Yum! Brands, which operates Pizza Hut (434 stores), KFC (385 stores) and Taco Bell (6 stores) outlets in India, clocked 11% y-o-y dip in same store sales (SSSG) in Q2CY15. This came on a low base of 2% y-o-y SSSG dip in Q2CY14 (Q1CY15 SSSG had dipped 11% y-o-y on base of 1% y-o-y fall). This marked third consecutive quarter of double digit fall in the company’s SSSG. We expect competitor Jubilant Foodworks (JFL) to report 6% y-o-y SSSG in Q1FY16 on a low base of 2.4% y-o-y decline (6.6% y-o-y in Q4FY15 on base of 3.4% y-o-y dip).
The competitive intensity between the 2 dominant players in the pizza space—Pizza Hut and Dominos—has continued to moderate in the past few months. Moreover, the Nestle issue has put downward pressure on wheat prices, which bodes well for pizza players. Prices of other key raw materials, primarily cheese and chicken, too have been benign, which is bound to boost margins. The QSR space is yet to see any material demand improvement, though there has been some sanity in competition.
Though JFL has seen uptick in demand, it is not the case for peers. We expect JFL to gain market share and take 2-4 quarters to report high single digit to low double digit SSSG y-o-y. The JFL stock is likely to outperform riding benign key raw material (cheese, chicken, wheat) prices and higher SSSG.