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Business News/ Markets / Stock Markets/  Stocks to buy: KFC’s fried chicken muscles in pizza share; Devyani International, Sapphire Foods top picks in QSR sector
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Stocks to buy: KFC’s fried chicken muscles in pizza share; Devyani International, Sapphire Foods top picks in QSR sector

Elara Capital remains selectively positive on India’s QSR sector and prefers Devyani International and Sapphire Foods India due to their focus on KFC, which is heavily underpenetrated in India versus pizza franchises.

Most non-pizza QSR chains had a delivery revenue share of 22-25% pre-COVID, which has reached 35-38% in the post COVID era. (Photo: AP)Premium
Most non-pizza QSR chains had a delivery revenue share of 22-25% pre-COVID, which has reached 35-38% in the post COVID era. (Photo: AP)

India’s Quick Service Restaurant (QSR) chain market is set to post a market size CAGR of 32% during FY23-27, well ahead of its F&B industry growth rate of 19%, and ahead of global counterparts. 

Within organized QSR, KFC India posted 30% CAGR during FY19-23 as compared to its peers across categories that have grown by a mere 17% during the same period.

Elara Capital remains selectively positive on India’s QSR sector and prefers Devyani International and Sapphire Foods India due to their focus on KFC, which is heavily underpenetrated in India versus pizza franchises.

Pan-India, penetration of pizza outlets is double than that of fried chicken as there are 3.9 pizza outlets per million versus a mere 1.05 fried chicken outlets per million, which shows penetration opportunity for fried chicken. In large metro cities, the penetration of Domino’s & Pizza Hut based on population is 4-6x that of KFC. 

Also Read: Are QSR cos bracing for another quarter of disappointment?

The market share of KFC and fried chicken has seen a boost post COVID, rising from 7% in FY19 to 10% in FY22. Competition has been less in the fried chicken category. Popeyes is the only large global competitor with a presence in India, but it has a mere 32 stores in India currently. The figure is too low to make any huge negative impact to KFC’s market share in India, the report noted.

“Fried chicken would continue to outperform pizza on new store expansion, and adoption of non-vegetarian food, which would drive better same store sales growth (SSSG) than peers," said Elara Capital analysts Karan Taurani and Rounak Ray in a report.

Most non-pizza QSR chains had a delivery revenue share of 22-25% pre-COVID, which has reached 35-38% in the post COVID era, led by aggregators scaling up delivery offerings, brands working on better packaging for delivery, and more customers ordering products other than pizza.

“We believe expansion in delivery contribution is a key lever behind better SSSG for the non-pizza category; menu innovation and increased adoption of non-pizza food would be growth drivers," said the brokerage report. 

Also Read: FMCG firms had two good years. This one may be different

However, it does not expect fried chicken and burgers to expand more than 40%- 42% in delivery contribution in the near term, as consumers return to restaurants and most non pizza chains will continue to drive a bigger share of revenue (~55%-60%) from dine-in, due to their larger store size.

Although it believes delivery contribution may not move way too much beyond 40% in the near term, there is still room for some expansion.

Elara Capital initiated coverage on Devyani International and Sapphire Foods with a ‘Buy’ rating and a SOTP-based target price of 210 and 1,740. 

It initiated Restaurant Brands Asia with an ‘Accumulate’ rating and a SOTP-based target price of 130. It retained ‘Reduce’ on Jubilant FoodWorks and Westlife Foodworld with an unchanged target price of 500 and 880, respectively.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Published: 07 Feb 2024, 11:49 AM IST
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