Burger King, Domino's & KFC to see high growth even as consumer staples suffer

• Quick service restaurants are expected to be largely safe from inflationary pressure and overall slowdown.
• The quick service restaurants have shown decent valuations amid the market corrections in the last six months.
• The discretionary companies like retail, QSRs and Jewellery will be performing well for now, ICICI Securities added.

Even with high inflation and other greater economic pressures, Indians do not seem to have lost their appetite for fast food. McDonalds, Burger King, Domino’s India and KFC – quick service restaurants – will see a brighter future ahead, predicts brokerage firm ICICI Securities.

Though an overall slowdown and high prices of essentials hurts mass consumer demand, quick service restaurants are expected to be largely safe from this negative sentiment.
“Management commentary of QSR companies is far more positive vs. near-term woes for consumer staples,” ICICI Securities added.

Secondly, there has been a sharp stock price correction in the public market since the beginning of the year. Yet, the quick service restaurants like Burger King India, Domino’s India, McDonalds, KFC, Pizza Hut and Taco Bell in India have retained decent valuations.

“We note that most QSR stocks have corrected in the last six months (down 17-27%) given expensive valuations, fears of higher competition (narrative) and overall slowdown concerns (and broader market weakness),” the brokerage firm added.
Source: Bombay Stock Exchange

ICICI Securities noted that recent stock correction of Sapphire Foods – which owns brands like KFC, Pizza Hut and Taco Bell — appears to be “unjustified” given that the company was already trading at a large discount to peers. Besides, there has been continued execution improvement in all three metrics of average daily sales, margins and store expansion.

For Domino’s owner Jubilant FoodWorks, all the concerns have been priced in already and the success of its fast food chain Popeyes would be a trigger for the stock.

“We stay long-term believers in Westlife. We reckon restaurant brands India (earlier: Burger King India) is a cyclical recovery play,” the report added.

$DEVYANI.NSE Descending triangle formation in Devyani International.Facing resistance near upper trendline.One can add near 140 levels which is a strong support for the stock.My top priority QSR stock that everyone must have in their Watchlist.

— (@MarketViewByPB) June 14, 2022

The companies are also planning to expand their networks by adding anywhere between 50-250 outlets to their network in this fiscal year.

Source: Company Data, ICICI Securities Research

Overall, ICICI Securities sees the low-ticket segment of staples struggling due to its dependency on the bottom strata for incremental volumes. However, the discretionary companies like retail, QSRs and jewellery will be performing well for now.

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