Consumption as a theme has underperformed the broader market over the last few years. Within that space, Quick Service Restaurant (QSR) stocks have been out of favour for an even longer period.
But one name, Jubilant Foodworks, has managed to outperform, thanks to strong brand equity and strategic initiatives. At the same time, most peers continue to trail. That, however, may be about to change. Rural demand has already picked up, while urban demand is still sluggish.
However, this could change. Income tax relief, an expected reduction in the goods and services tax, a decline in inflation, and low interest rates are expected to increase household savings. Savings could thus lead to an increase in discretionary spending. This may benefit QSR companies, which are on the verge of recovery.
These factors are likely to boost household savings, leading to a rise in discretionary spending. Importantly, this shift comes right ahead of the festive season, a period that typically drives higher out-of-home consumption. Valuations also remain supportive as many QSR stocks are still trading below their peak valuations.
This may be the right time for investors to re-examine these three stocks.
Let’s take a look…
#1 Devyani International: Yum’s Growth Engine in India
Devyani, a unit of the Jaipuria Group, is the largest franchisee of Yum Brands in India. Yum Brands operates brands such as KFC, Pizza Hut, and Taco Bell, with more than 60,000 restaurants in over 155 countries.
Devyani is one of the largest operators of QSR chains in India on a non-exclusive basis and operates over 2,000 stores. It has branches spread across India, Nigeria, Nepal, and Thailand. The company is also the sole franchisee for Costa Coffee, Tealive, New York Fries, and Sanook Kitchen.
As of Q1FY26, Devyani operates a total of 2,145 stores, of which 1,767 are in India and the rest (378) are international. In India, the company operates 704 KFC and 618 Pizza Hut stores, 222 franchise brands (Costa, Tealive, New York Fries), and 201 in-house brands (Vaango, Biryani By Kilo, and Goila).
Store expansion lifts revenue, but margins come under pressure.
Additionally, it operates 307 stores (KFC and Tealive) in Thailand, 40 stores (KFC) in Nigeria, and 31 stores (KFC) in Nepal. It has added a total of 309 stores since Q1FY25.
The addition of stores helped Devyani grow total revenue by 11% year-on-year (YoY) to ₹13.5 billion in Q1 FY26. Of this, 68.8% (₹9.3 billion) came from India operations, with the rest from international.
However, profitability has come under pressure, as lower demand has led to weaker operating leverage. This is evident from its margins trend as gross margin remained stable at 68.2%, against 69.2% in Q1FY25.
However, EBITDA margin declined 320 basis points (bps) to 15.1%, as indirect expenses increased. As a result, profit after tax (PAT) crashed 90% to just 22 million. EBITDA refers to earnings before interest, tax, depreciation, and amortization.
KFC and Pizza Hut show early signs of recovery in sales trends
Brand-wise, KFC India’s revenue grew 10.5% YoY to ₹6.1 billion, accounting for 45.2% of total revenue. However, average daily sales (ADS) per store declined 5.7% to ₹98 million. Also, same-store sales growth (SSSG) declined 0.7% (1QFY25: -7.0%).
Pizza Hut’s revenue remained stable, growing 2.9% YoY to ₹1.8 billion, accounting for 13.8% of revenue. Here too, while ADS declined 8.3% to ₹33 million. SSSG improved to -4.2%, from -8.6% in Q1 last fiscal. The improvement in SSSG of its two iconic brands indicates that demand revival is likely soon.
Franchise brand revenue grew 14.1% to ₹519 million, while own brand revenue doubled to ₹350 million, thanks to the Sky-Gate acquisition. Its international business revenue jumped 11.2% to ₹4.3 billion.
New Brands and Pizza Hut Revival Key to Growth
Looking ahead, Devyani has slowed down Pizza Hut’s growth due to slower growth and is in discussions with Yum to determine how to turn around the brand. It is also looking to absorb the input price increase for KFC, given the consumption slowdown.
The company is also looking to diversify to avoid overdependence on Pizza Hut and KFC. It counts on emerging brands like Biryani By Kilo, New York Fries, and Tealive to diversify revenue. Among them, Biryani by Kilo is expected to turn profitable within one year.
From a valuation perspective, Devyani trades at an EV/EBITDA multiple of 26.6x, lower than the 4-year median of 36.8x.
#2 Sapphire Foods– KFC and Pizza Hut Franchise in South and West India
Sapphire is also a Yum franchise operator, operating 974 restaurants in India, Sri Lanka, and the Maldives. In total, it operates 510 KFC restaurants, Pizza Hut (454), and Taco Bell (10). Sapphire is Sri Lanka’s largest international QSR chain.
Store additions lift revenue, but margins remain weak
Sapphire consolidated revenue rose 8% YoY to ₹7.7 billion in Q1FY26, driven by store additions. However, EBITDA fell 9% to ₹1.1 billion, while margins contracted 270 bps to 14.6%. As a result, the company slid into losses, posting a loss of ₹17.4 million compared to a profit of ₹81.9 million in Q1FY25.
KFC holds steady, Pizza Hut drags overall performance
Brand-wise, KFC’s revenue grew 11% YoY to ₹5.2 billion, accounting for 68.4% of total revenue. The brand ADS per store was flat at ₹116,000. The brand reported zero growth in same-store sales. On the other hand, Pizza Hut’s revenue declined 6% to ₹1.3 billion, contributing 17% to revenue. Its ADS stands at just ₹44,000, with SSSG at -8%.
Sapphire’s Sri Lanka business performed relatively well. Revenue grew 19% to ₹1.1 billion, led by a steady increase in average daily sales, which stood at ₹103,000. The business is also expected to perform well in the coming quarters, and margins are expected to improve further.
Recovery strategy focuses on store size and menu tweaks
Looking ahead, the company has identified six priorities to drive KFC’s growth, including increasing penetration and consumer base, increasing frequency, craving taste, value, seamless customer experience, and improved accessibility.
The management also said that KFC’s margins (15.7%) have bottomed out, and only seasonal effects are visible. Hence, they expect any improvement in SSSG due to improved demand will help bring profitability back. The company is also innovating its menu to drive growth.
Like Devyani, Sapphire Pizza Hut is also struggling with negative -2.5% margins. But, it plans to implement the strategy it used to turn around the Sri Lanka’s business in India as well. That’s working as well. Tamil Nadu-based restaurants have performed relatively well, with positive single-digit growth in their SSSG.
The company plans to implement this strategy uniformly across India. Additionally, it is also reducing store size, with KFC and Pizza Hut store sizes shrinking by 40% and 45%, respectively, from FY20.
Sapphire trades at an EV/EBITDA multiple of 22.4x, which is roughly in line with the 4-year median of 21x, but lower than Devyani (26.6x).
#3 Restaurant Brands Asia: The Burger King of India
Restaurant Brands Asia is an exclusive national master franchisee of the Burger King brand in India. Based on the total number of restaurants, Burger King is the second-largest fast-food burger brand globally. It enjoys a pan-India presence with 519 stores as of Q1FY26.
In addition, the company is also present in Indonesia (139 stores), where it is the sole national franchise operator of Burger King. This also helps it diversify its geographical presence in Asia. In Indonesia, the company also operates 23 Popeyes restaurants.
India business shows early signs of recovery.
The company’s India business is showing signs of recovery. In Q1FY26, revenue rose 12.6% YoY to ₹5.5 billion. This growth was led by store additions, 2.6% SSSG, and a 2.6% increase in ADS to ₹120,000.
The company reported consistent growth across dine-in and delivery channels. Gross margins also improved 10 bps to 67.7%, while EBITDA margin expanded by 50 bps to 4.1%.
Indonesia operations stabilise after sharp decline.
Indonesia’s business revenue declined 6.9% YoY to ₹1.4 billion, which is better than the decline of 17% in Q1 FY25 and 9.7% in Q4 FY25. The Company has taken strategic steps that are yielding positive results. Gross margin also improved by 210 bps to 56.7%, while EBITDA margin declined by 130 bps to 8.1%.
Consolidated revenue rose 7.9% to ₹6.9 billion, against 5.9% in Q1 and Q4 of last year. Gross margin too improved by 90 bps to 65.4%, while EBITDA margin improved by 60 bps to 10.8%. As a result, net loss was down 13.5% to ₹450 million.
Store expansion, margin focus to drive medium-term growth
Looking ahead, the company plans to open 60-80 stores every year in India to take the number of restaurants to 800 by FY29. The pace of growth is expected to increase in the coming quarters, with several sites already under construction.
The company also aims to increase its gross profit margin from the current 67.7% to around 70% by then. The company is seeing tighter demand for value products, but believes premium traffic could pick up by the third quarter.
The company trades at an EV/EBITDA multiple of 18x, at about a 50% discount to its about 4-year median of 36x.
Bottomline
With improving rural demand, easing inflation, and supportive valuations, QSR stocks appear poised for a turnaround. While Jubilant has led the pack, peers like Devyani, Sapphire, and Restaurant Brands are showing early signs of revival. Investors may find merit in relooking at these names ahead of the festive season.
Disclaimer
Note: Throughout this article, we have relied on data from http://www.Screener.in and the company’s investor presentation. Only in cases where the data was not available have we used an alternate but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points, and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educational purposes only.
Madhvendra has been deeply immersed in the equity markets for over seven years, combining his passion for investing with his expertise in financial writing. With a knack for simplifying complex concepts, he enjoys sharing his honest perspectives on startups, listed Indian companies, and macroeconomic trends.
A dedicated reader and storyteller, Madhvendra thrives on uncovering insights that inspire his audience to deepen their understanding of the financial world.
Disclosure: The writer and his dependents do not hold the stocks discussed in this article.
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