India’s quick-service restaurant industry is likely to witness 20-25% growth in the current financial year supported by demand uptick and increasing penetration driven by a rapid expansion of stores.
Over the long-term, revenue growth shall be supported by factors like rising QSR penetration levels, a shift from the unorganised to the organised segment with a preference for branded quick service restaurant (QSR) players, given the hygiene and convenience factors (delivery over dine-in), etc, ICRA said.
“On the back of a robust industry revenue expansion of around 30-35% in YoY terms estimated for FY2023, ICRA projects growth to moderate somewhat while remaining strong at 20-25% in FY2024 on account of the demand uptick and increasing penetration driven by a rapid expansion of stores,” the rating agency said.
However, downside risks to the estimates remain from the emergence of any further COVID-19 waves or any material weakening in purchasing power due to a high inflationary interest-rate regime, ICRA stated.
ICRA estimates that the top five players in the domestic quick-service restaurant industry are likely to add approximately 2,300 stores between FY 2023-25 with an estimated capex at around Rs 5,800 crore (excluding refurbishment) for this period, twice that of the levels seen during the pre-COVID-19 era.
Majority of capex is expected to be funded through internal accruals and cash on the books, having raised money through the pre-IPO/IPO route in the last two fiscals to support the planned capex in the near to medium term, the report said.
“India’s dependence on imports for edible oils further exposes the players’ margins to geo-political risks and forex fluctuations.
“The high lease costs, as well as rising overheads related to a growing delivery model, also impacts the cost structure. The operating margin in FY 2023 and FY 2024 is, therefore, expected to be flattish (despite the benefits of scale economies) and is likely to remain in the range of 20-22% compared to 20% in FY2022,” said Suprio Banerjee, Vice President and Sector Head Corporate Ratings, ICRA Limited.
He observed that the capex spree in the QSR industry is likely to be driven by favourable demographics, steady urbanisation in India, growing per-capita GDP and significant headroom available in terms of QSR penetration, compared to a developed economy like the US.
“Increasing formalisation of the sector is expected to improve penetration levels considerably. Also, higher technological absorption amidst the changing consumer behaviour post-COVID-19, wherein delivery as a medium is much more accepted, shall support the increasing penetration.
“The CAPEX over FY2023-25 is estimated at around approximately Rs 1,800 crore to Rs 2,000 crore (excluding refurbishment) per annum, which would be around 2.5 times that of the levels seen in FY2020,” Banerjee said.
