Nuvama Institutional Equities has maintained a cautious stance on the quick service restaurant (QSR) space after a muted Q3FY26 performance across most players, while naming Jubilant FoodWorks as its top pick in the sector.
According to Nuvama, QSR companies reported an overall 9.8% year-on-year revenue growth, primarily driven by store additions rather than same-store sales growth. The sector’s store network expanded about 10% YoY during the quarter. However, barring Jubilant FoodWorks and Restaurant Brands Asia (RBA), most companies continued to post a weaker showing.
On the same-store sales growth (SSSG) metric, Jubilant reported 5% SSSG, at the lower end of its guidance and sequentially slower, though on a strong base. Sapphire’s KFC posted +1% SSSG, marking its first positive SSSG in the past eight quarters.
Jubilant added about 217 Domino’s India stores in YTD FY26 and appears on track for 280+ store additions in the brand this fiscal. Expansion in Popeye’s has been more measured, with five stores added as the company allows the format to stabilise before accelerating growth. RBA improved its expansion momentum and has guided to increase its store count to 600 from 577 as of Q3FY26.
On Pizza Hut (PH), both Sapphire and Devyani International remain cautious, awaiting a brand turnaround before stepping up expansion. Devyani also indicated cannibalisation within its KFC portfolio after ten quarters of negative SSSG, and is reworking its strategy across online and offline channels.
Margins under pressure despite GST tailwinds
Gross margins improved sequentially across the sector, aided by GST reductions on raw materials. Since QSR companies are not eligible to claim input tax credit (ITC), the GST benefit supported gross profitability. Jubilant saw a sequential uptick in gross profit driven by GST benefits and higher contribution from its premium sourdough collection.
While companies maintained control over cost of retailing — reflected in YoY reductions for most players except RBA — pre-Ind-AS EBITDA margins remained under pressure for the majority of the pack due to lower productivity levels. Jubilant and RBA were exceptions, with Jubilant benefiting from a 2% YoY reduction in cost of retailing per store, and RBA seeing margin improvement from better gross profit flow-through.
Although companies alluded to a YoY uptick in demand in January, management teams refrained from calling it a structural recovery. Nuvama remains cautious on the sector, noting that growth has been subdued for nearly two years.
Disclaimer: The views expressed above are those of Nuvama Institutional Equities and do not represent the views of Business Upturn. This article is for informational purposes only and does not constitute investment advice.