Indian Fast Food Chains To See Turn-Around In 2025 After 'Tough' Year, Says Bernstein
The brokerage expects consumer demand to pick up 'gradually' in the first half and 'materially' in the second of the calendar year.
Indian quick-service restaurants are poised to see a turnaround in 2025 after a tough year for the stocks, driven by demand recovery, new brand success and improving operating leverage, according to Bernstein Research.
The bleak demand environment which began in the third quarter of fiscal 2024 continued, leading to decreasing margins, Bernstein highlighted in its latest report. The shape of consumer demand in India is changing with high inflation, low real wage growth and a reduction in unsecured credit, it said.
Bernstein retained its 'outperform' rating, but upped the target for Jubilant FoodWorks Ltd. and Devyani International Ltd. It kept its 'underperform' rating on Westlife Foodworld Ltd. and 'market-perform' rating on Sapphire Foods India Ltd. unchanged, along with their target prices.
The brokerage expects consumer demand to pick up "gradually" in the first half and "materially" in the second of the calendar year. "Overall, we expect a return to positive mid-high single digit 'same-store sales growth' across players."
While the gross margins are expected to be range-bound, operating profit and profit after tax will improve with operating leverage, Bernstein said. Even with sticky inflation and weak demand environment in 2024, most brands managed to retain their gross margins, it noted. The Ebitda and profit is expected to improve by 200-300 basis points across players.
Network development will continue with deeper tier-2 and tier-3 penetration, the brokerage said. It expects Dominos and KFC to continue aggressive growth. McDonald’s will be relatively calibrated, it said.
The strong delivery growth seen in 2024 is expected to remain strong for 2025 as well, it said. "This will, however, come under pressure from the recent pick-up in 10-min food delivery by quick commerce players."
