QSR Q2 Results Preview - Weakness In Demand, Margins To Persist: HDFC Securities

HDFC Securities Institutional Equities

We believe that the quick service restaurant industry has multi-year growth potential, given India’s rising consumer base, eating-out frequency, quicker delivery and value-for-money proposition. However, given high inflation impacting consumer wallets, we do not expect growth recovery anytime soon.

Moreover, the pressure on the operating margin will be significant. We are non-consensus in our estimates for FY24/FY25/FY26 and still see a downside risk to our estimates.

We continue to like Westlife Foodworld Ltd. among its peers, a pure-play India QSR story with more legs for growth and margin improvement.

We also like Jubilant FoodWorks Ltd. because of its reinvestment capabilities, superior delivery expertise, and best unit economics. Although we have 'Add' ratings on Westlife and Jubilant, the recent run-up also covers up the upside potential on both stocks.

Devyani International Ltd. and Sapphire Foods India Ltd. both are seeing pressures on growth and margin, particularly for Pizza Hut.

With superior control of KFC, we expect it to recover faster with limited downside risk. But Pizza Hut recovery is uncertain, both on growth and margin. Pizza Hut is still work in progress and the current demand environment will impact this franchise more than other settled brands.

We have 'Reduce' ratings for Devyani and Sapphire.

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