Synopsis: Macquarie flags weak QSR demand, delivery outperforming dine-in, cuts earnings 7–23%, expects recovery in H2CY26, prefers Devyani and Sapphire; target prices reduced across peers sector wide.
Macquarie remains cautious on India’s Quick Service restaurant space as demand is muted across the industry. While delivery channels continue to outperform dine-in, a broad-based consumption recovery is taking longer than expected.
The brokerage has slashed earnings estimates for key players, citing delayed recovery, but remains hopeful of a demand pickup in H2CY26, which it sees as critical for any sustained improvement in sector performance.
View on the Industry: Demand in the QSR space continues to struggle as customers remain cautious with spending. While home delivery is holding up relatively better, dine-in traffic is still under pressure. Macquarie notes that even the festive season in the December quarter failed to meaningfully boost same-store sales, highlighting the ongoing weakness in consumer consumption trends.
Consumer spending across the QSR sector is improving at a slower pace than anticipated, forcing brokerages to cut earnings estimates for several companies. Until customers start spending more consistently, the stock valuations are unlikely to improve, making a clear demand revival the most important catalyst for a sector-wide re-rating.
Cuts in the earnings estimate: Macquarie has reduced its earnings estimates by 7 percent to 23 percent as the expected demand recovery has been pushed back. Slower footfalls and cautious consumer spending are impacting sales, delaying profitability improvements across the QSR sector.
Probable factors
Target prices for Devyani International have been cut by 20 percent from Rs 200 to Rs 160, an upside of 21.3 percent from the closing price. Sapphire Foods saw a 19 percent cut from Rs 335 to Rs 270, an upside of 22.6 percent from the closing price
Devyani International / Sapphire Foods: They have announced their merger, where Sapphire Foods India Limited (“SFIL”) is being merged with and into Devyani International Limited (“DIL”) through a share-swap mechanism. The management of DIL stated that this merger enables them to deploy capital in the most efficient manner possible. The QSR operator further noted that it has partnered with a global technology vendor for the implementation of specific technological interventions.
Merger synergy: The merger creates one of India’s largest QSR platforms, significantly expanding scale and national reach. A unified brand and consumer strategy for KFC and Pizza Hut is expected to accelerate growth while improving operational efficiency and strengthening the competitive position.
Synergies are expected from cost efficiencies, consolidated procurement, and stronger bargaining power with vendors and landlords. Margin expansion, improved cash flows, and a stronger balance sheet should support faster expansion, with annual synergies of Rs 210–225 crore expected from the second full year of the merged entity.
Target: Westlife Foodworld also saw a target cut from Rs 750 to Rs 600, an upside of 24.6 percent from the closing price. Jubilant’s target price was also lowered by 7 percent to Rs 460, from the earlier Rs 495, a downside of 12.6 percent from the closing price.
The lower preference as Westlife runs with lower efficiency, resulting in an ROCE of 7 percent and ROE of 1.3 percent. And Jubliant Food, with its Q3 updates, reported the slowest revenue growth this year.
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