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Demand revival, Indonesia exit key to re-rating

Quick Pointers:

* 2QFY26 SSG at 2.8%, higher employee cost (up 18% YoY) dragged margins

* October sees pickup in demand, Q3 expected to be better QoQ

RBA reported SSSG of 2.8%, driven by its continued focus on strengthening the value proposition and healthy store traffic. ADS stood at Rs 119k, reflecting stable consumer traction. However, adjusted loss widened to Rs202mn, due to ~18% YoY increase in manpower costs and higher overheads. This was partially offset by higher other income, which rose from Rs71mn to Rs 115mn. The Indonesia business remained a drag, with sales declining 3.9% YoY, though RBA highlighted early signs of demand recovery supported by a stabilizing geopolitical environment and the completion of store rationalization. RBA also seems open to divesting the Indonesia business if a suitable opportunity arises. We believe exit from Indonesia could allow RBA to unlock value and reallocate capital towards its India operations, which offer a more stable macro backdrop and a long runway for growth

RBA’s India strategy is on track given 1) Value focus with combos (2 veg Burgers at Rs79, Chicken at Rs99, and Café at Rs99) 2) digital driven ordering 3) cost reduction in delivery business 4) control over overheads and 5) gradual increase in ADS of Café business from current levels of Rs13k led by innovation and combo offerings.

We estimate India business to turn PBT from operations positive by FY28 only. Near term outlook looks cautiously optimistic as demand revival on the account of GST reforms and cost control hold key to improving margins. Retain Accumulate with SOTP based target price of Rs87 with back ended returns

India SSG at 2.8%, ADS up 0.8% YoY - India Revenues grew by 15.6% YoY to Rs5.7bn (PLe: Rs5.6bn). Gross margins expanded 80bps YoY to 68.3% (Ple: 68.0%). EBITDA grew by 10.9% YoY to Rs776mn (PLe:Rs821mn)

Margins contracted by 57bps YoY to 13.6% (PLe:14.5%). Adj loss came at Rs202.1mn (PLe: Rs184mn) however saw a sharp increase in other income from 71mn to Rs115mn.

SSG came at 2.8% YoY, ADS at 119 was up by 0.8% YoY. Pre IND-AS EBIDTA increased by 5% YoY to Rs284mn.

Indonesia impacted due to unrest: Revenues declined by 3.9% YoY to Rs1.3bn . Gross margins expanded by 111bps YoY to 56.9%. EBITDA loss came at Rs66.4mn, Margins contracted by 14bps YoY to 4.9% . Adj loss came at Rs431.2mn. Pre-INDAS EBITDA loss came at Rs170mn vs 206mn in Q2FY25 on the back of reduction in corporate overheads

Concall Takeaways: 1)1Q SSSG was 2.8% (2.6% in 1Q26) led by healthy growth in SSTG with continuous traction in value offerings. 2) October has been good and company expects demand to continue for full Q3 on the back of winter holidays and menu innovation. 3) Launched Korean Spicy Fest and relaunched kings collection with premium buns 4) ADS came at 119k up just 0.8% YoY as newer stores continue to drag overall ADS 4) Focus on digital journey to continue with 91% orders for dine in are through SOK & BK app 5) Labor costs increased by 5%/18.2% QoQ/YoY as company continue to add interns and college pass out students for lobby service in restaurant 6) investment behind people costed them ~0.7% on EBITDA In Q2 7) Gross margins improved by 60bps QoQ on the back of better menu mix and supply chain efficiencies, company expects this trajectory to continue with target to reach ~70% by FY29 8) Indonesia business is witnessed mixed quarter with September being impacted by geopolitical issues, however things have stabilized and things are back to normal 8) popeye continue to face challenges from hyper competition from local and global players 9) Company is actively looking for a buyer for its Indonesia business. 10) The company maintains its guidance to add 60-80 restaurants annually to reach approximately 800 restaurants by FY2029 11) Management expects market conditions to improve by Q3 with more positive tailwinds amidst supportive macro environments

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