odd. And the average pricing growth over last year, it’s flattish. We have not taken any price hikes at a portfolio level. It’s just marginal 0.2% increase in overall EPC [Phonetic], if you look at the entire 222-store portfolio.
Tanish Mehta
Okay. Yeah. Thank you so much, sir. I’ll join back in the queue.
Rahul Agrawal
Thank you, Danish.
Operator
[Operator Instructions] The next follow-up question is from the line of Kush from InCred Asset Management. Please go ahead.
Kush
Yeah. Hi, sir. Just wanted to understand on the marketing spends, what would have been in this quarter and would you ramp up since you are also dealing Toscano and Salt stores? And second question would be out of the 100 new stores that we would want to add, how much would be for the premium CDR?
Rahul Agrawal
On marketing expense side, we spend close to 1.7% during the quarter and all of these marketing spends actually set above our store EBITDA or store profitability. So this INR1.7 crore is pretty much consistent across the various formats that we have. There is no corporate-level marketing spend that is done over and above the store level. So even though something is there at a national level, it is proportion to the various stores in the country. And out of 100 stores that we are targeting, we will have around 35 to 40 restaurants coming from premium CDR, around 15 will come from international markets and the balance will come from Barbeque India.
Kush
Got it, sir. And in terms of your journey for store closure, this quarter, it has been consistently decreasing now to one store in this quarter. So do you see that in the second half, you will be able to add 17 stores to reach a 25-store target? You see that much catchment area spaces, etc.
Rahul Agrawal
No, they are. So two parts to it. One is on the closed stores, whatever large scale stuff that we have to do, we have already done within FY ’24. And now, we keep looking at our portfolio and try and rebalance it and see which are the stores where the long-term economics are habitated. That’s when we take the call. Frankly, I think there would be maybe one closures every quarter going forward. In terms of our 25 new store targets, no, we already done eight in H1. Like I said, we also done three more in October. Some of these pipelines were back-ending and we have six under construction. So 17 is done. For the balance eight, we have a very strong pipeline of around 15 sites. Some of these will come in quarter four and some of these will also come in quarter one of next financial year.
Kush
Got it, sir. And last question from my side is, sir, what is the sensitivity of EBITDA margins to your SSSG? So 1% improvement decline, how much it would be impacting your margins?
Rahul Agrawal
So our flow through from top line to bottom line is around 50%. So any SSSG increase of, say, 5% will help us to improve our margins by 2% to 3%. We have also been — if you look at last two quarters, our SSSG has been lower, but our same-store EBITDA margins have been better. So there’s a lot of work being done at the — at the company-level on items like menu engineering, maintain your gross margins, cost efficiencies, supply chain costs, store manpower realignment given that the sales were slightly lower. So that’s the reason why we are able to do that. But frankly, long term, it has to get back to a long term strategic trend that the companies have been doing always of around 4% to 5% to maintain our long term margins of around 18%, 19% at store level.
Kush
Sure. And this would remain same across all the three portfolio brands or this should be higher for the premium CDR?
Rahul Agrawal
No, broadly same. But since international business and premium CDR business today is overall only 15% of our portfolio and they are in the metro markets, premium metro markets, their throughput and margins are better. Barbeque India, which is more spread out Tier 2, Tier 3 markets and the impact on the mass discretionary spend has been more related to Barbeque India, we are seeing margins to be slightly lower for that. But margin improvement in the current quarter or the first half has been better in Barbeque Nation India and slightly lower in premium CDR. The impact has been largely because of the impact of new stores where to spend money in the initial phase for legal licenses, which obviously get charged off to P&L. But structurally on the same-store basis, even the premium CDR margins are maintained.
Kush
Got it, sir. Thank you.
Rahul Agrawal
Thank you, Kush.
Operator
Thank you. The next question is from the line of Naitik from NV Alpha Fund [Phonetic]. Please go ahead.
Naitik
Hi, sir. Thanks for the opportunity. My first question is if you could give us a mix of the mature stores and mixed stores and a follow-up. And the second question, in the [Indecipherable], what is the SSSG for mature stores this quarter?
Rahul Agrawal
SSSG and mature stores are similar, right. So mature stores are something which is more than two years old and SSSG is something which have been operating for full year in both the periods. So our mature store portfolio will also reflect, say, maybe 2.5% SSSG decline. In terms of store counts, matured portfolios would have approximately 180 odd stores and the balance will be new, 185 or so.
Naitik
Okay. And what the restaurant-level margins we make in the mature stores?
Rahul Agrawal
So mature store margins are around 14% right now.
Naitik
14% right now, but…
Rahul Agrawal
This is for the quarter two.
Naitik
Quarter two, 14%. Okay. But we can make 20% like that is the potential they have, right, restaurant-level margins for the mature stores?
Rahul Agrawal
Yes. So like I also mentioned in my previous comments when I think Kush had asked. No, it all depends on SSSG, right, or the throughput of the store. We are in an environment wherein over a bit of last two years, there has been negative SSSG. So if we revert back to those sales number, the operating leverage story will play out and this 14% will increase to around 17%, 18%, which is what we used to do always.
Naitik
All right. That’s it from my side. Thank you.
Rahul Agrawal
Thank you.
Operator
Thank you. The next question is from the line of Palash Kawale from Nuvama Wealth Management. Please go ahead.
Sorry to interrupt you, sir. I would request you to please use your handset.
Palash Kawale
Am I audible now?
Operator
Yes, sir. Please go ahead.
Palash Kawale
Sir, where do you see your store count? I mean, in terms of store closures, do you plan to close any stores in the second half?
Rahul Agrawal
Well, I think we will have maybe two stores which might close in the second half.
Palash Kawale
And sir, in terms of store additions, you plan to add pretty aggressive numbers and the revenue number — like performance in H1 has kind of being flattish. So what gives you the confidence of adding stores in such an environment? And why not delay the store additions? If you could give any color on…
Rahul Agrawal
You have to look at it from the perspective of, say, last six, eight quarters. In FY ’24, we looked at our margin drop and we said, today, we will focus on trying to increase the throughput of our existing stores rather than focusing on adding more capacity. And looking at our portfolio and in some cases in markets, we also closed few stores. That was what we did in FY ’24. Post that, we obviously realized that the operating environment is weak for the entire industry and not just us. And after having done obviously those measures and having a good control on our operating expenses, we remain comfortable with the operating level metrics at the outlet. And that’s reason why you will see in the first half of this financial year, there has been almost a 25% increase in our profitability, both restaurant operating margins and overall EBITDA margins.
And by end of — by the start of this calendar year, we are geared up to the starter expansion. Obviously, one bad period doesn’t mean that the — where the potential for store — of new store is not there. We have mapped out a pretty much 100 sort of trade markets where we can take-out — or we can take Barbeque Nation brands, and all you’re saying is out of these based on the site that comes in and based on the economics that are offered to us, we’ll end up opening every 50 of these. That’s on Barbeque Nation.
Generally, on brand like Toscano, it is extremely strong in South India with strong presence in Bangalore, Chennai and Pune. And then we took it to Hyderabad, we got great response and then now we are taking this to Bombay and Delhi. Delhi, in fact has already launched in this quarter and Bombay will launch hopefully by December end or early March — sorry, early Jan. And if you look at both the brands and the way it runs, Toscano in Bangalore has around 11 stores. So if Bangalore can take a premium CDR like Toscano with 11 outlets, I’m sure that places like Bombay and Delhi can take much more. So these two markets are another — these two brands are other focus areas for us, which we will expand over a period of time. So we also remain very comfortable with our operating cash generation, which was — which is adequate to fund these growths for us and that is what is guiding our strategy.
Palash Kawale
Yes. Thank you for the detailed answer. Sir, my next question is, if you separate value CDR versus premium CDR, which segment excites you most for next two to three years?
Rahul Agrawal
No, I think both have advantages. In the value CDR, we have obviously built INR1,000 crore business with approximately 200 stores. And obviously, we have seen various ups and downs in this journey of building 200 stores. And as we navigate through the market, we also course-correct ourselves, like, for example, in our core value segment, CVR, we are also optimizing our space. We are trying to take some more premium sites with natural flow of plastic. We are working a lot in our value engineering and new design so that the spaces are more optimized. So that is a different segment. We still excite a large part of this country wherein they see significant value to have unlimited meal with unlimited starters and that too high-cost protein starters like prawn, chicken, mutton, fish. So I think that market for a country like India is extremely large and we’ll continue to continue to grow that business.
Similarly, we will utilize our existing back end to grow another brand, which is the premium CDRs, both of which, one are very, very strong brands. They have got great guest ratings and it’s a matter of executing it slowly and steadily in various parts of this country. Like that, India is a highly-segmented market for CDRs and there are very few brands who have crossed INR100 crores sort of mark, but it executed well. All of these brands have had large consumer base in the country. So when we started Barbeque Nation 10 years back, there was no category like Barbeque Nation or Barbeque all-you-can-eat right now. Today, the largest brand in this category is from Barbeque all-you-can-eat. And I believe that the country can take at least 500 crore plus brands for Italian cuisine, for Indian a la carte, for oriental cuisines, the consumption is there in the country.
Palash Kawale
Thank you, sir. Thank you for that. And sir, has been there been such a prolonged slowdown in the history of the company if you could think of?
Rahul Agrawal
So I think, if you look at 10-year back data, 2015, 2016 also had periods of negative SSSG.
Palash Kawale
Okay. That’s it from my side, sir. Thank you for your detailed answer and all the best.
Rahul Agrawal
Thank you, Palash.
Operator
Thank you. The next question is from the line of Giriraj Daga from Visaria Family Trust. Please go ahead.
Giriraj Daga
Yeah. Hello, team. Am I audible?
Operator
Yes, sir.
Giriraj Daga
Yeah. Actually, my question is more of a structural kind of nature and your thought process would help there. So just to understand what is the — like first question related to that, what is the demand elasticity to the price hikes what we take in the system. So sitting on this side of table, what we understand or what we feel is that probably 1% or 2% price hike will not make a material difference to the thought process of a consumer that he will, okay, not come to the restaurant because of the 1% to 2% price hike. And in a demand environment, which is like obviously sometimes we will have good demand and sometimes we will have not-so-good demand environment. So why not keep a habit of taking a reason — small, small price hike every time so that our store economics doesn’t go for a toss for a period when we go through a bad period, because let’s say after one, or let’s say two, three more quarters down the line when the demand environment will improve. And that time if we’ll go for the price hike, probably that will lead a chunky price hike of 3%, 4%, maybe 5% to offset the inflation on our overhead cost. So why not keep taking a small, small price hike of 1% to 2%, part of the portfolio sometime quarter, some other part of the portfolio? What are your thoughts there?
Rahul Agrawal
Very good question, Giriraj. And I think, you are absolutely right. Frankly, we maintain that. Just to note on our pricing strategy, we don’t have a uniform price planning there for all our restaurants. We have pricing based on weekday, weekend, we are pricing based on lunch, dinner and we have pricing based on the market that we’re operating in. So for example, the crowd place kind of market in Delhi versus, say, a much kind of market will have like different pricing. So we do that and we also have differential pricing for weekday lunches versus weekend dinners and on Sunday lunches. So I think, in those aspects, we have taken a couple of percentage price hikes as and where we believe that the luxury is okay. But when I say that over the period of last year, we don’t have any price hike on the portfolio level.
One thing we have done also is we have launched a concept called Express Buffets where we don’t serve the live grill, but we offer full-fledged a buffet at a price point of INR400. So this is something which has done extremely well in our Tier 2, Tier 3 markets in one session on big days. And the net impact, we got very high-level of volume increase in those markets, and obviously, pricing was dropped by almost 30% by also doing the managering that we have done. So the net impact of all of these things is that the pricing overall is 0.2%, but on the same market basis, we would take a couple of percentage price hikes every year.
Giriraj Daga
Okay. Should we assume that 2%, 3% kind of a price hike every year that’s the normal benchmark, or it can be less than that, more than that?
Rahul Agrawal
That is — if I look at the last 10-year data and excluding the COVID periods of ups and downs, but in that timeframe, our CAGR price hike would be around 2.5%, 3%. And that’s also required. Otherwise, you won’t beat inflation.
Giriraj Daga
[Indecipherable] apprehension from my side that.
Rahul Agrawal
Absolutely. Your question was bang on.
Giriraj Daga
Okay. Second on the — let’s say, if I to understand, let’s say, like we are — let’s look at last two, three-year data, probably we are doing similar number in the first half compared to last year first half and compared to prior to that year first half also. So let’s say, year ’22, we had done about INR625 crore of revenue. This time we are about, let’s say, INR610 crore kind of a number, roughly 2% to 3% down. If I look at the — that’s the number of customer, number of build cuts, number of some other metrics. Has the number has gone down, the per bill value has gone down or the customer has gone down? How will you describe that data?
Rahul Agrawal
Yeah. It has dropped marginally, see, because if the overall revenues have dropped by, say, 2% versus last year, the pricing has been flattish. So the balance comes from the volume. When we look at our SSSG numbers, the drop has largely been on the number of customers or the number of bill cuts in these cases.
Giriraj Daga
Okay. Number of bill cuts has gone down. Okay. Last thing from my side. Generally, quarter three is seasonally the best quarter for us. Many times we have even got it to 8%, 10% quarter-on-quarter improvement also compared to what we get in a — and this time you added some new restaurant also, some key restaurant addition has happened already for the end of October itself. So should we fairly be confident that probably this time 10% growth over the September, it looks fairly doable. Will you say that yes?
Rahul Agrawal
So very difficult to give me an exact number, but like you mentioned, few positive things happening. The store counts that we are entering into this quarter, we are entering with additional say around eight to nine new restaurants. So on a portfolio of 220, that is 2%, 3%, 4%, coming from that. Sequentially, we’re also seeing improvement in our SSSG numbers. So quarter one was down at around 7%, which has improved to around 2.5%. In fact, when we exited September, we were actually, marginally flattish up there. So these two are very positive trends by which we hope that would be the numbers that you are mentioning. But obviously, very difficult to predict. Things have been very adept of it.
Giriraj Daga
Sure. Thank you from my side.
Rahul Agrawal
Thank you, Giriraj.
Operator
[Operator Instructions] The next question is from the line of Sakshat [Phonetic] from Old Bridge Capital. Please go ahead.
Sakshat
Hi, team. Thanks for the opportunity. I have a couple of questions. Firstly, slightly on the balance sheet part. There is a slight, I think, [Indecipherable].
Rahul Agrawal
Your voice is not very audible.
Sakshat
Okay. Is this better now?
Rahul Agrawal
Yeah.
Sakshat
Okay. So my question basically is related to the balance sheet part. So two parts to it. Firstly, there is a slight increase in gross debt. I think, it’s gone up by INR10 crores, INR12 crores odd. So firstly, could you please explain what is that for, like what has led to that? Secondly, your capex number for H1 is at around INR40 crores odd. Could you please help us with a split of that, because I think with eight new restaurants coming in, that should be somewhere around INR25 crores, INR26 crores odd of capex. What else is actually going into that number? So that’s my first question.
Rahul Agrawal
Yeah, sure. On the balance sheet, so gross debt has gone up by INR10 crores. We have done additional purchase or increased our stake in Toscano business. And for that we have spent around INR4 crores in quarter two. So that’s the logic part. On capex of INR40 crores, there is around INR25 crores spent on new sites. We have around INR7 crores that was spent on some of the existing site relocations/renovations. As we have discussed earlier, we are investing a lot on ambience improvement and restaurant upgrades, right, so drive or dine-in growth. And balance INR8 crores has gone into regular maintenance activities that we do for all our restaurants.
Sakshat
Sure. Secondly, I think you came out with a press release two, three months back mentioning your foray — probably possible foray into Sri Lanka. So could you please share any updates there?
Rahul Agrawal
So we have contracted a company and starting upwards just now there. That site is under construction now and should start trading in hopefully January this year — next year.
Sakshat
And how should we look at that market as a potential opportunity? Can you help us size it in a bit like whatever is possible?
Rahul Agrawal
So look, we have eight restaurants outside in multiple places, largely in Middle East. We are opening up our first restaurant in Sri Lanka. I don’t think we will add more for at least four, five — three, four quarters. And after that, we will look at the response and see whether we need to add more in Colombo or other parts of Sri Lanka. So if you look at our business divisions, apart from Barbeque India and premium CDR, we have international business in which we have eight restaurants. This year, frankly, we plan to add three more restaurants, all of which two would come in Middle East and one is coming in Sri Lanka.
Sakshat
Okay, sure. Yeah, that’s all from my side. Thank you.
Rahul Agrawal
Thank you.
Operator
[Operator Instructions] The next follow-up question is from the line of Naitik from NV Alpha. Please go ahead.
Naitik
Hi, sir. My follow-up question is, we have seen last three, four quarters sustaining gross margin of around 68%. So can you just give us some color on what are the changes that you have made, which is leading to this sort of margin? And can we expect these sort of margins going forward, or there is any scope for improvement?
Rahul Agrawal
No, this will — this should remain. So one, if you look at quarter three last year there was a reclassification that was done by orders wherein the restore employee food cost was — which earlier charge to employee costs was moved to food cost — sorry, we moved from food cost to employee cost. So that led to an improvement, but in gross margin, but obviously didn’t had any impact on EBITDA — store EBITDA. So that is one reclassification that has happened. But overall, we have improved by around 1.2%. So there’s a lot of work done on menu engineering. We have also looked at our supply chain cost. We’ve also been very practically proactive in hedging our meat cost and the sourcing initiatives there have really helped us to maintain our gross margins.
Naitik
Sir, on a like-to-like basis, if you could just give the impact of this restaurant employee food cost going below gross margin?
Rahul Agrawal
It was around 80 basis points.
Naitik
80 basis points, okay. So 57% on a like-to-like basis is sustainable?
Rahul Agrawal
68% is what…
Naitik
Sorry, 67%.
Rahul Agrawal
No, 68% is what we — what we are targeting. We have delivered that in H1 and we expect to close the year also at 68%.
Naitik
That won’t be like-to-like, right? I mean 70 basis points is from reclassification, right?
Rahul Agrawal
Okay. So like that, yes, you can say that. But now the reclassification is done, we just look at that. And to that extent our employee costs have gone up, right.
Naitik
Sure. Got it, sir. Thank you.
Operator
[Operator Closing Remarks]