JP Morgan sees opportunity in Indian QSR industry; stocks gain up to 3%

QSR or quick service restaurants, in India have geared up at a rapid pace, and other than the domestic investor interest, there is a huge bet placed by institutional investors on this basket. For Restaurant Brands Asia and Barbeque Nation, the FII stake has increased in the September quarter end to 29.92 per cent and 18.06 per cent, respectively, while for Jubilant FoodWorks, it is maintained at 41.92 per cent.
 
In trade on Monday (December 4), shares of Devyani International gained 2.86 per cent to day's high of Rs 180.1, Sapphire Foods gained 3.25 per cent to Rs 1460.5, Jubilant FoodWorks gains around 2 per cent to Rs 576.05 and Restaurant Brands Asia climbed 1.75 per cent to 116.2. Westlife FoodWorld on the other hand after gaining over 2 per cent was seen trading in the red. 
 
Global brokerage JP Morgan, however, sees QSR as an attractive investment opportunity. The brokerage estimates a healthy low to mid-teens revenue CAGR and 15-20 per cent EBITDA CAGR over FY23–26E for the listed QSR universe. "We see higher intensity for store roll-outs, scaling up omnichannel and digital capabilities, expanding value offerings, and reshaping cost structures," added the brokerage in its note on the QSR industry.
 
Growth longevity will support premium valuations, as seen for most consumer discretionary companies in India, it said. The brokerage's preference for the QSR stocks is in the order of Westlife FoodWorld, Devyani International, Sapphire Foods, and Jubilant FoodWorks.
 
On Westlife FoodWorld, the brokerage has suggested an 'overweight' rating with a target price of Rs 1,050. For Devyani International, the brokerage is again overweight and has set a target of Rs 215, i.e., a decent upside from the current market price of Rs 175. On Sapphire Foods, the brokerage has initiated an 'overweight' stance with a target of Rs 1,700, signalling an upside of over 20 per cent.
 
Notably, in the September-ended quarter, the operating profitability of QSR companies suffered on the back of an extended Shravan period and weak same-store sales growth.