Travel Food Services Q2 FY27 Earnings Call: Sales Rise 18.8% Despite Traffic Dip, 70+ Outlets Added With 50 More Planned (TRAVELFOOD)

Strong Sales Growth Despite a Weak Traffic Quarter

• System-wide sales rose 18.8% YoY to Rs.8.65 bn in Q2 FY 2026-2027 and 18.4% to Rs.17.1 bn in H1 FY 2026-2027, despite moderation in passenger traffic.
• Consolidated sales grew 19.5% YoY to Rs.4.3 bn in Q2 and 20.1% to Rs.8.8 bn in H1 FY 2026-2027; consolidated like-for-like sales grew 6.6% in Q2 and 5.3% in H1.
• Consolidated EBITDA was Rs.1.6 bn in Q2, up 16.8% YoY at a 37.1% margin (vs "37%, 38%" last year); H1 EBITDA grew 13.8% at a 36.4% margin.
• Reported PAT rose 50.5% YoY to Rs.1.47 bn in Q2 and 43.2% to Rs.2.76 bn in H1 FY 2026-2027 — but includes provision write-backs of Rs.566 mn in H1 (Rs.468 mn in Q2) from completed reconciliations with airport counterparties.
• Excluding write-backs, PAT was ~Rs.1 bn in Q2 (up 2.7%) and Rs.2.2 bn in H1 (up 13.8%); the CFO said Q2 PAT growth would be roughly 3% after also adjusting for other income.
• Gross margin was 85.8% reported in Q2 and H1; excluding lounge aggregation service cost (Rs.216 mn in Q2, Rs.439 mn in H1), gross margin was 80.7% / 80.8%, which the CFO said was well within the guided range.

One of the Toughest Aviation Quarters Post-COVID

• Passenger traffic at TFS-managed airports fell 2.2% in H1 FY 2026-2027, steepening to a 4.8% YoY decline in Q2 — which CEO Varun Kapoor called one of the toughest operating quarters for Indian aviation in the post-COVID period.
• Domestic traffic was most affected in Q2 FY 2026-2027 by higher airfares, airline capacity rationalisation and schedule changes; international traffic remained lower YoY, though the pace of decline eased.
• Passenger spends were about -5% in Q2 FY 2026-2027 against a normal 8-9% range for net contract gains — the CEO said this implies a roughly 15% delta that could reappear once traffic recovers from the prolonged West Asia crisis.
• Food inflation was about 7.5% in September 2026, one of the highest levels in a long while, per the CEO; long-term supply contracts helped absorb costs and blended pricing was held to about 5% across lounges and F&B.
• Management expects H2 FY 2026-2027 recovery to be gradual rather than immediate, citing seasonally stronger travel, winter schedules showing progressive capacity restoration, and possible moderation in crude and fuel prices — "cautiously optimistic" but measured on pace.

70+ Outlets Added; ~50 More in Development

• Network expanded by more than 70 travel QSR outlets over the last 12 months — outlets rose from 501 to 570 and airports from 18 to 22; brand portfolio stands at 156, with 21 brands added over the year.
• Net contract gains were 11.1% in Q2 and 13.5% in H1 FY 2026-2027 (system-wide), reflecting 70+ units mobilised mainly at Delhi, Cochin, Navi Mumbai, Noida and Bhogapuram, plus lounge aggregation.
• 20 outlets opened in the ~6 weeks from October to early November (Q3 FY 2026-2027 to date); around 50 more are in construction, development and design, expected to roll out over the next 3-4 quarters (Q3 FY 2026-2027 onward), some possibly in Q4 FY 2026-2027.
• QSR outlet count dipped to ~535 in Q2 from 541 in Q1 FY 2026-2027, mainly due to Mumbai Terminal 1 renovations; the CEO cautioned outlet count is only a directional measure since small kiosk closures can offset larger new units.
• JV progress: GMR Hospitality secured the Delhi T3 Travel QSR concession (nearly 50 outlets vs 32 previously); Semolina Kitchens grew from 150 to 154 outlets; GHL commenced Bhogapuram operations with 6 outlets in Q2 FY 2026-2027.
• Growth is targeted at tier-two and larger Indian airports; the company entered Bangalore Terminal 1 (one outlet open, a second under construction) and named Navi Mumbai, Noida and Cochin — Cochin being a new airport for the company in FY 2026-2027.

Ramp-up Costs Weighing on EBITDA Margin

• EBITDA margin pressure came from higher employee and other operating costs from mobilisation and ramp-up of new operations, per the CFO; revenue at new locations is expected to build progressively as traffic scales.
• Newer locations including Noida and units at Delhi and Cochin are still ramping up, with pre-operating and ramp-up costs carried ahead of revenue in FY 2026-2027.
• Interest cost rose sharply, which the CFO attributed to finance lease obligations on units mobilised at Delhi T1 and T2; he said this would stabilise as fresh units are added and revenue ramps up.
• Price increases are expected at about 4-5% annually (period unspecified), with the balance of LFL growth from premiumisation — recent additions include Gordon Ramsay's Pizzeria, Jamie's Pizzeria, Wagamama at Mumbai airport, and an upcoming Fu concept.
• Management will not step back from cost and efficiency measures even as it expects gradual recovery in H2 FY 2026-2027.

Debt-Free with ~Rs.10.3 bn Cash; Liabilities Spike Explained

• Balance sheet remains debt-free with consolidated cash of ~Rs.10.3 bn as of 30 September 2026; the CFO said return metrics for shareholders are the yardstick for capital allocation, citing opportunities in highways and international expansion.
• Other financial liabilities rose ~Rs.190 Cr over the current year (analyst cited ~Rs.55 Cr at the FY 2025-2026 level); the CFO said this was predominantly dividend payable declared in August (Q2 FY 2026-2027) and paid after 30 September.
• More than 50% of the business runs on negative working capital, per the CFO; only the lounge business carries receivables — airlines pay at 30-35 days, lounge aggregators at about 45-50 days.
• Receivables rose when the Eats platform launched and have now reached a steady state of 45-50 days as of H1 FY 2026-2027; the CFO did not explain the drop in payable days cited by the analyst for H1 FY 2026-2027 vs H1 FY 2025-2026.

Platform Extends Beyond Lounge Access; APAC Push Continues

• Eats launched in H2 FY 2025-2026 and was stabilised over about nine months, running "maybe a bit ahead of schedule"; it has onboarded every partner from before the platform over the last 9-12 months, with access working smoothly at lounges.
• The platform enables direct tie-ups with banking and card partners for lounge access, customised offerings for consumer subsets, cleaner eligibility checks, and layers such as QR codes and web-based journeys; additional services such as F&B, meet-and-greet and prepaid outlet experiences can be onboarded.
• The lounge and travel QSR business will remain the core — the CEO stated the platform is not a replacement for it.
• Spend-based lounge access rules emerged about 18 months earlier, but the CEO has not seen a lasting effect on the lounge business; mass card segment growth of ~8-10% to 15% (period unspecified) may see access restricted to ~3-4 visits a year, while premium card growth is normally "north of 50%" (period unspecified) with banks issuing more unlimited-access cards.
• International: a second Hong Kong lounge opened in calendar 2026, with success cited in Malaysia and Hong Kong; subsidiaries are set up in Dubai and Indonesia with teams being expanded, and focus remains on lounge opportunities across APAC and the Middle East.
• Highway outlets remain in pilot calibration, focused on expressway opportunities with larger landlords such as road development companies and oil marketing companies — described as a "decadal opportunity" rather than an immediate push.

Privatisation Watch, Tender Renewals and Long-Term Drivers

• Chennai and Kolkata tenders are expected in the early part of FY 2027-2028 — these airports are directly operated by TFS (100% of revenue booked directly, vs a much smaller share in JV airports with GMR Airports and Adani Airports).
• Tender renewal rates have been north of 90%, closer to 92-94% since the start of the business, per the CEO; he could not comment on privatisation timing and said Chennai and Kolkata are not part of current announced privatisation plans.
• The government has 11 airports in its privatisation pipeline — the CEO noted "the government has 11 airports in its privatization pipeline" as context, and said the company operates strongly in private airports and is indifferent to whether an opportunity is private or public.
• Indian passenger traffic is expected to grow at a 7-8% CAGR over the next decade (from FY 2026-2027) — the CEO cited this as an industry-level driver, alongside new airports and terminal expansions (Noida, Navi Mumbai, Delhi T1, Guwahati, Lucknow, Hyderabad, Bhogapuram), saying the opportunity will "constantly be there over the next decade."
• LFLs are typically about 6-8% above passenger traffic growth (period unspecified), per the CEO; Q2 FY 2026-2027 LFL was described as "somewhere in the range of 8 to 8.5%" while the analyst cited reported consolidated LFL of 6.6%.
• Net contract gains are "lumpy" and not a fixed annual number; the ~15% gap vs normal ranges depends on traffic recovery from the prolonged West Asia crisis, which remains the key swing factor.