The global brokerage house Macquarie has turned more upbeat on India’s listed quick service restaurant (QSR) chains – the fast-food and casual-dining companies that run brands like Domino’s, KFC, McDonald’s, Pizza Hut and Popeyes.
The brokerage upgraded Jubilant FoodWorks to ‘Neutral’ from ‘Underperform’ and raising target prices across its coverage. The brokerage sees up to 27% upside in the stocks it tracks, with Devyani International emerging as its preferred pick, followed by Sapphire Foods and Westlife Foodworld.
The shift comes as restaurant demand shows signs of recovery, with Macquarie expecting same-store sales growth to improve in the second quarter.
Let’s take a look at what the brokerage house is saying –
Demand recovery could be the next trigger
According to the Macquarie report, demand trends have continued to improve over the past few quarters. Its channel checks suggest that second-quarter same-store sales growth (SSSG) could be slightly ahead of the first quarter.
The brokerage said, “Our channel checks indicate that the steady demand recovery momentum seen over the last few quarters continues.”
Another interesting shift is taking place between restaurants and food delivery platforms.
Quick service restaurants (QSRs) have been working to make dine-in and takeaway more competitive with delivery. Macquarie believes these pricing initiatives are beginning to narrow the growth gap between listed QSRs and aggregators such as Zomato and Swiggy.
Macquarie’s restaurant picks: Who has more upside?
Macquarie sees Devyani International as its preferred stock, with a target price of Rs 190 against the current price of Rs 149, implying around 27% upside.
It is followed by Westlife Foodworld, where the target price of Rs 730 suggests nearly 25% upside from Rs 583. For Sapphire Foods India, Macquarie has a target of Rs 300, implying around 20% upside from Rs 250.
For Jubilant FoodWorks, the target price is Rs 520 against Rs 508, leaving around 3% upside.
The brokerage summed up its preference as, “Devyani/ Sapphire > Westlife > JUBI.”
Why are Devyani and Sapphire preferred?
Macquarie expects the recovery to be led more strongly by dine-in and takeaway sales. The brokerage also sees strength in the KFC and McDonald’s formats.
There is another potential trigger for Devyani. The brokerage expects a possible turnaround in Pizza Hut following the merger of the Yum franchisees, which could provide an additional boost to earnings.
Valuation is another factor. The merged Devyani-Sapphire entity trades at around 16 times fiscal year 2029 enterprise value (EV) to pre-Indian Accounting Standards (Ind AS) EBITDA. Westlife trades at around 19 times, while Jubilant FoodWorks’ India business is valued at around 22 times.
Why did Jubilant get an upgrade?
The brokerage has upgraded the company to ‘Neutral’ from ‘Underperform’.
The Popeyes business has shown stronger performance, while operating leverage in the India business could support profitability as demand improves.
Macquarie said, “Upgrade Jubilant Foodworks to Neutral.”
What investors need to watch
Macquarie expects improving SSSG to work alongside operating leverage and drive EBITDA margin expansion. The brokerage has consequently raised its FY29 earnings per share (EPS) estimates by more than 20% across the stocks it covers.
It said, “sharper pace of demand recovery is an upside risk to our FY28E EPS estimates.”
Disclaimer: This article is based on research reports from one or more brokerage firms and is for informational purposes only. The views, target prices, and recommendations expressed are those of the respective brokerage firms and do not reflect the official policy or position of Financial Express. This should not be construed as an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor before making any investment decisions.