QSR recovery signs emerge but dine-in demand still weak: Elara Capital lists stocks to watch

India’s quick service restaurant (QSR) sector is showing early signs of recovery, supported by improving same store sales growth (SSSG), margin gains from lower input costs, and industry consolidation moves. However, sustained growth will depend on demand recovery in dine-in channels and continued delivery strength.According to Karan Taurani of Elara Capital, “Two or three triggers to watch out for here in this quarter. One is the commentary for the month of January in terms of SSSG being positive. So, sustenance of that is a key multiple.” He said a positive SSG in January is important because it comes after several weak quarters across the sector.

“Most of the QSR companies – Devyani International, Westlife Foodworld, Sapphire Foods derive almost about 45% of the revenue from delivery… but it’s a dine-in which is causing the concern here.” He said delivery SSSG remains in the 5–6% range, while dine-in continues to lag.
Also Read | Motilal Oswal downgrades ITC, positive on Devyani International–Sapphire mergerThe recent rise in QSR stock prices has also been linked to improving growth outlook and margin support from lower input costs and GST cuts. Taurani said valuation expansion has been driven by expectations of better growth and improved cost structure.

Companies with higher delivery share are expected to perform better. Jubilant FoodWorks, for instance, is better placed due to delivery contribution above 70%, while other QSR companies may see weaker SSSG and margin performance.

On Devyani International and Sapphire Foods, Taurani said merger benefits will largely be cost-driven. He said cost synergies could add about 60–70 basis points (bps) to gross margins over time.
At Pizza Hut, he said turnaround signs are visible, but store expansion is likely to remain limited. He said margin pressure across QSR companies remains high after falling sharply over the past two years.Also Read | Chola’s Dharmesh Kant on Trent outlook and his top picks in IT and defence

On investment outlook, Taurani said QSR stocks may offer short-term opportunities, but structural preference remains for companies with a strong delivery mix. He said, “One should look at it from a tactical perspective like Devyani International, Westlife Foodworld, Sapphire Foods still offer upside of 15-20%, but we still prefer Jubilant structurally.”

For Trent, there are early signs of improvement, but the recovery is mainly being driven by the Westside portfolio, he said.

According to him, Westside has recorded strong expansion in store count, which is supporting overall revenue growth. Margin performance has also been supported by Westside, as its margins are higher than Zudio’s.

However, there is a risk because Zudio is a more scalable business model. If Westside’s growth slows over the next two years, Trent could face downside risk to revenue growth, he said.

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