Sapphire Foods India Ltd Management Discussions

Economy Overview

India:

India continues its position of among fastest-growing economy in the world remains resilient amid global geopolitical turbulence. The Government of India estimates its real GDP to have grown by 7.7% in FY 2025-26 compared to 7.1% in FY 2024-25 and the per capita Gross National Disposable Income at current prices to have grown 8.1% from Rs.2.30 lakh in FY 2024-25 to Rs.2.50 lakh in FY 2025-26. The IMF projects the Indian economy to expand at 6.5% in 2026 (FY 2026-27) and 6.5% in 2027 (FY 2027-28).

Sri Lanka:

The Sri Lankan economy in 2025 maintained its recovery momentum following economic crisis in 2022. This is supported by macro stabilisation and continued implementation of policy and structural reforms. The economy was robust in 2025, with real GDP estimated at 5%.

Global Economic Growth: Actual and Projections (%)

(Source: IMF)

Y-O-Y GDP growth of the top five major economies:

(bource: IMF)

LARGE ^499 BN QSR MARKET GROWING AT 17% CAGR

^ Within this Chicken and Pizza are 32% of the market, growing at ~ 1.5x of other cuisines

Source: How India Eats: Swlggy-Baln: Note: 1. Addressable customer base = Urban upper-mld/hlgh Income USD rate considered for converting INF, to USD is 1$ = 95 INF,

KFC

The table below provides our key financial and operating metrics for KFC in India:

KFC Brand Performance Review

KFC delivered healthy double-digit revenue growth of 11% in FY26, while SSSG remained a challenge, however, with each passing quarter, the Brand saw recovery in terms of SSSG. This is reflected in Q3FY26 achieving positive SSSG of 1% after several quarters and Q4FY26 SSSG of 4% (6% Ex- Navratri) being highest in last 14 quarters. While Restaurant EBITDA margin for full year dropped by 100 bps on account of negative operating leverage due to flattish SSSG, Q3FY26 Restaurant EBITDA margin improved by 60 bps YoY and Q4 by 110 bps YoY.

This encouraging and positive momentum as we move into next fiscal is outcome of our 2-pronged strategy (backed by marketing & value interventions) to drive transactions

in Dine-ln and Takeaway channels by increasing customer base in evolving chicken markets (North & West) and more developed chicken markets (South).

During the year, we added 73 KFC stores (calibrated slightly lower than previous year) to our KFC network, achieving a balance between rapid expansion and the maintenance of restaurant margin. In April 2025, Yum Global Franchise Convention in Sydney, Sapphire Foods was recognised as "Worlds Best KFC Franchisee".

The 2-pronged strategy to increase customer base & penetration thereby improving SSSG combined with healthy store expansion puts KFC in great position for future growth and profitability.

Pizza Hut

The table below provides our key financial and operating metrics for Pizza Hut in India:

Pizza Hut revenue declined by 7% (revenue of Rs.5,065 Mn) with Restaurant EBITDA of negative 3.3% (reduced by 570 bps) and opened 7 restaurants during the year (341 total restaurants).

The brand continued to face headwind arising out of low consumption and high competition resulting in negative SSSG at across regions barring Tamil Nadu (TN), our exclusive territory. In TN, we delivered double-digit delta in SSSG, and restaurant EBITDA margin as compared to the rest of our regions. TNs superior performance is a result of consistent execution of our template of Dine-ln forward Omni-Channel restaurant backed with sustained marketing investment & product innovation.

We remain committed to maintaining and improving our customer satisfaction scores, aggregators & Google rating. In the April 2025 at Yum Global Franchise Convention in Sydney, Sapphire Foods was recognised as "Worlds Top 4 Pizza Hut Franchisee". Some of our notable product launches and value offers were Flip the Cheese, Crafted Flatzz Pizza, Buyl Get3 offer and 4 course meal at Rs.99/-. Our store expansion strategy continues to be cautious with zero additions in CY25 and 7 additions in FY26.

Further, merger proposal with Devyani International Limited will allow Brand to achieve unified customer & brand proposition. This augurs well for the future of the Brand and enable it deliver both in terms of growth and profitability.

Sri Lanka operations

The table below provides our key financial and operating metrics for Sri Lanka:

Our Sri Lanka business maintained strong momentum throughout the year, benefiting from an improving economic condition and a disciplined growth strategy. Our focus on accessible innovation - specifically the Delight and Melts ranges - has resonated strongly with our customers.

We are proud to have been recognised as the Worlds Best Pizza Hut Franchisee for People Practices in Sydney in April 2025, highlighting our dedication to our people. The business delivered a standout performance, characterised by 18% revenue growth and 2nd consecutive year of doubledigit SSSG (12% in LKR). Despite strong SSSG, our restaurant EBITDA margin came in at 14.9% i.e. drop of 50 bps due to impact of significant increase of minimum wages. With the addition of 9 new restaurants, we continue to maintain our # 1 QSR brand position in the country.

Strategy / Outlook: Future-proofing Growth

At the core of future-proofing growth lies one fundamental belief: expanding consumer penetration by attracting new users.

In KFC, we have sharpened our approach to this agenda through separate marketing and value interventions in evolving and more developed chicken eating markets & we are beginning to see encouraging results.

For Pizza Hut, operating as a strong No. 2 brand in a highly competitive category, the opportunity lies in gaining market share. Our experience in Tamil Nadu, where Sapphire Foods holds exclusive territory, provides a proven blueprint of dine forward omni-channel strategy with superior product & innovation and consistent & higher brand marketing investments.

While the past decade has been one of strong growth and value creation, it has also offered us important insights into structural inefficiencies, particularly in the existing go-to-market model, where two franchisees and a global brand owner must align before executing consumerfacing initiatives.

Recognising this, the Sapphire Foods and Devyani International Boards approved a merger proposal on January 1, 2026, subject to regulatory approvals. This combination aims to create the largest restaurant operator in the country, with greater alignment, sharper execution rights at the franchisee level, and significantly enhanced speed of decision-making. We see this as an important structural leap towards building a more agile, efficient and future-ready organisation.

Financial Overview

Summarised consolidated Profit and Loss statement:

Total Income: Our total income increased by 8.03% to Rs.31,533.61 million for the financial year 2025-26 from Rs. 29,190.79 million for the financial year 2024-25. Increase in Total Income was primarily led by 89 new restaurants opened during the year

Revenue from Operations: Our revenue from operations increased by 8.45% to Rs.31,253.17 million for the financial year 2025-26 from Rs.28,818.64 million during the financial year 2024-25, primarily due to an increase in the sale of products by our new restaurants. Our restaurant sales increased by 8.37% to Rs.31,159.02 million for the financial year 2025-26 from Rs.28,753.63 million for the financial year

2024- 25. This increase was mainly due to increase in sales on account of opening of new restaurants during the year: 73 KFC restaurants, 7 Pizza Hut restaurants in India and 9 restaurants in Sri Lanka. Our other operating income increased by 44.82% to Rs.94.15 million for the financial year

2025- 26 from Rs.65.01 million for the financial year 2024-25.

Cost of Materials Consumed: Cost of materials consumed increased by 9.74% to Rs.9,951.38 million for the financial year 2025-26 from Rs.9,068.44 million during the financial year 2024-25. Such an increase in the cost of materials was primarily due to an increase in purchases to Rs.9,895.76 million during the financial year 2025-26. The increase in purchases was in line with the increase in sales by

restaurants primarily due to opening of new stores, compared to purchases in the amount of Rs.9,104.03 million during the financial year 2024-25. The cost of materials consumed as a percentage of revenue from operation increased to 31.84% in FY 2025-26 as against 31.47% in FY 2024-25 on account of higher promotions and offers.

Employee Benefits Expense: Our employee benefits expense increased by 10.75% to Rs.4,279.29 million for the financial year 2025-26 from Rs.3,863.95 million for the financial year 2024-25. This increase in Employee Benefits Expense was primarily on account of the new restaurants opened during the year and increase in minimum wage cost as compared to 2024-25. The employee benefits expenses as percentage of revenue from operations, increased reasonably to 13.69% in FY 2025-26 from 13.41% in FY 2024-25, on account of lower SSSG, increase in wage offset by cost optimisation measures.

Finance Costs: Our Finance Costs increased by 10.01% to Rs.1,228.05 million for the financial year 2025-26 from Rs.1,116.26 million for the financial year 2024-25. Such an increase in finance costs was primarily due to an increase in interest on lease liabilities by 9.68% to Rs.1,202.20 million for the financial year 2025-26 from Rs.1,096.10 million for the financial year 2024-25. The increase in interest on lease liabilities was primarily on account of new restaurants opened during the year, which was offset by a reduction in interest on loans from banks and other loans.

Depreciation and Amortisation Expense: Our Depreciation and Amortisation expenses increased by 7.76% to Rs.3,921.48 million for the financial year 2025-26 from Rs.3,639.16 million for the financial year 2024-25, primarily due to an increase in Depreciation on property, plant and equipment by 3.54% to Rs.1,852.02 million for the financial year 2025-26 from Rs.1,788.64 million for the financial year 2024-25 and increase in Depreciation on right-of-use assets by 12.61% to Rs.1,783.50 million for the financial year 2025-26 from Rs.1,583.85 million for the financial year 2024-25. Led by opening of new restaurants during the year.

Other Expenses: Our Other Expenses increased by 10.50% to Rs.12,286.42 million for the financial year 2025-26 from Rs.11,118.67 million for the financial year 2024-25.

Reasons of increase in Other Expenses are as follows:

• Increase in royalty by 8.72% to Rs.2,132.32 million for the financial year 2025-26 from Rs.1,961.38 million for the financial year 2024-25 due to increased revenues from operations

• Increase in electricity expenses by 9.41% to Rs.2,321.46 million for the financial year 2025-26 from Rs.2,121.81 million for the financial year 2024-25 on account of increase in consumption of energy due to increase

in revenue backed by addition in stores coupled with higher inflation on energy prices

• Increase in marketing and advertisement expenses by 14.88% to Rs.1,570.48 million for the financial year 2025- 26 from Rs.1,367.06 million for the financial year 2024- 25, primarily due to increased contributions to YUM for marketing activities on account of our increased revenue from news stores and higher marketing spent on Pizza Hut

• Increase in commission on aggregators and meal coupons by 11.46% to Rs.2,252.20 million for the financial year 2025-26 from Rs.2,020.70 million for the financial year 2024-25 due to increased aggregator sales on account of new restaurants added during the year

• Rent increased by 9.77% to Rs.861.67 million for the financial year 2025-26 from Rs.785.00 million for the financial year 2024-25. This is due to increase in number of stores

Total Tax Expense: Our Total Tax (credit)/ expense was (Rs.53.06) million for the financial year 2025-26 compared to an income tax expense of Rs.64.32 million for the financial year 2024-25 towards recognition of deferred tax assets on accumulated tax losses and other items in the standalone financial statement of the company.

Profit / Loss for the Year After Tax

As a result, our Group reported Loss after tax of (^319.54) million for the financial year 2025-26 as compared to Profit after tax Rs.167.04 million for the financial year 2024-25.

Key Balance Sheet Items

Key Financial Ratios

a) Return on capital employed % (RoCE) = RoCE indicates the ability of a Companys management to generate returns for both the debt holders and the equity holders. It measures a Companys profitability and the efficiency with which its capital is used. It is calculated by dividing profit or (loss) before exceptional item and tax + finance cost (excluding interest on lease liabilities) by average of total equity and total borrowing.

b) Return on net worth % (RoNW) = RoNW is a measure of profitability of a Company expressed in percentage. It is calculated by dividing net profit or (loss) after tax / average total equity.

c) Return on equity % (RoE) = RoE measures the companys financial performance on shareholders equity. It is calculated by dividing net profit or (loss) after tax attributable to equity shareholders by average shareholders equity.

d) Net profit % = The net profit margin is equal to how much net profit is generated as a percentage of revenue from operations. It is calculated by dividing profit or (loss) after tax by revenue from operations.

e) Debt equity ratio (D/E) = D/E is used to evaluate a Companys financial leverage. It is a measure of the degree to which a Company is financing its operations through debt versus wholly-owned funds. It is calculated by dividing total borrowings by total equity.

f) Interest service coverage ratio = The interest service coverage ratio measures how many times a Company can cover its current interest payment with its available earnings. It is calculated by dividing net operating income by total finance cost paid.

Net operating income: Profit/ (loss) before tax + depreciation and amortisation expense + finance cost excluding interest cost on lease liabilities - other income.

g) Debt service coverage ratio = Debt service coverage ratio is used to analyse the firms ability to pay-off current interest and loan instalments. It is calculated by dividing earnings available for debt service by debt service i.e. net operating income / total finance cost paid and repayment of borrowings.

Net operating income: Profit/ (loss) before tax + depreciation and amortisation expense + finance cost - finance cost on lease liabilities - other income.

h) Current ratio = The Current ratio indicates a Companys overall liquidity position. It measures a Companys ability to pay short-term obligations or those due within one year. It is calculated by dividing current assets by current liabilities.

i) Debtors turnover ratio = Debtors turnover measures the efficiency at which the firm is managing the receivables. The ratio shows how well a Company uses and manages the credit it extends to customers and how quickly that short-term debt is collected or is paid. It is calculated by dividing turnover by average trade receivables.

j) Inventory turnover ratio = Inventory turnover measures the efficiency with which a Company utilises or manages its inventory. It establishes the relationship between cost of goods sold and average inventory held during the period. It is calculated by dividing the cost of goods sold by the average inventory.

Internal Controls and their Adequacy

Your Company has aligned its current systems of internal financial control with the requirement of Companies Act 2013. The Internal Control Framework is intended to increase transparency and accountability in an organisations process of designing and implementing a system of internal control. Your Company has successfully laid down the framework and ensured its effectiveness. The internal controls are commensurate with the size of the Company and the nature of its operations. These have been designed to provide reasonable assurance with regard to recording and providing reliable financial and operational information, complying with applicable statutes, safeguarding assets from unauthorised use, executing transactions with proper authorisation and ensuring compliance with corporate policies.

M/s. Deloitte Haskins & Sells, Statutory Auditors of the Company have audited the financial statements included in this annual report and have issued an attestation report on our internal control over financial reporting (as defined in section 143 of Companies Act 2013).

The internal audit department along with the external partners/consultants carry out internal audit of the Companys business/functional activities. The audit is based on an internal audit plan, which is reviewed each year in consultation with and approved by the audit committee. The audit committee reviews reports submitted by the internal auditor, internal audit partner and statutory auditor. Basis inputs received from the audit committee, suggestions for improvement are considered and the audit committee follows up on corrective action.

Based on the framework of internal financial controls and compliance systems established and maintained by the Company, the work performed by the internal auditor, statutory auditors and external partner/consultant, including the audit of internal financial controls over financial reporting by the statutory auditors and the reviews performed by management and the relevant board committees, including the audit committee, the Board is of the opinion that the Companys internal financial controls were adequate and effective during the financial year ended 31st March 2026.

Risk Management Framework

Risk management remains integral to Sapphire Foods business strategy and day-to-day operations, supporting sustainable growth and long-term value creation. The Companys risk management framework is designed to enable timely identification, assessment, mitigation, monitoring and governance of risks across the organisation. The framework adopts a structured and holistic approach towards managing strategic, operational, financial and compliance risks, thereby facilitating informed and balanced decision-making.

Risks are assessed and managed through a combination of top- down oversight and bottom-up functional evaluation, ensuring enterprise-wide coverage across business operations and support functions. The Company continuously strengthens its risk management practices in line with the evolving business environment and emerging risk landscape. Oversight of the framework is provided by the Risk Management Committee of the Board, which periodically reviews the risk management plan, key risk exposures and mitigation measures to ensure its ongoing effectiveness and robustness.

Human Resources

We are committed to building the capabilities of our employees through rigorous on-the-job functional training programmes as well as intensive leadership programmes such as the Young Turks that develop managerial capabilities for higher roles. We encourage organic growth of our talent and provide opportunities for our employees to build their careers in our Company through vertical and cross-functional movements. The health and safety of our employees is important to us. Apart from medical insurance and accident coverage for all employees, we provide unlimited access to medical and mental health professionals for our employees with the rank of restaurant manager and, as well as for their families. We provide multiple formal and informal platforms for employees to give us feedback on their experience - Sapphire Speak, our employee engagement survey runs annually in partnership with Gallup, and measures and monitors year- on-year movement of indices on employee engagement.

Our mean Gallup Engagement Score increased from 4.12 in financial year 2018 to 4.52 in financial year 2025 and our Gallup global mean percentile rank improved from 57 in financial year 2018 to 81 in financial year 2025. Sapphire Foods has been recognised as a winner of the 2026 Gallup Exceptional Workplace Award (GEWA), which honours world-class organisations that embed employee engagement into their workplace culture. Based on Gallups rigorous global workplace study, 78 organisations worldwide received this recognition, including only four from India. As on 31st March 2026, our Company had 13,819 permanent employees compared to 13,495 on 31st March 2025.

Cautionary Statement

The statement made in this section describes the Companys objectives, projections, expectation and estimations which may be forward-looking statements within the meaning of applicable securities laws and regulations.