GST 2.0 to benefit QSR stocks like Jubilant, RBA, Devyani: JM Financial

GST 2.0 reforms may boost QSR demand as tax rates fall. Analysts see Jubilant FoodWorks, RBA, Devyani International, and Sapphire Foods gaining the most

GST 2.0 impact on QSR stocks: With the government planning to roll out the "next-Gen" goods and services tax (GST) reforms by Diwali 2025, Dalal Street analysts are busy figuring out the stocks that will benefit the most from GST 2.0.  Given this, analysts at JM Financial Research have placed their bet on quick service restaurant (QSR) stocks in their latest report.  Hoping that QSR companies will transfer a large part of the GST rate cut benefit to consumers, they see a jump in consumer demand in the coming months, especially for branded QSR players. They expect Domino's-owner Jubilant FoodWorks, and Burger King chain operator-Restaurant Brands Asia (RBA) to benefit the most.  Pizza Hut and KFC-owner vertical (Devyani International and Sapphire Foods) is also expected to gain, JM Financial said. 

What will be new GST rates for QSR companies after reforms?

In a bid to unleash consumer demand, especially ahead of the festive season, Prime Minister Narendra Modi announced on the 79th Independence Day, that India will move to a two-rate GST regime from the current four-rate structure.  Last week, the Group of Ministers (GoM) approved the proposal to eliminate the 12 per cent and 28 per cent GST slabs, and restrict the tax rates on most goods to 5 per cent and 18 per cent only. Only certain sin and luxury goods will fall under the 40-per cent tax rate. 

GST 2.0 impact on QSR players

As per the current GST Act, restaurants cannot claim input tax credit (ITC), resulting in higher raw material (RM) and operating costs for QSR players.  JM Financial believes removal of the 12 per cent and 28 per cent slabs and shifting of items to the lower slab will reduce the RM cost for these companies as they derive 10-50 per cent of the raw materials at higher rates.  "As per our discussion with multiple QSR companies, around 10-45 per cent of their overall raw materials falls under the 12 per cent GST rate. This is expected to drive ~20-90 basis points (bps) gains in gross margin across QSR companies depending on the RM mix due to GST rate reduction," the brokerage firm said. 

 

  On the capex front, the proposed GST changes will lessen the requirement for capex per store (example GST rate on air conditioners (ACs) will likely decline to 18 per cent from 28 per cent). 

What will be the impact on QSR earnings?

Despite the expectations, JM Financial has not changed its earnings estimates yet for the coverage QSR companies as they await the official implementation of the reformed GST.  The GST Council will consider the proposal and the changes required in its two-day meeting, scheduled for September 3 and 4. 

QSR sector: Q1FY26 earnings snapshot

In Q1FY26, Jubilant Foodworks' consolidated revenue surged 43 per cent quarter-on-quarter (Q-o-Q) and 16.9 per cent year-on-year (Y-o-Y) to ₹ 2,279.39 crore.  The company's total expenses zoomed 39.4 per cent Q-o-Q and 15.3 per cent Y-o-Y, denting the net profit by 54.7 per cent Q-o-Q to ₹94.34 crore. Net profit was, however, up by 62.6 per cent on a Y-o-Y basis.  For RBA, the consolidated total income increased by 19.6 per cent Q-o-Q and 9 per cent Y-o-Y to ₹719.7 crore, while its net profit decreased 50.7 per cent Q-o-Q and 13 per cent Y-o-Y to ₹45.43 crore.  Analysts at Emkay Global and Dolat Capital upgraded Jubilant Food stock to 'Buy' after its Q1 results with share price targets of ₹825 and ₹785, respectively. Those at Mirae Asset Sharekhan, meanwhile, maintained their 'Buy' rating with a slightly lower target of ₹750.  JM Financial analysts, meanwhile, have 'Hold' ratings on RBA, and Westlife Food (McDonald-owner) stocks, and 'Buy' ratings on Devyani International and Sapphire Foods.