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Are QSR cos bracing for another quarter of disappointment?

  • Nishadil
  • January 03, 2024
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  • 1 minutes read
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Are QSR cos bracing for another quarter of disappointment?

Investors in quick service restaurant (QSR) stocks are increasingly finding themselves in a flavorless situation. Half-year performance ending September was hamstrung by lackluster demand and the final quarter (Q3FY23) seems to be following in its footsteps. Analysts reported that despite Q3 traditionally being a robust period due to festival-driven sales increases, a significant upturn has not transpired. The ICC Cricket World Cup, initially anticipated to spike sales, also didn't deliver the expected results. Last year's stronger performance base also factored into the lukewarm projected same-store sales growth for the third quarter.

According to data from Antique Stock Broking's discussions with channel partners, spikes in demand were mostly limited to festival days and key match days, particularly when India was playing in the ICC World Cup. These matches were conveniently scheduled on weekends, an already prime time for demand. However, once the season of festival and World Cup matches passed, demand did not sustain, leading to a dip in customer footfall across all QSR companies, Antique's analysts noted.

The KFC portfolio is projected to fare better than pizza stocks, continuing the trend seen in previous quarters. For instance, Devyani International Ltd's KFC reported a 3.3% fall in same-store sales in H1, compared to a 7.9% fall in the Pizza Hut portfolio. The pizza sector's struggle is largely attributed to fierce competition. The foreseeable future appears to offer little relief for this category.

However, things are not entirely grim for QSR firms. As mentioned by Karan Taurani, an analyst at Elara Securities (India), easing inflationary pressure should improve gross margins compared to six months ago. However, these gains may not boost the Ebitda due to promotional spend by these companies.

Meanwhile, the network expansion will likely affect operating margin. Currently, QSR stock investors are proceeding with caution. In 2023, shares of Devyani, Sapphire Foods India Ltd, and Westlife Foodworld Ltd saw modest increases of 7%, 6%, and 3%, respectively, while the Nifty 50 index grew by 20%. The question now is whether QSR stock returns in 2024 will be enticing, which hinge largely on the possibility of a demand rebound.

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