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Westlife Foodworld, which operates McDonald's restaurants in west and south India, reported a surprise drop in quarterly earnings on Thursday as increased costs overshadowed higher sales of its burgers and fried chicken.

The franchisee said consolidated net profit after tax fell to 223.7 million rupees ($2.7 million) in the July-September quarter from 315.4 million rupees a year earlier.

Analysts were expecting a profit of 319.6 million rupees, according to LSEG data.

Prices of several major commodities, including cheese and vegetables, shot up during the quarter, resulting in a jump in expenses with many restaurants going as far as taking tomatoes off their recipe.

For Westlife, total expenses climbed 9.7% to 5.88 billion rupees.

Revenue from operations, however, rose 7.4% to 6.15 billion rupees, driven by the launch of discounted meals and the opening of new stores.

Westlife operated in "challenging market conditions" and "macroeconomic challenges persist", Chairperson Amit Jatia said in a statement, adding the company is investing in new stores and plans to grow its business.

Shares of Westlife, which operates 370 restaurants in states like Maharashtra and Tamil Nadu, declined 2.2%, cutting their gains to about 11.3% this year.

The downbeat results come a day after fast-food rival and Domino's operator Jubilant FoodWorks posted a smaller-than-expected drop in quarterly earnings on cost-cutting and demand for its cheaper pizzas.