The quick-service restaurant (QSR) companies have been seeing sustained demand deceleration over the past few quarters. While the demand normalisation and deteriorating consumer sentiment have caused same store sales growth (SSSG) to turn from flat to negative, HDFC Securities analysts expect a further slowdown in growth metrics (SSSG, ADS, etc.) in Q2FY24. The brokerage firm, in its report, said that the gap between dine-in and delivery is expected to get narrower.
While QSR companies remain committed to their long-term target of rapid store expansion, HDFC Securities analysts expect near-term moderation in the number of new store openings. Demand recovery in Q3FY24 will be key monitorable, with the festive season and the World Cup benefits around the corner, it added. “On a relative basis, we expect better revenue metrics for McD and KFC and weaker revenue metrics for Domino’s and Pizza Hut. We expect QSR companies under our coverage to report 10 per cent YoY growth in revenues (primarily driven by store addition),” the report by HDFC Securities stated.
Meanwhile, another analysis of Sharekhan by BNP Paribas said that QSR companies’ performance during Q2FY24 is likely to be impacted by shift of festive season to Q3 and extended Shraavan Maas, adding that it will revive in H2FY24, boosted by the festive, wedding and holiday season.
HDFC Securities further added that stable raw material prices are expected to aid gross margins and negative operating leverage may put operating margins under pressure.
“We believe that the QSR 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,” the report said.
Q2 performance by major QSR companies
Jubilant FoodWorks: With sustained weakness in demand for QSR, SSSG is expected to decline 7 per cent for Jubilant. HDFC Securities expects the company to report 4 per cent revenue growth with LFL SSSG at -5 per cent. It further added, “We model gross margin of 75.8 per cent, down 45bps on YoY and 20bps on QoQ. EBITDA margin is expected to fall 330 bps YoY to 21 per cent. EBITDA is expected to fall by 10 per cent YoY.” In terms of key monitorables, it said that commentary on demand trends during World Cup, commentary on demand for delivery and dine-in, outlook on demand or store addition in FY24, pricing strategy and outlook on sustainable ESG, will be of interest to investors.
Westlife: The brokerage firm expects Westlife to report SSSG of 3 per cent and revenue growth of 11 per cent on-year. The gross margin is expected to expand by 150bps YoY to 70.8 per cent and EBITDA margin is expected to fall 30bps YoY to 17 per cent. Meanwhile, EBITDA is expected to grow by 9 per cent YoY. Key monitorables are commentary on demand for takeaway ordering/ dine-in and outlook on demand and store additions in FY24. Investors will also keep an eye on management comments on competitive intensity and pricing strategy and outlook on sustainable ESG.
Devyani International: KFC-operator Devyani International is expected to report 20 per cent YoY growth in revenues aided by store openings. SSSG is likely to fall by 1 per cent YoY. Pizza Hut, HDFC Securities said, is expected to report 4 per cent growth in revenues with weak SSSG of -9 per cent. The consolidated revenue is expected to grow by 15 per cent YoY and gross margin is expected to expand by 30bps YoY to 70.5 per cent. Devyani International is the franchisee of Yum Brands in India. In addition, DIL is a franchisee for the Costa Coffee brand of sores in India. Yum! Brands operates brands such as KFC, Pizza Hut and Taco Bell brands.
Sapphire Foods: According to HDFC Securities, Sapphire Foods is expected to post Q2 profit at Rs 20 crore, down 41.5 per cent on-year and net sales is estimated to rise by 13.8 per cent to Rs 640 crore. “We expect KFC to report 18 per cent YoY growth in revenues aided by store openings. SSSG is likely to be flat YoY. Pizza Hut is expected to report 3 per cent growth in revenues with SSSG of -15 per cent,” the report stated.