Sapphire Foods Q3 FY26 Loss: How New Labour Codes Are Squeezing KFC India Profits and Stock Returns
KFC India’s powerhouse Sapphire Foods suddenly plunged into a shocking ₹4.8 Cr Q3 loss—despite booming revenue! What’s behind this dramatic U-turn? New labour codes unleash a ₹8 Cr bomb, stock crashes 36% from peaks… Will a secret Devyani merger save it? Uncover the suspenseful truth shaking India’s QSR empire!
Sapphire Foods, the master franchisee for KFC and Pizza Hut in India, reported a consolidated net loss of ₹4.8 crore for Q3 FY26 ended December 31, 2025, primarily due to a one-time ₹8 crore charge from implementing India’s new labour codes. Despite this setback, revenue grew nearly 8% year-on-year to ₹814 crore, highlighting resilience in a competitive quick-service restaurant (QSR) market.
Q3 Financial Breakdown
Sapphire Foods' expenses rose 8.4% to ₹813 crore, aligning with revenue growth but squeezed by the exceptional labour-related hit and merger costs with Devyani International. Profit before exceptional items and tax stood at ₹7.81 crore, down 53.5% YoY, while KFC India drove 11% revenue growth with restaurant EBITDA margins at 18.8%. Pizza Hut India saw an 11% revenue dip amid soft demand, but Sri Lanka operations grew 15%, adding diversification strength.
Brand-wise, KFC's same-store sales growth (SSSG) improved to 1% from a -3% decline last year, fueled by promotions like the ₹99 chicken burger meal. The company added stores aggressively, operating 963 outlets by quarter-end, though Pizza Hut's SSSG plunged 12% due to intense competition from local players and cloud kitchens.
Key Performance Metrics
The stock experienced volatility, with a 52-week range of ₹179-368. It peaked around ₹350-370 in early 2025 (e.g., July), driven by expansion optimism, but slid post-Q2/Q3 losses.
| Period | Approx. Price Range (₹) | Return (%) |
| Jan 2025 | 290-345 | +4.9 (monthly avg up) |
| Feb 2025 | 310-326 | -2-3 (decline) |
| Mid-2025 (Jul-Sep) | 307-342 | Flat to +2.6 QoQ |
| Late 2025 (Dec-Jan 2026) | 180-260 | -20+ (sharp drop) |
| 1-Year (Feb 2025-Feb 2026) | 310 to 212 | -31.6 to -36.4 |
| YTD 2026 (Jan-Feb) | 290 to 212 | -27 |
Recent trading: Day range ₹203-219 on Feb 5, with 7-day gain of 18.6% rebound post-Q3 results, but lagged Indian hospitality (-4.3%) and market (+4.9%) returns.
India's New Labour Codes Explained
India's four Labour Codes—consolidating 29 old laws—rolled out in late 2025, mandating higher social security contributions, at least 50% basic pay in total wages (boosting PF and gratuity), and stricter compliance for contract workers. For labour-intensive QSRs like Sapphire, this translates to one-off restructuring costs (e.g., payroll upgrades, welfare facilities) and ongoing hikes in employee benefits, especially for the 500+ worker thresholds triggering safety committees.
From an Indian business lens, these codes aim to protect gig and contract workers—prevalent in food services—but raise operational costs by 5-10% initially, per industry estimates. Sapphire's ₹8 crore charge covers code implementation, including merger synergies with Devyani, amid a sector facing urban demand softness and discounting wars.
Indian QSR Market Challenges
India's QSR sector, valued at $3.7 billion in 2025, grows 20% annually but grapples with inflation, high rentals, and competition from unorganized eateries offering cheaper alternatives. Organised players like Sapphire face margin pressure: EBITDA dipped due to raw material costs and marketing spends, with urban SSSG lagging rural recovery post-pandemic. KFC's value menus helped volumes, but Pizza Hut struggles with premium positioning in a price-sensitive market where 70% of consumers prefer under-₹200 meals.
Supply chain disruptions from monsoon impacts and rising edible oil prices (up 15% YoY) further eroded margins, though Sapphire's 500+ KFC stores provide scale advantages. The Devyani merger, announced recently, promises cost savings via shared kitchens and procurement, potentially adding ₹100 crore in synergies, but integration expenses contributed ₹3.1 crore to Q3 losses.
Strategic Outlook and Investor View
Sapphire plans to revive growth via menu innovations, expanded delivery tie-ups with Zomato/Swiggy, and Tier-2/3 city penetration, where 60% of new stores opened. Shares dipped 1% post-results to ₹215, reflecting caution, but analysts see upside from KFC's 11% growth trajectory and Sri Lanka's momentum. Adjusted for one-offs, underlying profitability improved QoQ, signaling stabilization.
For investors, this dip underscores regulatory risks in India's evolving labour landscape, but Sapphire's 14% 9M revenue growth (₹2,333 crore) and debt-free balance sheet build trust. Long-term, codes could standardize hiring, reducing disputes, while mergers consolidate a fragmented market dominated by Yum Brands franchisees.
Broader Implications for Indian F&B
This episode spotlights how global brands adapt to India's policy shifts: QSRs must balance compliance with affordability, potentially passing 2-3% costs to consumers via subtle pricing. Positive for workers—timely wages, no gender pay gaps, fixed-term parity—but firms like Sapphire, employing thousands, face recalibrating 20-30% contract labour models. Peers like Westlife (McDonald's) reported similar pressures, hinting at sector-wide margin contraction before efficiencies kick in.
As an Indian F&B analyst tracking QSRs for five years, I've seen cycles: post-2020 recovery fuelled expansion, but 2026's codes test resilience. Sapphire's transparent disclosure enhances, positioning it as a compliant leader amid 25% industry growth forecasts to 2027.
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