Rising costs eat away KFC operator Sapphire Foods India's Q1 profit

BENGALURU, Aug 2 (Reuters) - Sapphire Foods India (SAPI.NS), the domestic operator of KFC and Pizza Hut restaurants, reported lower-than-expected first-quarter profit on Wednesday, as mounting costs outpaced a growth in revenue.

The companys net profit stood at 249.4 million rupees ($3.02 million) in the quarter ended June 30, compared to 382.7 million rupees a year earlier, the U.S.-based Yum Brands franchisee said in an exchange filing.

Analysts, on average, expected the company to report a profit of 273.8 million rupees, according to Refinitiv IBES data.

Expenses climbed 21.6%, with cost of materials consumed jumping 17.4% to 2.06 billion rupees and employee costs increasing 24.3%.

India is reeling under rising prices of essentials as monsoon rains have disrupted supplies, with companies including Dominos flagship inflation-buster 49-rupee pizza being \“re-engineered\” by cutting price - and tomatoes - from its earlier cheapest offering of 59 rupees.

However, raw material prices are bottoming out and have started reflecting in margin improvement, said Sneha Poddar, associate vice president at Motilal Oswal Financial Services, adding she sees strong long-term opportunities in quick service restaurants.

For the quarter, same-store sales at Sapphire Foods Pizza Hut restaurants fell 9%, while the companys KFC business reported a flat same-store sales growth.

Rival Dominos Pizza (DPZ.N), run by Jubilant Foodworks (JUBI.NS), reported a 74% fall in quarterly profit as it grappled with higher costs, while Westlife Foodworld (WEST.NS), which runs McDonalds (MCD.N) stores in West and South India, reported a smaller-than-expected rise in profit.

Shares in Sapphire, which operates over 700 restaurants across India, Sri Lanka and Maldives, fell as much as 3.5% after the results.

($1 = 82.5690 Indian rupees)