QSR sector sees no material recovery in 3QFY24, says Antique Stock Broking; prefers Sapphire Foods, Devyani Intl

In its latest sector update report on Quick Service Restaurants (QSR) companies, brokerage house Antique Stock Broking stated that the holiday season and sporting events did not lead to a recovery. The brokerage said in its report that despite the holiday season and important sporting events, sequential demand (for the third quarter) has not shown any appreciable recovery based on the brokerage's interactions with channel partners.

“QSR companies have not witnessed any material recovery in 3QFY24 compared to 2QFY24. There were expectations of strong sequential recovery in 3Q due to the weak base on account of a longer Shravan month (veg eating month), delayed festivals, and inflation impacting discretionary spending," the brokerage said.

Customers' down trading and the increased level of competition have continued to have an impact on the pizza segment during the quarter. Furthermore, demand across QSR companies remained soft compared to the previous year, even during the highest revenue generating week of December last week. By introducing more promotions (higher discounts during the festive/match days) and more reasonably priced pizzas, Domino's and Pizza Hut are trying to increase customer foot traffic, the brokerage said in its report.

However, the brokerage thinks that because of its superior delivery model, Domino's will outperform Pizza Hut. In addition, KFC's sequential performance has not significantly improved despite its weak foundation (longer Shravan month). Due to last year's high base, Westlife's performance in the burger business will be impacted, but Restaurant Brands Asia's performance should improve as a result of expanding its beverage portfolio.

"At current levels, we prefer Devyani International and Sapphire Foods driven by stable performance in KFC, as risk reward remains favourable. We maintain SELL on due to near term headwinds in the pizza segment," said the brokerage. Additionally, the brokerage noted in its report that the major sporting event of the year—the Cricket World Cup—was anticipated to spur recovery.

Demands increased on festival days and on important match days (India playing the ICC World Cup), according to its interactions. Foot traffic was negatively impacted by QSR companies after the World Cup and the holiday season, as the demand momentum could not be maintained. Livemint tops charts as the fastest growing news website in the world to know more.

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