Restaurant stocks trade weak; Jubilant FoodWorks, Devyani hit 52-week lows

Meanwhile, shares of the food delivery platform companies Swiggy and Eternal (formerly Zomato) were down 3 per cent and 2 per cent, respectively on Thursday.

Share prices of restaurant companies today

 

Shares of listed-restaurants companies were under pressure with Jubilant FoodWorks, Sapphire Foods India and Devyani International falling to their respective 52-week lows on the BSE in Thursday’s intra-day trade. 

 

At 12:36 PM; these stocks were down in the range of 2 per cent to 4 per cent, as compared to the 0.31 per cent rise in the BSE Sensex.

 

Meanwhile, shares of the food delivery platform companies Swiggy and Eternal (formerly Zomato) were down 3 per cent and 2 per cent, respectively.

 

In the past one month, the stock price of restaurants and food delivery platform companies have declined by up to 12 per cent, as against 4 per cent fall in the BSE Sensex.  CATCH STOCK MARKET UPDATES TODAY LIVE

Why restaurant stocks are under pressure?

 

India's food and beverage market is large, getting formalised and expanding rapidly with independent estimates placing the broader food services market at more than $100 billion and the quick service restaurant (QSR) segment alone at more than $25 billion and growing.

 

The Indian QSR market is highly competitive (with players in the organised and huge unorganised segment), which may result in loss of market share and reduced profitability. Fixed costs (mainly lease rentals for store premises, employee cost and electricity charges) form a significant portion of the operating cost for a QSR, resulting in potential compression of margins in the event of business slowdown. Thus, growth in same-store sales is essential to boost profitability. Timely execution of the growth plan without any cost overrun and improvement in operating margin with sustained focus on cost optimisation, technology, low leverage and economies of scale remain monitorable, said Crisil Ratings in its report.

 

Meanwhile, Jubilant FoodWorks’ growth over the last year has been driven by margin dilutive initiatives and a low base. Capex intensity of the business has increased significantly while the cash EBITDA margins have declined. The high base starting from H2FY26 has resulted in growth cooling off, and analysts at BNP Paribas India expect the growth to remain muted in the coming quarters.   ALSO READ | GRSE, Swiggy, Jio Fin, 2 other stocks form 'Death Cross', show tech charts

 

With slowing revenue growth and growth primarily being driven by store additions, it might be difficult to deliver the margin expansion already built into consensus estimates. The brokerage firm expects the stock to consolidate at current levels after seeing a correction over the last year and maintains a 'Underperform' rating.

 

The group has a strong portfolio of brands in emerging markets with franchise rights for three global brands - Domino’s, Popeyes and Dunkin’ – and two of its own brands, Hong’s Kitchen, an Indo-Chinese QSR brand in India, and a café brand - COFFY in Turkey.

 

Devyani International is one of India’s largest chain QSR operators, with a network of over 2,000 stores across more than 280 cities in India, Thailand, Nigeria, and Nepal. Sapphire Foods operates restaurants across multiple formats, including dine-in, takeaway, and online delivery, catering to a wide and diverse consumer base. In India, the company holds franchise rights to operate KFC outlets in 10 states and Pizza Hut outlets in 11 states.  ALSO READ | What to do with Eternal stock as Deepinder Goyal resigns? Tech view here 

According to analysts at Kotak Institutional Equities, the consolidation of Devyani and Sapphire (India franchisees of Yum Brands!) is likely to create a stronger, more formidable QSR player, with Devyani promoter’s growth-oriented mindset, coupled with complementary execution strength of Devyani and Sapphire; improved strategic backing, concessions and greater operational flexibility from Yum; and synergies to the tune of ₹225 crore. The MergeCo has the potential to further strengthen KFC’s dominant position in India and revive Pizza Hut as a formidable challenger in Pizza QSR.  =======================================  Disclaimer: View and outlook shared on the stock belong to the respective brokerages and are not endorsed by Business Standard. Readers discretion is advised.