MENU

Published on 28/06/2022 12:39:24 PM | Source: Yes Securities Ltd

Consumer Discretionary Sector Update - Organized QSR players on a strong growth wicket despite margin concerns By Yes Securities

Posted in Broking Firm Views - Sector Report| #Consumer Goods Sector #Sector Report #Yes Securities Ltd

Follow us Now on Telegram ! Get daily 10 - 12 important updates on Business, Finance and Investment. Join our Telegram Channel  https://t.me/InvestmentGuruIndia 

Download Telegram App before Joining the Channel

Organized QSR players on a strong growth wicket despite margin concerns

Aggressive expansion plans laid out by all the organized QSR players in India indicates the QSR industry is poised for exponential growth trajectory driven by a structural increase in consumer preference for online food ordering. The superior experience that consumers realize from online ordering through apps and seamless websites to quick delivery are key drivers for the double?digit growth in the Food Service Industry. The overall industry is poised for a 15% CAGR with Organized QSR segment expected to grow at a robust 23% CAGR over FY20?FY25, which would make it one of the fastest growing industries in the current economic landscape. The COVID?19 pandemic seems to have added rigour to growth plans as companies have embarked on a 10?15% annual footprint expansion, updating product offerings as well as adding innovative menu offerings to stay competitive. The key drivers for exponential growth trajectory are – 1) large market opportunity with organized players to benefit from growing market size 2) increasing population inclined towards ordering fast food with focus on hygiene and safety 3) pandemic becoming a trigger for organized QSR companies as consumers developed trust in these companies 4) Clear visibility in top line growth with 10?15% footprint expansion and 5?7% SSSG 5) Product portfolio expansion and foray into new territories. We believe companies with superior operational capabilities, delightful experience with ordering and delivery of food and constant technology upgradation coupled with innovative product portfolio are set to gain further market share. While margins can be a concern in the near?term, we believe that the top brands have reasonable pricing power to pass it through to consumers to a large extent and still retain the relative value preposition. We prefer players like Jubilant Foodworks, Devyani International and Barbeque Nation.

* QSR industry well placed to capture burgeoning desires of India’s appetite – Organized QSR industry has come a long way since 90’s when international QSR franchises started operations in India and have seen a gradual increase in preference for these foods. India’s organized Food Service industry now has leading listed players like Jubilant Foodworks, Westlife Development, Devyani International and Barbeque Nation. As per Sapphire Foods RHP, organized food service market is expected to grow at 15% CAGR from FY20?FY25 and estimated to reach Rs 3.2Tn by FY25 while QSR is expected to grow even faster at 23% during the same time horizon. Consequently, contribution from QSRs is set to increase from 47% in FY20 to 54% in FY25. This growing canvas creates clear visibility for companies to embark on aggressive store expansion plans.

* All organized QSR players on aggressive expansion spree – Since COVID?19 pandemic, QSR companies accelerated their store expansion strategy due to increased consumer preferences for online food ordering habits as they believe these companies offer best quality of foods in terms of hygiene and safety. As shown in exhibit 3, the largest QSR company in India, Jubilant Foodworks plans to open 900?950 restaurants during FY23?FY26 which translates to 11?12% CAGR in current store footprint. Burger King India, which opened first store in 2016, strategizes to grow existing store count by 15?20% pa to reach its mandated 700 store count by FY26 to lead the burger story in India. Other players like Devyani International plans 400?450 store additions, Westlife Development to add 180? 200 stores with capex outlay of Rs800?1000cr, Barbeque Nation and Sapphire Foods plan to open 150?160 and 450?500 stores respectively during FY23?FY26.

 

To Read Complete Report & Disclaimer Click Here

 

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632

 

Above views are of the author and not of the website kindly read disclaimer

* Bright outlook ahead hinges on exponential growth in medium?term – All the QSR players are expected to deliver 15?20% revenue growth in medium term driven by 10? 15% growth in store footprint and 5?7% SSSG (which is still conservative). Jubilant Foodworks and Westlife Development delivered 16% SSSG while Burger King India registered robust 29% SSSG in FY19. However, Devyani International and Sapphire Foods grew at moderate 4?6% SSSG in FY19.  

* Covid?19 pandemic turned out to be a positive event for QSR industry – COVID?19 pandemic boosted consumer preference for online ordering and QSR companies benefitted the most as consumers turned to trusted brands during the pandemic. Companies witnessed steep recovery post the second wave due to razor?sharp focus on delivery and takeaway channels. As shown in Exhibit 1 and 2, YoY recovery has been very strong while it has reached pre?COVID levels in Q4FY22 adjusted for third covid wave in the month of January 2022. Dine?in revenue is still below pre?COVID levels; however, as the economic activities pick up and concerns around COVID fade away, dine?in revenue should see sharp uptick in coming quarters.

* Product portfolio expansion and foray into new territories to keep them competitive – Companies are aware that consumer tastes keep changing and their constant desire for freshness in the menu push companies to keep innovating product offerings. Companies are revamping existing stores, updating product offerings as well as adding innovative offerings to meet Indian diaspora’s taste and remain competitive. Westlife added curated coffee business with addition of McCafé and launched fried chicken offerings. Jubilant Foodworks expanded its product portfolio with Dunkin Donut, Popeyes to enter chicken franchise market, Hong’s Kitchen in the Chinese food market and EkDum to compete in Biryani market. Even Burger King has entered the coffee segment with launch of BK Café.

 

To Read Complete Report & Disclaimer Click Here

 

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632

 

Above views are of the author and not of the website kindly read disclaimer