As competition among quick service restaurants (QSRs) heats up, will the good old pizza lose out to other comfort foods like burger, fried chicken or biryani in the hunger game? This is an Rs 80,000 crore question for investors in 5 listed QSR stocks.

December quarter earnings showed flat sequential growth trends for QSRs as dine-in footfalls remained lower and demand dipped further Diwali, which could be due to low disposable incomes (indebtedness/inflation), and shift of wallet spends to other categories like travel.

On a YoY basis, the sales growth was driven by an increase in store count despite SSSG (same store sales growth) and ADS (average daily sales) remaining under pressure across QSR categories.

In the pre-Covid era, pizza was the indisputable boss for western QSRs with Jubilant Foodworks (Domino’s) being investor favourite. Now the trend is seen as shifting more towards burgers and fried chicken.

Jubilant has lost about 4% market share in India QSR space (19% in FY22 from 24% in FY17) while KFC’s market share has increased after Covid, rising from 7% in FY19 to 10% in FY22, shows data from Elara Securities.

Due to high store count among pizza firms and increased competition, store growth expansion has slowed for these firms in the past few years. On the other hand, KFC is on an expansion spree and has been doubling down on store count.”Chicken (KFC) is the only bright spot that saw 4.4% overall sequential pick-up (vs. muted trends for burger/pizza), and has seen an in-line growth vs. aggregators over the last two years,” said Devanshu Bansal of Emkay Global.

QSR stocks have corrected 15-30% from recent 52-week highs, which is largely in-line with the cut in their respective earnings. Still, time correction cannot be ruled out due to lack of near-term triggers for Jubilant, Devyani and Westlife, he said.

The post-Covid era has worked unfavorably for pizza, analysts say, on account of competition and scale up in delivery offerings by aggregators like Zomato and Swiggy, which have increased variety (pizza was the only category which has 60% delivery revenue as on FY20).

“Fried chicken would continue to outperform pizza on new store expansion, and adoption of non-vegetarian food (~70% of Indians are non-vegetarian), which would drive better same store sales growth (SSSG) than peers,” Elara’s Karan Taurani said.

Who sells what?

Devyani runs KFC, Pizza Hut Costa Coffee in India while Sapphire Foods operates the franchisees of KFC & Pizza Hut in India and has a presence in Sri Lanka.

Restaurant Brands Asia operates franchisees of Burger King in India & Indonesia and Popeyes in Indonesia. Westlife Foodworld runs McDonald’s in western India and South India. Jubilant Food operates Domino’s Pizza and Popeyes in India and a few other countries.

Together these 5 western QSR chains command a market capitalisation of about Rs 80,000 crore on Dalal Street. In the last 6 months, KFC-owned Sapphire is the only QSR stock to have given a decent return of 11%. Jubilant is flat while the remaining 3 stocks have given negative returns.

Which QSR stocks to buy?

Elara has buy ratings on Devyani, Sapphire with target prices of Rs 162 and Rs 1,401, respectively. It has told clients to accumulate Restaurant Brands Asia for a target price of Rs 130 and given reduce rating on Jubilant and Westlife.

Emkay prefers Sapphire with a relatively better SSG in KFC (~85% EBITDA mix), closing margin gap vs. peers, and valuation comfort (20-30% discount).

“Bloomberg consensus expects QSR companies to report 14-23% revenue CAGR and 21-44% EBITDA CAGR over FY24-26 across companies, which still looks too optimistic to us. QSR stocks are trading at c72-103x P/E, based on FY25 Bloomberg consensus estimates,” said Kunal Vora of BNP Paribas.

(Data: Ritesh Presswala)

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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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