Barbeque Nation Hospitality Limited (BARBEQUE) Q4 FY23 Earnings Concall Transcript

Barbeque Nation Hospitality Limited (NSE:BARBEQUE) Q4 FY23 Earnings Concall dated May. 29, 2023.

Corporate Participants:

Amar Kedia — Investor Relations

Kayum Dhanani — Managing Director

Rahul Agrawal — Chief Executive Officer & Whole time Director

Analysts:

Kapil Jagasia — Nuvama Wealth Research — Analyst

Vicky Punjabi — UTI Mutual Fund — Analyst

Harit Kapoor — Investec — Analyst

Aliasgar Shakir — Motilal Oswal Securities — Analyst

Khush Gosrani — InCred Asset Management — Analyst

Percy Panthaki — IIFL — Analyst

Pritesh Chheda — Lucky Investment Managers — Analyst

Mythili Balakrishnan — Alchemy Capital Management — Analyst

Gaurav Jogani — Axis Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Barbeque Nation Q4 and Full Year FY 2023 Post Results Analyst Conference hosted by Ambit Capital. [Operator Instructions] Please note 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 — Investor Relations

Thank you, Yashashri. Good morning, everyone, and welcome to the 4Q FY ’23 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 — Managing Director

Thank you. A very good morning, ladies and gentlemen. I take the pleasure in welcoming you to quarter four and full year FY ’23 conference call of Barbeque Nation. FY ’23 was a milestone year for Barbeque Nation brand. The brand crossed to INR1,000 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 reflected in the previous year, the team has executed well over our strategy. Our prime focus as Barbeque Nation India business, which has grown by over 40% compared to last year with 39 stores additions.

After almost 3x growth in FY ’22, our Delivery business declined by 16% in FY ’23. While the order volume was 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 INR2 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 business and simultaneously grow other brands. For example, Toscano is already very close to crossing annual revenue mark of INR100 crores.

We also remain focused on continuously enhancing our guest experience through upgraded restaurant designs, elevating culinary experience and further strengthening service culture. The benefit 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 two years and its impact on our latest quarter operating margins.

Therefore, in the short-term, we have reduced our new store opening target in FY ’24 to 20 restaurants. Our focus would be driving SSSG through increasing capacity utilization of our existing Barbeque Nation restaurants and selectively opened 20 new stores across Barbeque Nation in Asia. International and Toscano, however, if the situation improves, we will consider accelerating our growth plans as well.

Our relentless focus in the past have 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 — Chief Executive Officer & Whole time Director

Thank you, Kayum. Good morning, everyone. Our revenues for the year grew by 43.4% to INR1,234 crores, which was primarily driven by growth in dining business and offset partially by a decline in our delivery revenues. Our dine-in revenues grew by 61.6% to reach INR1,066 crores. Delivery revenues for the year was INR165 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, six Barbeque Nation restaurants in international markets and 14 Toscano restaurants.

Consolidated gross margin for the year was 66.3% compared to 64.6% in FY ’22. 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 INR239 crores as compared to a reported EBITDA of INR160 crores in FY ’22. The reported EBITDA margins increased from 18.6% in the previous year to 19.3% in FY ’23.

Our adjusted EBITDA margin, which is pre-Ind AS 116, was 10.3% during the year compared to 7% in FY ’22. In FY ’23, we reported adjusted EBITDA of INR127 crores and cash flow from operations post lease expenses of INR115 crores. In terms of our quarterly performance, we recorded a revenue of INR280 crores in quarter four FY ’23, 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 INR241 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 INR42 crores with margins of 15% compared to reported EBITDA margin of 20% in quarter four FY ’22. Our pre-Ind AS 116 EBITDA for the quarter was INR13 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 matured restaurants. Out of total network of 216 restaurants, 154 restaurants were operating for more than two 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 FY ’23, our matured portfolio generated annualized revenue of INR6.65 crores per outlet despite the prevailing demand — industry-wide demand softness. This is 5% lower than our expectation of INR7 crores per outlet. The rest of operating margins in the portfolio was 19% in FY ’22.

We have also successfully created multiple levers of growth for our business. Six years back Barbeque dining business was contributing to almost 97% of our business. Now we have added additional pillars of growth such as Toscano international business and delivery, which collectively account for almost 25% of our total revenues in FY ’23.

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 micro level, the last few quarters have been challenging in terms of demand situation. Further, we have been aggressively expanding for the last two years, which resulted in short-term margin pressures on our performance.

In the short-term, we recalibrated our store expansion target to open 20 new restaurants in FY ’24. 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 other initiatives, we are experiencing early signs of improvement in terms of month-on-month volume growth, we are closing monitoring this positive development and hopeful of recovery over the next two 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.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] We have a first question from the line of Kapil Jagasia from Nuvama Wealth Research. Please go ahead.

Kapil Jagasia — Nuvama Wealth Research — Analyst

Sir, just rechecking with the restaurant guidance that you have given, 20 restaurants — so is this 20 Barbeque restaurants and plus five Toscano restaurants, and plus three international restaurants, which you gave in the presentation? Or it is 12 Barbeque and plus eight for the restaurant? So what would be the number? Can you please help me with this?

Rahul Agrawal — Chief Executive Officer & Whole time Director

Yes. Thanks, Kapil. Today, we are looking at 20 restaurants consolidated, which is including Toscano and Barbeque International. But as Kayum mentioned, we will watch this for a couple of quarters. And if things improves, then we can also claim this target.

Kapil Jagasia — Nuvama Wealth Research — Analyst

Okay. So these would be on gross base, right?

Rahul Agrawal — Chief Executive Officer & Whole time Director

This is 20 new restaurants, yes.

Kapil Jagasia — Nuvama Wealth Research — Analyst

Okay, fine. And could you just help us with what all promotional activities the company has undertaken to increase the footfalls over the last six months or so. And as these had a positive impact on increase in footfalls for this April and May months?

Rahul Agrawal — Chief Executive Officer & Whole time Director

Yes. So like I said, there is a lot of focus on improving the guest experience. So a lot of work has happened on the on overall products side. In terms of promotion, we have rationalized pricing in some of the markets. We have also launched offers for our week days, recently we are running also 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 collections we are doing promotional offers on the entire liquor bottles. So these are the few ones that we have taken.

Kapil Jagasia — Nuvama Wealth Research — Analyst

Okay. And just last question from my side. By extension kitchens having closed during these last two quarters, so is the delivery channel like using ground over here as this quarter, the revenue run rate for delivery negates the pickup seen in last quarter?

Rahul Agrawal — Chief Executive Officer & Whole time Director

Yes. So 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 two, three quarters a decline in average revenue sales. 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.

Kapil Jagasia — Nuvama Wealth Research — Analyst

Okay, sir. What should be the quarterly revenue for delivery volumes? Like what’s [Indecipherable] a base here? Or it would be picking up towards 45-50. So what should be peak for FY ’24?

Rahul Agrawal — Chief Executive Officer & Whole time Director

See, it’s difficult to say. I think last year was around 41. But in the current quarter, in the first two months, we’re already seeing good traction. So I think my sense is for the entire year, we should be looking at almost INR200 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.

Kapil Jagasia — Nuvama Wealth Research — Analyst

Okay. Sure. That helps. Thank you so much.

Operator

Thank you. We have our next question from the line of Vicky Punjabi from UTI Mutual Fund. Please go ahead.

Vicky Punjabi — UTI Mutual Fund — Analyst

Hi, am I audible?

Operator

Yes.

Rahul Agrawal — Chief Executive Officer & Whole time Director

Yes, Vicky.

Vicky Punjabi — UTI Mutual Fund — Analyst

Okay. Thanks for taking my question. Just, I mean, firstly, 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 — Chief Executive Officer & Whole time Director

You’re right. But in terms of our channel checks from other industry players, unfortunately, a lot of them are not — the numbers are in 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 — UTI Mutual Fund — Analyst

Okay. And secondly, just on the pace of closures increasing in the last six months, I think we saw seven 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 — Chief Executive Officer & Whole time Director

So there are two things there. So one is out of seven, around five of them are in Tier 3 markets, right? So the Tier 3 markets, one, average revenue was lower, and it was a drag on profitability and didn’t across the threshold that we have for these markets. So that is one, and if you note in the last two years, we had not expanded in Tier 3 markets or Tier 2 markets consciously, right? Our growth is most skewed towards metro Tier 1. So that is one point.

The second one is a couple of malls closed in which we are present. So 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 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 in our journey also in the past, you have to keep growing and at the same time, keep consolidating so that overall metrics of each restaurants remains intact, right?

So like I said, I think maybe a couple of quarters is, would be slow in terms of expansion but once we get this back, I think store openings are not difficult parts. I think we can — we have [Indecipherable] added 10 restaurants every quarter. And going back to that number will not be that challenging for us.

Vicky Punjabi — UTI Mutual Fund — Analyst

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 — Chief Executive Officer & Whole time Director

Yes, absolutely. So if you look at the overall portfolio of the 154 restaurants, we still continue to do around INR6.65 crores, right? I know you’re looking at INR7 crores, but given last two 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 great economics model, I have actually no doubt at all.

Vicky Punjabi — UTI Mutual Fund — Analyst

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, that is one-off sitting there or is it completely normal?

Rahul Agrawal — Chief Executive Officer & Whole time Director

So the 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.

Vicky Punjabi — UTI Mutual Fund — Analyst

Okay, sure. That’s it from my side. Thank you so much.

Rahul Agrawal — Chief Executive Officer & Whole time Director

Yes. Thank you, Vicky.

Operator

Thank you. We have our next question from the line of Harit Kapoor from Investec. Please go ahead.

Harit Kapoor — Investec — Analyst

Yes. Hi, good morning. So I just had two or three questions. So 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? [Phonetic] Or is there anything else also that we can kind of think about?

Rahul Agrawal — Chief Executive Officer & Whole time Director

So this is largely SSSG. And in some pockets, there also have been cannibalization from a few new stores. Like I said, if you look at like-to-like numbers and with dine-in numbers, dine SSSG number is around 3.5%, subject to in some cases, the stores that are moving the number of store count from one to two. But largely, the margin impact has been on account of operating deleverage.

Harit Kapoor — Investec — Analyst

Got it. So what level of — so if you’ve already seen — as you spoke about delivery, where you said you look forward to INR100 crore kind of a number, which means you’re probably seeing some of that traction already kind of coming through, which currently you are at INR40 crores of quarter run rate, hopeful of INR45 crores, INR50 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 — Chief Executive Officer & Whole time Director

No. So there are two questions there. I think one is same-store sales growth, right? Historically, same-store sales growth has been driven by three factors, which is pricing, volume and delivery now. Last year, the SSSG that was given that’s largely driven by some price increase and delivery revenue growth versus previous year. And I’m talking about a three 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 impact some positive on the matured portfolio margins.

Harit Kapoor — Investec — Analyst

Okay. Got it. The other thing was on the expansion. I think you didn’t mention that it’s a two 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 — Chief Executive Officer & Whole time Director

So 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 five from Toscano and three 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 three or four in Tier 2 markets.

Harit Kapoor — Investec — Analyst

Okay, sir. So the 20 is at a consolidated level, your guidance is 20?

Rahul Agrawal — Chief Executive Officer & Whole time Director

Yes. As of now, consolidated level, but we’ll definitely revisit this target after six months.

Harit Kapoor — Investec — Analyst

Got it. And my 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 as, have table turn sharp increase, had some time there?

Rahul Agrawal — Chief Executive Officer & Whole time Director

So, one, the customer feedback has been absolutely great. This is largely driven by — pricing growth is at par with what we’ve taken in other brands also. So pricing growth in margin 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 branch 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.

Harit Kapoor — Investec — Analyst

Got it. I have to come back in the queue. Thanks, Rahul.

Rahul Agrawal — Chief Executive Officer & Whole time Director

Sure. Thanks, Harit.

Operator

Thank you. We have a next question from the line of Aliasgar Shakir from Motilal Oswal. Please go ahead.

Aliasgar Shakir — Motilal Oswal Securities — Analyst

Yes, thanks for the opportunity. 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 — Chief Executive Officer & Whole time Director

So if you look at our monthly revenues, the month I said 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 one is a good year, right? So our revenues last quarter, for example, have dropped around INR280 crores for the entire quarter. So the first target is to at least bring it back to around INR200 crores — INR320 crores-odd 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 was a very good base.

So that’s what I meant. 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 two quarters to see how it performs before giving me some number or guidance for the full year.

Aliasgar Shakir — Motilal Oswal Securities — Analyst

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 — Chief Executive Officer & Whole time Director

It’s a mix of all. I think base impact might work for quarter one, but overall, I think there was industry-wide demand softness. So if I look at my historical numbers, pre-COVID, the mix of H1, H2 actually changed this year. Typically, in quarter four, we are normally down by only around 3%, 4% of what we do in quarter three, and this we done over last five years pre-COVID. But this quarter, we’re down around 15%, which is in my view is normal. Also quarter three numbers, typically we see around 12%-13% higher than quarter two which we didn’t see this time around.

So I think my sense is that last two 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 capacities. So right now, as I see things going, very happy to see the response in the first two months. But I think after maybe quarter one, the base impact will start playing out positively in our business also.

Aliasgar Shakir — Motilal Oswal Securities — Analyst

Understood. This is very helpful. Thank you so much. Second question is just on your store 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 three or five year opportunity that we can grow into a number of cities?

Rahul Agrawal — Chief Executive Officer & Whole time Director

So look, one, when we are saying that we look at opening 20 as of now, it doesn’t mean that our evaluation criterias or our teams, which is on the ground looking for good size has reduced, right? I mean what we’re doing is that pricing still is around [Indecipherable] evaluation criterias right now. And we are saying unless the threshold is this, we’ll not sort of contract that site, right? So there’s only the other increase. It doesn’t mean our pipeline will come down or the active pipeline that the our team has got has come down.

So even with two 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 think on a long-term lever in the three brands or three 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.

Aliasgar Shakir — Motilal Oswal Securities — Analyst

Got it. Thank you so much. Very useful.

Rahul Agrawal — Chief Executive Officer & Whole time Director

Thank you, Ali.

Operator

Thank you. We have a next question from the line of Khush Gosrani from InCred Asset Management. Please go ahead.

Khush Gosrani — InCred Asset Management — Analyst

Hi sir. 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.

Rahul Agrawal — Chief Executive Officer & Whole time Director

See, the competition is very localized in our segment. It could be in a particular 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 have all-time high guest satisfaction score. So that’s we have been taking — taken on the entire guest experience which has been playing out.

And also, I think the five large enoughs, there is room for multiple other players to sort of play. I think as Barbeque Nation brand, INR1,000 crore top line is something which is — which was good to achieve, but the scope is much more. And maybe more players can also achieve this target. So net-net, I don’t think — let me put this way does, has the competition increased from what it was say pre-COVID or what it was one year back? No, I don’t think so.

Khush Gosrani — InCred Asset Management — Analyst

Okay, sir. And are you seeing any behavior change on the customers?

Rahul Agrawal — Chief Executive Officer & Whole time Director

No, not really. I think our repeat business numbers are still very strong. I think we did — whatever decline we saw was more from the new customer base and the repeat customer business, coupled with obviously strong guest transaction scores are very encouraging to our business.

Khush Gosrani — InCred Asset Management — Analyst

Sure, sir. And last question, sir, will we be able to maintain the registered EBITDA margins around 10% levels going ahead? Or we could see some improvement [Indecipherable]?

Rahul Agrawal — Chief Executive Officer & Whole time Director

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% track from the new portfolio, which in the short-term will be maybe around 2 percentage. So I think my long-term range would be around 13% to 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 in terms of our revenues per outlet, I think the margins will automatically start coming in.

Khush Gosrani — InCred Asset Management — Analyst

Sure, sir. And one last bookkeeping question. Sir, how many Barbeque India stores were opened in the year — in FY ’23?

Rahul Agrawal — Chief Executive Officer & Whole time Director

We opened around 36 this year.

Khush Gosrani — InCred Asset Management — Analyst

36. And how many were closed, just in India?

Rahul Agrawal — Chief Executive Officer & Whole time Director

Overall, full year, we closed eight.

Khush Gosrani — InCred Asset Management — Analyst

Okay, sir. Thank you so much. Wonderful. All the best.

Rahul Agrawal — Chief Executive Officer & Whole time Director

Thank you, Khush.

Operator

Thank you. We have our next question from the line of Percy Panthaki from IIFL. Please go ahead.

Percy Panthaki — IIFL — Analyst

Hi, Rahul. 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 — Chief Executive Officer & Whole time Director

So like I said, there is two impacts largely. One is the negative 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 INR5.5 crores, right? And that brought it down. But if you look at a full year basis, we did still INR6.65 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 one year old. This — specifically in this quarter we are loss making as is overall portfolio. But on the stores which have already crossed one 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 improvement in your existing matured portfolio given through SSSG and change in mix between old and new will guide this margin expansion, Percy.

Percy Panthaki — IIFL — Analyst

Rahul, you mentioned that the matured portfolio is instead of 6.6 — I mean instead INR6.65 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 — Chief Executive Officer & Whole time Director

No, I said 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 — IIFL — Analyst

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 percentage points to 8 percentage points. Is that understanding correct? Because that math doesn’t seem to sort of intuitively makes sense to me.

Rahul Agrawal — Chief Executive Officer & Whole time Director

So the rest of our matured portfolio will do around INR7 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 that — from the new portfolio, which is around 18.5%. And around 5.5% would be around [Indecipherable] which is around 13% EBITDA margin. And so — sorry, I don’t know if you followed this number.

Percy Panthaki — IIFL — Analyst

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 — Chief Executive Officer & Whole time Director

So as of now, yes, the sales per store in spite of, it 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, Tier 3. So 25% base is still in fact there. So that doesn’t change our stores opening or opening potential. The only thing is that over the period of last six 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 there is one plus — one is Barbeque Nation. We are also — to look into account the impact of Toscano’s growth that we play in and also international growth that we play in.

Percy Panthaki — IIFL — Analyst

Right. And last question is on phasing of seasonality. Basically, if I look at the full year, the sales per store is INR6.65 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 FY ’23, do you think that this sort of gap is higher than normal or it is a normal gap which you are seeing in FY ’23 as well?

Rahul Agrawal — Chief Executive Officer & Whole time Director

No, this is definitely higher. So like I said, typically, our Q4 — difference between Q4 and Q3 is hardly 3 percentage, 4 percentage, right? So Q4 is typically 3% lower than quarter three. And this is based on five 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. But historically — in fact, this would be more skewed towards H1 in FY ’23. But historically, H1 used to do around 47%, H2 used to do around 53% for us, which are not played out in FY ’23.

Percy Panthaki — IIFL — Analyst

Sir, the reason is just a slack demand environment? Or is there some other reason attributable to this bigger gap?

Rahul Agrawal — Chief Executive Officer & Whole time Director

No. So 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 of the reason, right? So 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 two quarters, quarter three and quarter four, we have reduced that also by around 8%, despite the fact that we added eight new restaurants this year. So I think it’s just demand.

Percy Panthaki — IIFL — Analyst

Right. So in which case, my only concern is that when we did this calculation of INR6.65 crores, and 200 basis points coming from there plus portfolio of new restaurants changing, etc., we did all those calculations with FY ’23 full year number in the base. But the fact is that the demand environment right now is worse than what it has been for FY ’23 full year. And therefore, the catch-up from current levels is higher to that extent, which will be required.

Rahul Agrawal — Chief Executive Officer & Whole time Director

No, sorry. Right now, as I said, my first two, 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 three, the recovery will be far better. And on this matured portfolio of INR6.65 crores, just assuming a 5% on this will give me to 7%, 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.

Percy Panthaki — IIFL — Analyst

Okay. Got it, Rahul. Thanks and all the best.

Rahul Agrawal — Chief Executive Officer & Whole time Director

Thank you, Percy.

Operator

Thank you. We have our next question from the line of Pritesh Chheda from Lucky Investment Managers. Please go ahead.

Pritesh Chheda — Lucky Investment Managers — Analyst

Yes, sir, just two questions. One, if you could analyze 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 four 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 three years. But the impact on margin did not flow through. So in this space and what we see specifically for ’23, what is the difference in your strategy? And what were the impact areas?

Rahul Agrawal — Chief Executive Officer & Whole time Director

So I think while we added in the pre-COVID era, three years, we were also supported by external environment in terms of demand. We did see our volumes coming down to the same extent as we saw in FY ’23. I mean barring that structurally, does anything change in our business? No, Pritesh. But if you — I don’t actually — I can maybe sit with you post this offline to look at those numbers and try and give you exact aspects of this. But right now looking at those numbers and giving you some answers would not be possible for me.

Pritesh Chheda — Lucky Investment Managers — Analyst

Okay. 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 two, three changes sufficient enough for you to improve your margin metrics?

Rahul Agrawal — Chief Executive Officer & Whole time Director

So look, one is increase in volumes in our dine-in business, right? 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 three 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 six months.

Pritesh Chheda — Lucky Investment Managers — Analyst

The new expansion of 20 stores, have you taken care of non-cannibalization format?

Rahul Agrawal — Chief Executive Officer & Whole time Director

So if you look at 20 — we continue to look at around 60, 70 stores, which are in pipeline, right? 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.

Pritesh Chheda — Lucky Investment Managers — Analyst

Lastly, how much of your margin performance impacts in FY ’23 on your matured store? Would you attribute to cannibalization?

Rahul Agrawal — Chief Executive Officer & Whole time Director

The overall revenue in matured store is down by around 5%, right? Of that, maybe 1.5% would be cannibalization. There are some seven, eight 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 point.

Pritesh Chheda — Lucky Investment Managers — Analyst

Okay. And this 13% guidance that you were — the calculation that you think for, do you think you’ll be able to achieve it in ’24?

Rahul Agrawal — Chief Executive Officer & Whole time Director

As for, FY ’24 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 — Lucky Investment Managers — Analyst

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 — Chief Executive Officer & Whole time Director

So we spoke about some of the promotional activities. So we have rationalized price in few of the markets. We are working on our main day sales, mid day 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 color 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.

Pritesh Chheda — Lucky Investment Managers — Analyst

Okay. Thank you, and all the best sir.

Rahul Agrawal — Chief Executive Officer & Whole time Director

Thank you, Pritesh.

Operator

Thank you. We have our next question from the line of Mythili Balakrishnan from Alchemy Capital Management. Please go ahead.

Mythili Balakrishnan — Alchemy Capital Management — Analyst

Thanks for the opportunity. Sir…

Operator

We are not able to hear you clearly, please use your handset.

Mythili Balakrishnan — Alchemy Capital Management — Analyst

Hi, is it better?

Operator

Yes.

Rahul Agrawal — Chief Executive Officer & Whole time Director

Yes.

Mythili Balakrishnan — Alchemy Capital Management — Analyst

Okay. Can you help us with the cash flow pre-Ind AS just a sense of OCS and capex?

Rahul Agrawal — Chief Executive Officer & Whole time Director

So full year, we did cash flow from operations of approximately INR115 crores. Cash profit for the year was around INR106 crores. Capex for the full year was approximately INR145 crores-odd. Out of that, INR145 crores — around INR7 crores-odd was on increase in capital working process. So balance full year charge would be around INR140 crores-odd, [Indecipherable] of that, around INR10 crores have gone towards maintenance, INR10 crores have gone towards our capex project and water project. And of the balance, INR120 crores has gone to open up 39 new sites and around three renovations.

Mythili Balakrishnan — Alchemy Capital Management — Analyst

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 — Chief Executive Officer & Whole time Director

So if I look just 20 stores and maybe including some renovations which keep coming up, we would have maybe around INR60 crores capex for this and other INR10 capex, INR12 crore for maintenance and INR8 crores for others such new [Indecipherable] overall INR80 crores coming on a 20 store target.

Mythili Balakrishnan — Alchemy Capital Management — Analyst

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 — Chief Executive Officer & Whole time Director

So AOVs have been stable now for almost last four, five quarters. We are at around 500-odd number. Transaction volumes were lower, definitely, in quarter four also. So — and that’s largely on…

Mythili Balakrishnan — Alchemy Capital Management — Analyst

That is across both the brands, yes. Across…

Rahul Agrawal — Chief Executive Officer & Whole time Director

No, 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 INR2 crores monthly number in Dum Safar across, we are now at around 140, 150 outlets. And the stores that we had opened up in the earlier months are going on a month on basis, plus most importantly, the product feedback that’s getting the overall rating that we have is far higher than what we had in our UBQ business when we started back, right? So I think as a brand, Dum Safar is already a INR25 crores annual sort of brand and UBQ is a INR100 crores brands.

So like I always said, our DNA is largely dine-in, we have zero delivery business. We have a lot of catch up to do. But overall numbers, Mythili, I think I’m happy with, 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 on delivery business. And while we keep saying, our delivery business because our delivery and dine-in business are not same, right, unlike established products are same in our business, it’s actually incremental revenue stream for us.

Mythili Balakrishnan — Alchemy Capital Management — Analyst

Got it. And in terms of this April and May improvement, could you sort of just give us a sense of — you sort of did try to sort of listen, but in this like what is dine-in like, what is delivery like? Is delivery also picking up on a month on month basis? Just some more color on this would be useful.

Rahul Agrawal — Chief Executive Officer & Whole time Director

So as compared to our previous quarter, we have seen improvement across both dine-in and delivery, are pretty much at the same level. So it has been almost one month improvement of 15%, 16% in April and May. And both are improving, both delivery and dine-in.

Mythili Balakrishnan — Alchemy Capital Management — Analyst

Got it.

Rahul Agrawal — Chief Executive Officer & Whole time Director

And both delivery and dine-in…

Mythili Balakrishnan — Alchemy Capital Management — Analyst

Both delivery and dine-in are sort of picking up.

Rahul Agrawal — Chief Executive Officer & Whole time Director

Yes.

Mythili Balakrishnan — Alchemy Capital Management — Analyst

Got it. Thanks. That’s all from my side.

Rahul Agrawal — Chief Executive Officer & Whole time Director

Thank you, Mythili.

Operator

Thank you. We have our next question from the line of Gaurav Jogani from Axis Capital. Please go ahead. Mr. Jogani…

Gaurav Jogani — Axis Capital — Analyst

Hello. Yes, am I audible?

Rahul Agrawal — Chief Executive Officer & Whole time Director

Yes, Gaurav.

Gaurav Jogani — Axis Capital — Analyst

Yes. Sir 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 it still — that still continues to lag versus the pre-COVID levels, any color on that front?

Rahul Agrawal — Chief Executive Officer & Whole time Director

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 weekly basis. And that’s why when I talk about Happy Monday, Tuesday offer, we have brought it at a level which becomes very attractive position for a lot of friend segment, family segment or something may 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. But on the core IT side, that still continues to be lower than the pre-COVID numbers. But I think now we are not taking in our business from that perspective. I said this is what it is. So how do we now create new focus on demand.

Gaurav Jogani — Axis Capital — Analyst

Sure. And my next question is — as you mentioned, you have also taken some cost saving measures over the past six 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 more leaner?

Rahul Agrawal — Chief Executive Officer & Whole time Director

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 definitely impact also on margins.

Gaurav Jogani — Axis Capital — Analyst

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 [Indecipherable] 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 — Chief Executive Officer & Whole time Director

So from where we were in quarter four, 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 two 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 solution. We’re also seeing the volumes coming back but it is also sustained in future quarters, which is — while I’m a little good to say, I’m more positive that was maybe one quarter back.

Gaurav Jogani — Axis Capital — Analyst

Sure. Thank you, and that’s all from me.

Rahul Agrawal — Chief Executive Officer & Whole time Director

Thank you, Gaurav.

Operator

Thank you. We have our next question from the line of Harit Kapoor from Investec. Please go ahead.

Harit Kapoor — Investec — Analyst

Yes. 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, bringing it back in F ’24, are we saying it will be entirely volume-driven or any pricing you expect to initiate in F ’24?

Rahul Agrawal — Chief Executive Officer & Whole time Director

On the cost side, on the meat basket, I think it’s stable. We haven’t seen significant changes upwards or downwards. So that, 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.

Harit Kapoor — Investec — Analyst

Okay. Great. Thanks.

Rahul Agrawal — Chief Executive Officer & Whole time Director

Thank you, Harit.

Operator

[Operator Closing Remarks]