QSR Thematic

SECTOR THEMATIC
QSR
SECTOR THEMATIC
QSR
Global QSR giants entered India and China in the 90s with high hope of massive store network potential,
thanks to two large populous hubs. However, the growth trajectory was quite slow in India vs. that in
China, which can be attributed to the variance in the economic growth of these two countries. India is still
quite an under-penetrated market with ~3 stores per million population vs. China’s 13 stores per million
(six stores in 2013). India can sustain ~10% store growth for global QSR giants by 2030 (China clocked 10%
CAGR in 2013-2022). Domino’s and Yum are close to 1,700 stores in India while McD has ~500 stores. The
QSR industry saw a yearly addition of 125 stores in 2005-2010, which increased to 300 stores in 2010-2020
and ~475 stores in 2020-2023E. We believe the yearly expansion can sustain 550 stores up to 2030E. It will
lead to store metrics of 6 stores per mn by 2030 (link). Thus, most QSR players will be able to grow their
store units by +10% over the next few years. The underlying SSSG for most franchises is close to a mid-
high single digit, offering overall revenue CAGR in the mid-teens.
QSR, among the other consumer categories, has seen normalisation relatively late post-COVID
(particularly dine-in); mobility and pent-up have boosted the growth metric (ADS, SSSG) over the last 15-
18 months. It resulted in a sharp improvement in operating metrics (operating margin improved 200-
500bps in 9MFY23 vs. 9MFY20). With the normalisation in demand, the impact of weak consumer
sentiment and RM inflation, we believe the operating margin will see an impact in FY24 (may also not
repeat in FY25 also with rising competition). Thus, despite the recent correction of stocks, we do not
believe this is the perfect fishing time. We suggest waiting before we see the full impact of weak demand.
On a relative basis, we like Jubilant (investing to further improve its competitiveness) and Westlife (pure
play India QSR story). We'd like to avoid Devyani and Sapphire due to potential slippages for the Pizza
Hut story (particularly in weak demand). We initiate coverage on Westlife with ADD and on Devyani
and Sapphire with a REDUCE rating for each. We upgrade our rating on Jubilant from REDUCE to ADD
.
Naveen Trivedi Varun Lohchab Paarth Gala

naveen.trivedi@hdfcsec.com varun.lohchab@hdfcsec.com paarth.gala@hdfcsec.com
+91-22-6171-7324 +91-22-6171-7334 +91-22-6171-7336
27 March 2023 Sector Thematic
QSR Thematic
QSR: Fishing time?
Global QSR giants entered India and China in the 90s with high hope of Companies CMP Rating
massive store network potential, thanks to two large populous hubs. However,
Jubilant 440 ADD
the growth trajectory was quite slow in India vs. that in China, which can be
attributed to the variance in the economic growth of these two countries. India Devyani 138 REDUCE
is still quite an under-penetrated market with ~3 stores per million population Westlife 678 ADD
vs. China’s 13 stores per million (six stores in 2013). India can sustain ~10% store Sapphire 1,178 REDUCE
growth for global QSR giants by 2030 (China clocked 10% CAGR in 2013-2022).
Domino’s and Yum are close to 1,700 stores in India while McD has ~500 stores.
The QSR industry saw a yearly addition of 125 stores in 2005-2010, which
increased to 300 stores in 2010-2020 and ~475 stores in 2020-2023E. We believe
the yearly expansion can sustain 550 stores up to 2030E. It will lead to store
metrics of 6 stores per mn by 2030 (link). Thus, most QSR players will be able
to grow their store units by +10% over the next few years. The underlying SSSG
for most franchises is close to a mid-high single digit, offering overall revenue
CAGR in the mid-teens.
QSR, among the other consumer categories, has seen normalisation relatively
late post-COVID (particularly dine-in); mobility and pent-up have boosted the
growth metric (ADS, SSSG) over the last 15-18 months. It resulted in a sharp
improvement in operating metrics (operating margin improved 200-500bps in
9MFY23 vs. 9MFY20). With the normalisation in demand, the impact of weak
consumer sentiment and RM inflation, we believe the operating margin will
see an impact in FY24 (may also not repeat in FY25 also with rising competition).
Thus, despite the recent correction of stocks, we do not believe this is the
perfect fishing time. We suggest waiting before we see the full impact of weak
demand. On a relative basis, we like Jubilant (investing to further improve its
competitiveness) and Westlife (pure play India QSR story). We'd like to avoid
Devyani and Sapphire due to potential slippages for the Pizza Hut story
(particularly in weak demand). We initiate coverage on Westlife with ADD and
on Devyani and Sapphire with a REDUCE rating for each. We upgrade our
rating on Jubilant from REDUCE to ADD.
 Challenging near-term; pressure on all metrics: QSR companies have seen
pent-up demand benefits once the COVID impact started receding. Initially,
delivery focus players saw a jump in growth metrics (i.e. Domino’s, etc.) and
later dine-in players enjoyed the mobility (i.e. McD, KFC, etc.). With a sharp
jump in growth metrics, the restaurant margin has improved sharply (200-
500bps in 9MFY23 vs. 9MFY20). With most tailwinds behind, we believe the
margin trajectory will largely return to the normal level (similar trend
witnessed in Global QSR and Indian consumer companies - link).
 Our long-term thesis: (1) QSR is more of a macro story play with India’s fast-
changing ecosystem (internet, mobile, young population, large population,
rising hygiene preferences, etc.) driving penetration. (2) QSR store growth is Naveen Trivedi
sustainable at 10% with the industry expected to reach six stores per mn naveen.trivedi@hdfcsec.com
population by 2030 from three stores per mn currently. (3) Long-term SSSG to +91-22-6171-7324
sustain at mid-high single digit (most global QSRs achieved in the US in the
long run). (4) Earnings growth driven more by unit growth than margin Varun Lohchab
expansion. (5) Macro will remain favorable (sensitivity is high for QSR). varun.lohchab@hdfcsec.com
 Rich valuation to sustain: QSR industry has multi-year growth potential and +91-22-6171-7334
global QSR giants will be fit for the change in India’s rapid ecosystem. They
have more right to win in India’s consumption metric with a rising consumer Paarth Gala
base, eating-out frequency, quicker delivery and value-for-money paarth.gala@hdfcsec.com
proposition. Thus, despite near-term challenges, we believe the long-term rich +91-22-6171-7336
valuation will sustain for QSR players. Upside risk: GST council allowing an
input tax credit for the restaurant sector.
HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters
Sector Thematic: QSR
Contents
Executive summary ...............................................................................................................3
- Rising relevance of India for global giants ...........................................................3
- India QSR: Fast changing store share ...................................................................4
- India QSR penetration: More cities to participate for unit growth ...................5
- FMCG companies’ margins; CD companies’ margin trajectory ......................6
- Key Thesis .................................................................................................................7
- Valuation Summary ..............................................................................................11
Global QSR: ‘Roots and Rise’ ...........................................................................................12
India QSR: ‘Roots and Rise’ ..............................................................................................18
- Global QSR Parent: Commentary for India .......................................................21
- Global QSR commentary for India: outlook for 2023 and beyond .................27
India QSR: City-wise store network and projection ....................................................31
Our thesis and assumptions..............................................................................................34
- Multi-year growth opportunity, but don’t expect non-linear play.................34
- Is non-linearity in QSR a reality? .........................................................................34
- Store growth > consumption growth, competitive pressure to rise ...............35
- Weak sentiment to impact SSSG and ADS in FY24 ..........................................36
- Margin tailwinds are over; expect pressure across companies .......................37
Comparative scorecard (9MFY23) ....................................................................................40
High valuation to correct but longevity to keep valuations rich ...............................41
Devyani vs. Sapphire .........................................................................................................42
Companies
Jubilant FoodWorks .............................................................................................................48
Devyani International .........................................................................................................53
Westlife Foodworld .............................................................................................................72
Sapphire Foods .....................................................................................................................89
Page | 2
Executive summary
Rising relevance of India for global giants
Although India’s QSR growth rate has been slower than the early expectation of global
giants (historical commentary), gradually India has become a meaningful market in
the global context. India is a top international market for Domino’s which was fourth-
ranked in 2010, contributing 14% of Domino’s international market (9% of total stores).
Similarly, the contribution mix of India has improved for Yum and McD although they
are still in low single digit.
The growth trajectory was quite slow in India vs. China, which can be attributed to the
variance in the economic growth of these two countries. India is still quite an under-
penetrated market with ~3 stores per million population vs. China’s 13 stores per
million (six stores in 2013). India can sustain ~10% store growth for global QSR giants
by 2030 (China clocked 10% CAGR in 2013-2022).
Domino’s and Yum are close to 1,700 stores in India while McD has ~500 stores. The
QSR industry saw a yearly addition of 125 stores in 2005-2010, which increased to 300
stores in 2010-2020 and ~475 stores in 2020-2023E. We believe the yearly expansion can
sustain 550 stores up to 2030E. It will lead to store metrics of 6 stores per mn population
by 2030 (link). Thus, most QSR players will be able to grow their store units by +10%
over the next few years. The underlying SSSG for most franchises is close to a mid-high
single digit, offering overall revenue CAGR in the mid-teens.
Store & Mix (%): Domino’s India Store & Mix (%): Yum (KFC+PH) Store & Mix (%): McD India
Stores (LHS) Store mix on international Stores (LHS) Store mix on international Stores (LHS) Store mix on international
2,000 15% 2,000 15% 2,000 15%
1,500 1,500 1,500

10% 10% 10%
1,000 1,000 1,000
5% 5% 5%
500 500 500
0 0% 0 0% 0 0%
2010 2022 2010 2022 2010 2022
Source: Global filling, Companies, Industry, HSIE Research
China store addition Store per mn population Yearly store addition in India
Stores 2013 2022 China India 600 550
15 13
KFC 4,563 9,094 475
500
PH 1,264 2,903
400
McD 1,980 4,978 10 300
Domino's 35 508 300
6
Burger King 70 1,400 200 125
5
Total 7,912 18,883 3 100 25
1
Store addition/year 1,200 0
CAGR (%) 10% 0 1995- 2005- 2010- 2020- 2023-
2013 2022 2005 2010 2020 2023 2030E
Source: Global filling, Companies, Industry, HSIE Research
Page | 3
India QSR: Fast changing store share

As compared to Domino’s and Yum, McD Global has a limited focus on the Indian
market despite almost the same entry period. Domino’s and Yum both have >1,700
stores in India while McD has a total store network of ~500 stores. We believe store
expansion of McD will continue to be slower than peers due to the large store size
format, revenue extraction from one store being relatively high, and lack of heavy
global push for aggressive store expansion. Burger King’s entry has further changed
the store mix over the last 4-5 years. We believe with most companies expected to step
up their store activity, the store share will further change in coming years (Domino’s
store share likely to fall despite healthy store expansion).
Exhibit 1: Store mix change in the favour of Domino’s over the last decade
Domino's Yum McD Subway Burger Kings
100% - - - - - - - - - 0 2 3 4 6 7 7 7 8
15 17 18 18 18 22 22 21 18
23 20 21 15 14 12
22 20 19
80%
17 19 18 15 11 10
19 19 15 17 16 15 14 9 12
14 10 10
60%
37 27 32 29 23 25 26 27 27 31 34
34 31 29 26 31 31 32
40%
20% 35 36 36 36 38 39 38 37 38 37 36
32 30 32 31 30 32 34
0%
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23E
Source: Global filling, Companies, HSIE Research
Store Mix (%) Revenue Mix (%) Rest. EBITDA Mix (%)
McD, McD,
9% 19% McD,
18%
Devynai
(KFC+PH
Devynai
), 26% Devynai
(KFC+PH
(KFC+PH
), 21%
), 20%
S apphire Domino's , S apphire Domino's , S apphire

Domino's ,
(KFC+PH 48% (KFC+PH 43% (KFC+PH
47%
), 16% ), 17% ), 15%
Source: Companies, HSIE Research
Citi presence (No.) Revenue per store (INR mn) ADS per store (INR)
400 80 2,00,000
320 1,50,000
60
240
1,00,000
40
160
50,000
80 20
-
0 -
PH - Devy.
McD
KFC - Devy.
KFC - Sapp.
PH - Sapp.
Domino's
Devynai
McD
Sapphire
McD
Sapphire
Devynai
Domino's
Domino's

Note: 9MFY23
Page | 4
India QSR penetration: More cities to participate for unit growth

QSR network in India is highly concentrated in the top cities of India. The top 30 cities
in India contribute around two-thirds (66%) of the total store network while these top
30 cities contribute <15% of India’s population. QSR is a higher consumer eating-out
frequency and increases store penetration. However, despite global giants’ long
presence in India (~30 years), a large part of the growth has come from frequency. The
top 30 cities have 15 stores per mn population as compared to 3 stores per mn for India.
Some cities like Bengaluru, Pune, Hyderabad, NCR, etc., are above the 15 stores
average. Thereby, for incremental store growth, companies will require to move out of
the top 30 cities.
We have noticed that some companies have already started expanding their city
network in the last two years. Domino’s is the best-penetrated brand among QSR that
has a city network of ~400 cities, which itself has moved significantly from 266 cities in
FY18 to 387 cities in 9MFY23.
Exhibit 2: India’s top-30 cities store per mn at 15 stores

32 30 29
26
22
24 20
17 17 17 16
15 15 14 14
16 12 11 11 10
9 9 9
8 8 8 8 7 7
8 5 4
3
-
Mumbai,…
Vishakhapat…
Ahmedabad
Vadodara
Chennai
Kolkata
Pune
NCR
Bengaluru
Indore
Coimbatore
Varanasi
Goa
Lucknow
Trivandrum
Amritsar
Chandigarh
Hyderabad
Ludhiana
Kanpur
Surat
Rajkot
Madurai
Patna
Ernakulam
Bhopal
Nagpur
Nashik
Jaipur
Exhibit 3: India’s top-30 cities mix for population vs. food service vs. store network
100%
69% 73%
75% 66% 65%
57%
51%
50%
25% 13%
0%
Population Food QSR store Domino's KFC PH McD
service
Source: Companies, RHP, HSIE Research
Page | 5
FMCG companies’ margins; CD companies’ margin trajectory

QSR companies saw pent-up demand benefits as the COVID impact started receding.
Initially, delivery focus players saw a jump in growth metrics (i.e. Domino’s, etc.) and
later dine-in players enjoyed the mobility (i.e. McD, KFC, etc.). With a sharp jump in
growth metrics, the restaurant margin has improved sharply (200-500bps in 9MFY23
vs. 9MFY20). With most tailwinds behind, we believe the margin trajectory will largely
return to the normal level (a similar trend witnessed in Global QSR and Indian
consumer companies).
Exhibit 4: FMCG companies EBITDA margin trend: FY23 margin is still far from
peaks of FY21
(%) FY20 FY21 FY22 FY23E
36
31 30
25 25 25 26 25
27 23 24 24 25 23
21 21 21 20 20 20 19
18 19 17
18 16 16
-
HUL Dabur Marico Emami Britannia Nestle
Exhibit 5: Global QSR companies restaurant margin trend: CY22 margin has seen
sharp fall post peaks seen in CY21
(%) 2019 2020 2021 2022
30
24
22 22
20 20 19 18
21 18
15 15 16 17 15 15
13 13
12
6 7
4
3
(6) (2)
Domino's KFC PH McD - US McD -
International
Source: Global fillings, HSIE Research

Note: Company operated margin
Page | 6
Key Thesis: Jubilant FoodWorks

Jubilant has the best in class unit economics, consumer & store base, and delivery
expertise among QSR peers. The company is stepping up its investments in dine-in
along with strengthening its backend by setting up new commissaries in Bengaluru
and Mumbai over the next 12-15 months (capex of INR 2.5bn for each commissary).
The company wants to remain aggressive in store expansion, particularly for
Domino’s and Popeye’s. We model Domino’s store expansion of 250 stores each for
FY24/25/26 while overall store addition will be 277/312/ 322 stores. Jubilant has
started taking initiatives to improve the dine-in business but we believe the benefits
will be visible gradually. We model 14% revenue CAGR during FY23-26E.
With weak consumer sentiment, pressure on margin, and higher investments, we
cut our EPS by 13% and 12% for FY24 and FY25. However, Jubilant, compared to its
peers, has already seen a contraction in the margin in the last few quarters. Thus, we
model lower contraction in FY24 as compared to its peers. The stock corrected by
>30% in the last six months (despite it coming off of its peak) and normalised the
valuation to some extent.
We value Jubilant on 55x P/E on Jun’25 EPS (earlier 47x on pre-IND AS) to derive a
TP of INR 475. We upgrade the stock from REDUCE to ADD.
Exhibit 6: Jubilant FoodWorks: Operating performance and expectation
Chg vs.
Jubilant (INR mn) 9MFY19 9MFY20 9MFY21 9MFY22 9MFY23 Pre- FY23E FY24E FY25E FY26E
COVID
Revenue (INR) 26,655 29,879 22,430 31,732 38,437 9% 50,849 56,799 65,432 74,265
YoY Gr (%) 12% -25% 41% 21% 17% 12% 15% 14%
SSSG (%) 20% 5% -28% 49% 10% 7% 2% 6% 4%
ADS per store (INR) 82,268 83,520 80,886 -1% 77,737 76,330 78,445 80,363
Stores (No.) 1,200 1,325 1,314 1,495 1,760 10% 1,817 2,067 2,317 2,567
Stores addition (No.) 125 (11) 181 265 435 250 250 250 250
Revenue/store (INR) 22.2 22.6 17.1 21.2 21.8 -1% 28.0 27.5 28.2 28.9
Gross Profit (INR) 19,967 22,470 17,592 24,664 29,262 9% 38,696 42,769 49,598 56,442
GM (%) 74.9% 75.2% 78.4% 77.7% 76.1% 93bps 76.1% 75.3% 75.8% 76.0%
EBITDA (Pre IND AS) 4,602 4,854 2,996 5,971 6,814 12% 8,727 9,017 10,906 12,604
EBITDA margin (Pre IND AS) 17.3% 16.2% 13.4% 18.8% 17.7% 148bps 17.2% 15.9% 16.7% 17.0%
EBITDA (INR) 4,602 7,077 5,174 8,149 9,070 9% 11,817 12,930 15,414 17,720
EBITDA margin (%) 17.3% 23.7% 23.1% 25.7% 23.6% -9bps 23.2% 22.8% 23.6% 23.9%
PBT (INR) 3,797 3,811 1,718 4,353 4,455 5% 5,701 6,009 7,551 8,891
PBT margin (%) 14.2% 12.8% 7.7% 13.7% 11.6% -117bps 11.2% 10.6% 11.5% 12.0%
Page | 7
Key Thesis: Westlife Foodworld

Westlife has a limited store/city network as compared to its peers as the business
model is to extract more out of its store/city network. Thus, its revenue per store is
significantly higher than others. McD has a relatively large format and dine-in focus;
its store and city expansion will be slower than others. However, Westlife’s store
addition is expected to improve (35-40 stores per year) vs. the historical trend (25
stores per year), reflecting that the company is gradually becoming aggressive.
Westlife is still under-indexed for its south India store network vs. peers, which is
potentially more margin accretive. The profitability metric still has enough room to
improve in the coming years (although some shave off due to an increase in the
royalty rate). With better ADS per store, consistent new launches in the premium
segment and higher McCafe addition, we believe there is scope for improvement.
Westlife is a pure play QSR with no overhang of any turnaround (like PH) and
international business.
We model 17.8/18.7% margin for FY25/FY26. We value Westlife at 55x P/E on Jun’25
EPS to arrive at a TP of INR 715. We initiate coverage on Westlife with ADD rating.
Exhibit 7: Westlife Foodworld: Operating performance and expectation

Chg vs.
Westlife (INR mn) 9MFY19 9MFY20 9MFY21 9MFY22 9MFY23 Pre- FY23E FY24E FY25E FY26E
COVID
Revenue (INR) 10,624 12,114 6,284 11,214 17,218 12% 22,902 25,696 30,393 35,534
YoY Gr (%) 14% -48% 78% 54% 45% 12% 18% 17%
SSSG (%) 21% 8% -40% 104% 52% 38% 3% 8% 8%
ADS per store (INR) 1,34,758 1,42,438 1,87,011 9% 1,74,799 1,76,686 1,85,994 1,99,897
Stores (No.) 292 315 304 316 341 3% 361 401 451 491
Revenue/store (INR) 36.4 38.5 20.7 35.5 50.5 9% 63.4 64.1 67.4 72.4
Gross Profit (INR) 6,757 7,890 4,000 7,355 11,297 13% 15,001 16,703 19,907 23,452
GM (%) 63.6% 65.1% 63.6% 65.6% 65.6% 48bps 65.5% 65.0% 65.5% 66.0%
Restaurant profit (INR) 1,563 1,901 177 1,437 3,247 20% 4,354 4,647 5,738 6,886
Restaurant margin (%) 14.7% 15.7% 2.8% 12.8% 18.9% 317bps 19.0% 18.1% 18.9% 19.4%
Corp overheads (INR) 580 644 526 659 908 12% 1,258 1,384 1,512 1,651
Corp overheads (% of sales) 5.5% 5.3% 8.4% 5.9% 5.3% -4bps 5.5% 5.4% 5.0% 4.6%
EBITDA (Pre IND AS) 983 1,257 (348) 778 2,339 23% 3,095 3,263 4,227 5,234
EBITDA margin (Pre IND AS) 9.3% 10.4% -5.5% 6.9% 13.6% 321bps 13.5% 12.7% 13.9% 14.7%
EBITDA (INR) 983 1,809 120 1,343 3,012 19% 3,991 4,269 5,418 6,628
EBITDA margin (%) 9.3% 14.9% 1.9% 12.0% 17.5% 256bps 17.4% 16.6% 17.8% 18.7%
PBT (INR) 316 256 (1,284) (226) 1,218 68% 1,476 1,539 2,435 3,461
PBT margin (%) 3.0% 2.1% -20.4% -2.0% 7.1% 496bps 6.4% 6.0% 8.0% 9.7%
Page | 8
Key Thesis: Devyani International

With Yum’s sustained focus on expanding its store network in India since its entry,
we believe healthy store expansion (+10% growth rate) will continue over the next
many years. We model an annual store addition for Devyani of around ~225 stores
during FY23-26. KFC is a long-term play as the chicken category has strong potential
in India. We believe KFC will have a higher mix in Devyani’s store expansion.
Devyani has taken various measures to improve PH, but there are still several gaps
vs. Domino’s. Devyani enjoys a better operating margin than Sapphire despite
having low ADS. The operating cost difference (due to different geographies),
provides a 150-200bps margin difference despite having a similar gross margin.
However, with the normalisation in demand, the impact of weak sentiment and high
RM inflation, we believe margin pressure will be in FY24. High pent-up demand
benefits have expanded the operating margin, which will be normalised over FY24
and FY25. We value Devyani on 50xP/E on Jun-25 EPS to arrive at a TP of INR 115.
We initiate coverage on Devyani with a REDUCE rating.
Exhibit 8: Devyani International: Operating performance and expectation
Chg vs. Pre-
Devyani (INR mn) FY19 FY20 9MFY21 9MFY22 9MFY23 FY23E FY24E FY25E FY26E
COVID
Revenue (INR) 13,106 15,164 7,017 14,933 22,427 14% 29,557 35,272 42,831 50,232
Revenue - KFC 4,641 6,091 3,903 8,664 13,275 30% 17,725 21,586 27,053 32,490
Revenue - PH 4,232 4,174 1,843 3,854 5,299 8% 6,908 7,858 9,394 10,739
Revenue - Costa 902 820 129 274 687 -6% 938 1,325 1,575 1,887
YoY Gr. (%) - Devyani 18% 16% na 113% 50% 42% 19% 21% 17%
YoY Gr. (%) - KFC 31% 31% na 122% 53% 45% 22% 25% 20%
YoY Gr. (%) - PH 9% -1% na 109% 37% 30% 14% 20% 14%
YoY Gr. (%) - Costa 4% -9% na 112% 151% 128% 41% 19% 20%
SSSG (%) - KFC 5% 3% na 60% 22% 16% 2% 9% 5%
SSSG (%) - PH 5% -4% na 81% 7% 7% 1% 9% 5%
SSSG (%) - Costa 3% -4% na 154% 62% 60% 6% 7% 7%
ADS per store (INR) - KFC 1,13,851 1,16,740 na 1,12,000 1,21,000 1% 1,15,441 1,11,244 1,15,788 1,16,981
ADS per store (INR) - PH 44,679 43,917 na 44,000 44,000 0% 41,897 41,107 43,418 44,456
ADS per store (INR) - Costa 37,458 37,413 na 29,000 35,000 -2% 30,641 30,041 30,710 31,301
Stores (No.) 566 610 608 884 1,177 24% 1,243 1,442 1,668 1,899
Stores (No.) - KFC 134 172 240 339 461 39% 489 589 709 834
Stores (No.) - PH 268 269 273 391 483 22% 503 573 643 713
Stores (No.) - Costa 67 63 45 50 103 18% 115 130 155 180
Revenue/store (INR) - KFC 34.6 35.4 16.3 25.6 28.8 -7% 36.2 36.6 38.2 39.0
Revenue/store (INR) - PH 15.8 15.5 6.8 9.9 11.0 -11% 13.7 13.7 14.6 15.1
Revenue/store (INR) - Costa 13.5 13.0 2.9 5.5 6.7 -20% 8.2 10.2 10.2 10.5
GM (%) 70.3% 69.6% 68.6% 71.2% 70.2% 53bps 69.9% 69.6% 70.0% 70.0%
GM (%) - KFC 66.0% 64.8% 69.4% 69.2% 68.2% 337bps 67.8% 67.5% 68.0% 68.0%
GM (%) - PH 74.0% 74.9% 73.0% 75.6% 74.7% -16bps 74.5% 74.0% 75.0% 75.0%
GM (%) - Costa 76.9% 77.3% 77.5% 79.6% 79.3% 203bps 79.0% 79.0% 79.1% 79.1%
Restaurant profit (INR) - KFC 854 973 607 1,833 2,808 42% 3,651 4,144 5,411 6,661
Restaurant profit (INR) - PH 655 439 215 609 856 25% 1,078 1,022 1,268 1,503
Restaurant profit (INR) - Costa 182 174 7 83 174 0% 244 344 410 491
Restaurant margin (%) - KFC 18.4% 16.0% 15.6% 21.2% 21.2% 518bps 20.6% 19.2% 20.0% 20.5%
Restaurant margin (%) - PH 15.5% 10.5% 11.7% 15.8% 16.2% 564bps 15.6% 13.0% 13.5% 14.0%
Restaurant margin (%) - Costa 20.1% 21.2% 5.6% 30.3% 25.3% 410bps 26.0% 26.0% 26.0% 26.0%
Corp overheads (INR) 869 1,173 348 875 927 -8% 1,209 1,390 1,598 1,838
EBITDA (Pre IND AS) 969 575 1,085 2,017 3,434 81% 4,480 4,932 6,361 7,748
EBITDA margin (Pre IND AS) 7.4% 3.8% 15.5% 13.5% 15.3% 1,152bps 15.2% 14.0% 14.9% 15.4%
EBITDA (INR) 2,789 2,555 1,152 3,327 5,038 25% 6,655 7,456 9,280 11,071
PBT (INR) (712) (1,115) (875) 951 2,208 na 2,620 2,350 3,370 4,350
PBT margin (%) -5.4% -7.4% -12.5% 6.4% 9.8% na 8.9% 6.7% 7.9% 8.7%
Page | 9
Key Thesis: Sapphire Foods

With Yum’s sustained focus on expanding its store network in India since its entry,
we believe healthy store expansion (+10% growth rate) will continue over the next
many years. We model an annual store addition for Sapphire of around ~125 stores
(350 store addition over FY23-26). KFC is a long-term play as the chicken category
has strong potential in India. We believe KFC will have a higher mix in Sapphire’s
store expansion. Sapphire has taken various measures to improve PH, but there are
still several gaps vs. Domino’s.
Sapphire has seen a sharp improvement in operating metrics (restaurant operating
margin improved by >500bps in 9MFY23 vs. 9MFY20. With the normalisation in
demand and the impact of weak consumer sentiment, we believe the operating
margin will see an impact in FY24.
We value Sapphire on 50xP/E on Jun-25 EPS to arrive at a TP of INR 1,000. We initiate
coverage on Sapphire with a REDUCE rating.
Exhibit 9: Sapphire Foods: Operating performance and expectation
Chg. vs.
Sapphire (INR mn) FY19 FY20 9MFY20 9MFY21 9MFY22 9MFY23 Pre- FY23E FY24E FY25E FY26E
COVID
Revenue (INR) 11,938 13,404 10,122 6,790 12,247 17,052 19% 22,988 27,344 33,383 38,784
Revenue – KFC 6,584 7,753 5,974 3,816 7,383 10,838 22% 14,690 17,965 22,397 26,451
Revenue – PH 3,071 3,344 2,603 1,441 2,678 3,993 15% 5,189 6,092 7,386 8,439
YoY Gr. (%) - Sapphire 25% 12% na -33% 80% 39% 34% 19% 22% 16%
YoY Gr. (%) – KFC na 18% na -36% 93% 47% 42% 22% 25% 18%
YoY Gr. (%) – PH na 9% na -45% 86% 49% 40% 17% 21% 14%
SSSG (%) – KFC 14% 5% 9% -42% 70% 20% 16% 2% 9% 5%
SSSG (%) – PH 5% -5% -7% -48% 62% 18% 16% 1% 9% 6%
ADS per store (INR) - KFC 1,25,210 1,29,630 1,33,000 1,01,000 1,29,000 1,38,000 1% 1,33,572 1,30,297 1,35,836 1,37,850
ADS per store (INR) - PH 61,250 57,900 60,000 45,000 57,000 61,000 1% 59,076 57,557 60,521 62,680
Stores (No.) 374 425 426 425 550 716 19% 740 862 987 1,097
Stores (No.) – KFC 158 187 183 196 250 325 21% 348 418 498 568
Stores (No.) – PH 153 174 173 161 209 274 17% 269 319 359 389
Revenue/store (INR) 31.9 31.5 23.8 16.0 22.3 23.8 0% 31.1 31.7 33.8 35.4
Revenue/store (INR) - KFC 41.7 41.5 32.6 19.5 29.5 33.3 1% 42.2 43.0 45.0 46.6
Revenue/store (INR) - PH 20.1 19.2 15.0 9.0 12.8 14.6 -1% 19.3 19.1 20.6 21.7
Gross Profit (INR) 7,992 9,087 6,903 4,697 8,524 11,442 18% 15,371 18,356 22,728 26,570
GM (%) 66.9% 67.8% 68.2% 69.2% 69.6% 67.1% -110bps 66.9% 67.1% 68.1% 68.5%
GM (%) - KFC 65.1% 65.4% 65.3% 67.5% 68.5% 66.5% 120bps 66.5% 67.0% 68.0% 68.5%
GM (%) - PH 73.9% 76.2% 76.3% 75.4% 75.8% 74.8% -150bps 74.6% 74.0% 74.5% 74.5%
Restaurant profit (INR) 1,383 1,596 1,201 713 2,307 3,013 36% 3,998 4,469 5,628 6,642
Restaurant profit (INR) 836 1,021 765 446 1,454 2,113 40% 2,850 3,234 4,143 4,959
Restaurant profit (INR) 229 245 229 19 378 587 37% 737 804 982 1,122
Restaurant margin (%) 11.6% 11.9% 11.9% 10.5% 18.8% 17.7% 580bps 17.4% 16.3% 16.9% 17.1%
Restaurant margin (%) - KFC 12.7% 13.2% 12.8% 11.7% 19.7% 19.5% 670bps 19.4% 18.0% 18.5% 18.8%
Restaurant margin (%) - PH 7.5% 7.3% 8.8% 1.3% 14.1% 14.7% 590bps 14.2% 13.2% 13.3% 13.3%
Corp overheads (INR) 948 934 714 607 1,135 929 9% 1,259 1,423 1,608 1,801
Corp overheads (% of sales) 7.9% 7.0% 7.1% 8.9% 9.3% 5.4% -161bps 5.5% 5.2% 4.8% 4.6%
EBITDA (Pre IND AS) 435 662 487 106 1,172 2,084 na 2,738 3,046 4,020 4,841
EBITDA margin (Pre IND AS) 3.6% 4.9% 4.8% 1.6% 9.6% 12.2% 741bps 11.9% 11.1% 12.0% 12.5%
EBITDA (INR) 1,460 1,856 1,383 1,165 2,052 3,303 34% 4,366 5,029 6,241 7,310
EBITDA margin (%) 12.2% 13.8% 13.7% 17.2% 16.8% 19.4% 570bps 19.0% 18.4% 18.7% 18.8%
PBT (INR) (683) (666) (383) (854) 228 961 na 1,093 937 1,544 2,061
PBT margin (%) -5.7% -5.0% -3.8% -12.6% 1.9% 5.6% 942bps 4.8% 3.4% 4.6% 5.3%
Page | 10
Valuation Summary
EV/EBITDA
MCap CMP TP EPS (INR) P/E (x) Core RoCE (%)
Companies Rating (Pre IND AS) (x)
(INR mn) (INR) (INR)
FY23E FY24E FY25E FY26E FY23E FY24E FY25E FY26E FY23E FY24E FY25E FY26E FY23E FY24E FY25E FY26E
Jubilant 290 440 475 ADD 6.2 6.6 8.4 9.9 71.2 66.2 52.2 44.3 33.0 31.7 25.9 22.1 18.3 17.7 20.0 22.5
Devyani 166 138 115 REDUCE 2.0 1.7 2.1 2.7 70.5 81.3 65.9 51.1 37.4 33.8 25.9 20.9 16.2 13.8 14.7 17.4
Westlife 106 678 715 ADD 7.1 7.4 11.7 16.6 95.7 91.8 58.0 40.8 34.3 32.2 24.5 19.2 12.9 12.1 15.3 18.7
Sapphire 75 1,178 1000 REDUCE 17.1 14.0 18.2 24.3 68.8 84.1 64.8 48.5 26.8 24.0 18.0 14.7 9.5 7.9 8.0 9.0
Companies Revenue GM (%) EBITDA (Pre IND AS) EBITDA Margin - Pre IND AS (%)
INR mn FY23E FY24E FY25E FY26E FY23E FY24E FY25E FY26E FY23E FY24E FY25E FY26E FY23E FY24E FY25E FY26E
Jubilant 50,849 56,799 65,432 74,265 76.1% 75.3% 75.8% 76.0% 8,727 9,017 10,906 12,604 17.2% 15.9% 16.7% 17.0%
Devyani 29,557 35,272 42,831 50,232 69.9% 69.6% 70.0% 70.0% 4,480 4,932 6,361 7,748 15.2% 14.0% 14.9% 15.4%
Westlife 22,902 25,696 30,393 35,534 65.5% 65.0% 65.5% 66.0% 3,095 3,263 4,227 5,234 13.5% 12.7% 13.9% 14.7%
Sapphire 22,988 27,344 33,383 38,784 66.9% 67.1% 68.1% 68.5% 2,738 3,046 4,020 4,841 11.9% 11.1% 12.0% 12.5%
Companies EBITDA EBITDA Margin (%) PBT PBT Margin (%)

INR mn FY23E FY24E FY25E FY26E FY23E FY24E FY25E FY26E FY23E FY24E FY25E FY26E FY23E FY24E FY25E FY26E
Jubilant 11,817 12,930 15,414 17,720 23.2% 22.8% 23.6% 23.9% 5,701 6,009 7,551 8,891 11.2% 10.6% 11.5% 12.0%
Devyani 6,655 7,456 9,280 11,071 22.5% 21.1% 21.7% 22.0% 2,620 2,350 3,370 4,350 8.9% 6.7% 7.9% 8.7%
Westlife 3,991 4,269 5,418 6,628 17.4% 16.6% 17.8% 18.7% 1,476 1,539 2,435 3,461 6.4% 6.0% 8.0% 9.7%
Sapphire 4,366 5,029 6,241 7,310 19.0% 18.4% 18.7% 18.8% 1,093 937 1,544 2,061 4.8% 3.4% 4.6% 5.3%
Page | 11
Global QSR: ‘Roots and Rise’

India is such a large food-consuming country that global giants were always looking
at it as one of the most promising emerging markets. Global QSR giants entered in 90s
in India and China with the excitement to feed two large populous hubs. However, the
growth trajectory was quite slow in India vs. that in China, which can be attributed to
the variance in the economic growth of these two countries.
In this section, we are trying to give the background of these global giants (Yum!, McD
and Domino’s), their growth progression and business model in US and international
markets. We have also captured their ‘roots and rise’ in India and we tried to match
their success/failure w.r.t. their commentary/plans about India.
We believe the top-down approach is a more useful way to understand QSR trends
and the brand’s success instead of just looking at micro factors like ADS, SSSG,
operating margin, etc. Global strategy, tech investments, growth plans for the top
international market along with global consumption trends are more critical.
Global QSR: background

The fast food industry in the US, the largest QSR geography, was conceptualized a
hundred years ago in 1921 by White Castel. While the first fast food chain today has a
limited presence with 350+ stores (2022-end) across the US, the major revolution in this
space was brought by McDonald’s.
McDonald’s introduced the “Speedee Service System” of food preparation in the 1950s
by streamlining the assembly and menu (to hamburgers, milkshakes and French fries)
at affordable pricing. The brand also popularized the large-scale franchisee model
which to date remains dominated by it with ~12,800 franchisee units in the US alone.
Post its US success, McDonald's expanded into international marketplaces in 1971.
Here it adapted to local food preferences while sourcing local ingredients as well. This
has helped it expand its footprint in over 100 countries. International store count makes
up 2/3rd of the company’s overall presence of 40,031 stores.
Exhibit 10: Timeline of QSR chains starting in the US Exhibit 11: Global store network by top brands
Store in 2022 System US International
Yum! 55,361 17,990 37,371
McD 40,275 13,444 26,831
Domino's 19,519 6,643 12,876
Total 1,15,155 38,077 77,078
Source: Companies, Industry, HSIE Research
Source: Companies, Industry, HSIE Research
Page | 12
Global retail revenue and store addition

Global giants have been focusing on store expansion in the international market; in the
last 15 years, store expansion in US has been limited (only Domino’s has consistently
expanded). Yum! is the most aggressive for international store expansion; last 3-year
and 5-year average store addition is ~2,000 stores annually vs. 600-700 stores annually
for Domino’s and McD.
Exhibit 12: Global store addition
Store addition Store addition/year
Current
Last Last Last Last Last Last Last Last
Stores
15 Yr 10 Yr 5 Yrs 3 Yrs 15 Yr 10 Yr 5 Yrs 3 Yrs
Domino's
- System 19,519 10,895 9,264 4,663 2,499 726 926 933 833
- US 6,643 2,059 1,715 1,056 517 137 172 211 172
- International 12,876 9,407 7,549 3,607 1,982 627 755 721 661
McDonald's
- System 40,275 7,797 5,795 3,034 1,580 520 580 607 527
- US 13,444 (418) (713) (592) (402) (28) (71) (118) (134)
- International 26,831 8,215 6,508 3,626 1,982 548 651 725 661
Yum!
- System 55,361 16,424 16,424 10,277 5,191 1,095 1,642 2,055 1,730
- US 17,990 1,963 1,963 (87) (580) 131 196 (17) (193)
- International 37,371 14,461 14,461 10,364 5,771 964 1,446 2,073 1,924
Source: Global fillings, Industry, HSIE Research
Global giants combined contribute >100,000 store network with global retail system
revenue pool of US $200bn. The average system revenue/store is ~US$ 1.7mn. McD has
the highest revenue/store at US$ 3mn.
Exhibit 13: Global retail sales and stores
US$ mn 2020 2021 2022
Domino's
Network Countries System-wide Sales 16,106 17,779 18,472
160 156
Stores 17,644 18,848 19,519
Revenue/store 0.91 0.94 0.95
119
120 McDonald's
90
System-wide Sales 92,562 1,12,000 1,17,600
80 Stores 39,198 40,031 40,275
40
Yum!
System-wide Sales 52,584 50,353 58,188
0
Stores 50,353 53,424 55,361
Yum McD Domino's
Rev/store 1.04 0.94 1.05
Total of 3
System-wide Sales 1,61,252 1,80,132 1,94,260
Stores 1,07,195 1,12,303 1,15,155
Source: Global fillings, HSIE Research
Page | 13
Global QSR: Business insights

Domino’s Global
Exhibit 14: Domino’s global network expansion and rise in India
CAGR
Domino's 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
(%)
System 9,351 9,742 10,255 10,886 11,629 12,530 13,811 14,856 15,914 17,020 17,644 18,848 19,519 6%
US 4,929 4,907 4,928 4,986 5,067 5,200 5,371 5,587 5,876 6,126 6,355 6,560 6,643 3%
International 4,422 4,835 5,327 5,900 6,562 7,330 8,440 9,269 10,038 10,894 11,289 12,288 12,876 9%
China na na Na na 40 66 86 106 188 268 363 468 508
India 364 439 552 677 830 989 1,106 1,126 1,195 1,312 1,313 1,495 1,760 14%
India mix on total stores (%) 4% 5% 5% 6% 7% 8% 8% 8% 8% 8% 7% 8% 9%
India mix on international (%) 8% 9% 10% 11% 13% 13% 13% 12% 12% 12% 12% 12% 14%
Source: Domino’s Global, Industry, HSIE Research
Top markets: India is very important for Domino’s

India is a top market for Domino’s in the international market. India’s ranking has
significantly changed since 2010 when India was the fourth largest market for
Domino’s but since 2014 it has attained the number one ranking in the global market.
Domino’s store expansion in India is far higher than in any other top country. India
contributes 9% and 14% in Domino’s international and total stores respectively.
Exhibit 15: Domino’s top international market
International
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Franchise
India 364 439 552 677 830 989 1,106 1,126 1,195 1,312 1,313 1,495 1,760
United Kingdom 616 670 720 771 811 868 947 1,042 1,100 1,126 1,144 1,169 1,197
Mexico 590 577 581 590 604 622 655 701 760 801 779 802 842
Japan 182 205 245 287 354 432 472 503 550 642 742 882 957
Australia 426 450 464 505 547 571 623 670 693 698 709 724 756
Turkey 162 220 284 360 425 460 477 508 535 550 560 605 650
Canada 341 354 368 380 386 402 438 472 487 520 541 568 585
South Korea 345 358 372 390 405 417 433 444 447 462 466 475 480
France 180 195 215 227 239 259 325 370 387 404 431 457 487
China na na na na 40 66 86 106 188 268 363 468 589
Germany - - - - - - 213 - 283 325 - - -
Saudi Arabia - - - - - 176 - - - - - -
Netherlands - - - 144 158 - - 242 - - - - -
Taiwan 137 141 140 - - - - - - - - - -
Top 10 countries 3,343 3,609 3,941 4,331 4,799 5,262 5,775 6,184 6,625 7,108 7,048 7,645 8,303
Inter. stores 4,422 4,835 5,327 5,900 6,562 7,330 8,440 9,269 10,038 10,894 11,289 12,288 12,876
Total stores 9,351 9,742 10,255 10,886 11,629 12,530 13,811 14,856 15,914 17,020 17,644 18,848 19,519
% of inter. stores 76% 75% 74% 73% 73% 72% 68% 67% 66% 65% 62% 62% 64%
Business mix: Domino’s margin profile is healthy

Key Facts: Dominos operates at a healthy restaurant margin for its company-operated business.
- $ 18bn system sales
US business margin is 22-24%. However, the operating margin saw a sharp decline in
- Domino’s has 22% US QSR pizza
2022 to 15.2%. We have seen this phenomenon in other global QSR giants.
share and 20% global market share
in QSR pizza Exhibit 16: Company-operated: operating margin was best in 2019, sharp fall in 2022
- 98% franchised
US Company Owned Stores 2018 2019 2020 2021 2022
- Delivery: Carryout contributes 57%
Sales 515 454 486 479 446
and 43% of total transactions and
Food Cost 27.4% 27.1% 27.0% 28.1% na
2/3: 1/3 of sales in US Labour Cost 30.1% 29.0% 30.9% 29.0% na
- Piece of the PIE rewards is having Other cost 7% 5% 9% 7% na
over 29mn active users Restaurant profit 117 107 106 105 68
- +75% of US sales via digital channels Restaurant margin (%) 22.6% 23.7% 21.8% 21.9% 15.2%
Source: Domino’s, Industry, HSIE Research
Page | 14
Yum!
Exhibit 17: Yum! global network expansion and rise in India
CAGR
YUM! 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
(%)
System 35,648 34,952 38,937 40,233 41,546 42,692 43,617 45,084 48,124 50,170 50,353 53,424 55,361 4%
US 18,231 18,050 16,027 18,106 18,154 18,213 18,134 18,077 18,118 18,570 17,581 17,810 17,990 0%
International 17,417 16,902 22,910 22,127 23,392 24,479 25,483 27,007 30,006 31,600 32,772 35,614 37,371 7%
China 3,906 4,493 5,726 6,243 6,715 7,176 7,383 7,686 8,154 8,822 9,540 10,802 12,093 10%
India 278 466 593 733 833 811 668 735 844 967 974 1,309 1,712 16%
Source: Yum! Brands, Industry, HSIE Research
Top markets: India was always among the top priority in emerging markets
Key Facts: Yum’s US store unit expansion has stagnated in the last 10-12 years. However, it has
- $ 59bn system sales (CAGR of 4% expanded its presence in the international market with a 7% unit CAGR during the last
since 1997) with $ 24bn digital 12 years. India has always been focused for Yum among the emerging markets. Yum
system sales (26% CAGR since
entered India almost at the same it entered China (the early 90s) but China's pick-up
2019), mix at 40% vs. 22% in 2019
- 1500 franchisees, 98% franchised
was very fast and sustained strong unit growth (even 10% CAGR in the last 12 years).
based model. 35 restaurants per India's growth was more back-ended; the last 5 years’ unit growth is at 18% CAGR.
franchises India contributes 5% of the total international store network, which has increased from
- Presence in 156 countries 2% in 2010.
- KFC is no.1 in global chicken QSR
- PH is no.2 in global pizza QSR Exhibit 18: Yum’s key markets' revenue mix
% of KFC % of PH
Key Markets
System Sales System Sales
China 25% 16%
Company Operated: Operating margin US 15% 41%
was best in 2021, sharp fall in 2022 Europe (ex-UK) 12% 9%
2018 2019 2020 2021 2022 Asia 11% 14%
Revenue Australia 7% na
KFC 894 571 506 596 491 UK 7% na
Taco Bell 1,037 921 882 944 1,002 Middle East / Turkey / North Africa 6% 4%
Pizza Hut 69 54 76 46 21 Latin America 6% 11%
Habit 346 520 558 Africa 5% <1%
Total 2,000 1,546 1,810 2,106 2,072
Thailand 2% na
Restaurant Profit
Canada 2% 3%
KFC 119 87 67 106 65
India 2% 2%
Taco Bell 244 221 225 225 236
Pizza Hut 3 3 3 3 -0
Habit 9 47 26
Business mix: KFC globally successful, PH profitability globally weaker
Total 366 311 304 381 327 KFC contributed 51% store mix for Yum while its contribution to sales and profit mix
Restaurant Margin (%) was 54% and 51%. PH is globally a lower margin business for Yum—its contribution
KFC 13% 15% 13% 18% 13% to the store mix is 35% while the sales and profit mix is 22% and 16%.
Taco Bell 24% 24% 26% 24% 24%
Pizza Hut 4% 6% 4% 7% -2% Yum expanded its restaurant margin in 2021 for the company-operated business as it
Habit 3% 9% 5% enjoyed strong demand. However, the same reversed in 2022 once demand
Total 18% 20% 17% 18% 16% normalised. We have seen this phenomenon in other global QSR giants too.
Exhibit 19: Yum! business mix, PH globally a lower margin business for Yum!
Brands Ranking Countries Stores Sales mix (%) Store mix (%) Profit Mix (%)
KFC No. 1 Global Chicken QSR 149 27,700 54% 51% 51%
Taco Bell No. 1 in US Mexican QSR 32 8,000 23% 15% 34%
Pizza Hut No. 2 Global Pizza QSR 109 19,000 22% 35% 16%
The Habit 1 14 1% 0% 0%
Total 157 54,714 100% 100% 100%
Source: Yum! Brands, Industry, HSIE Research
Page | 15
McD Global
Exhibit 20: McD global network expansion and rise in India
CAGR
McD 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
(%)
System 32,737 33,510 34,480 35,429 36,258 36,525 36,899 37,241 37,855 38,695 39,198 40,031 40,275 2%
US 14,027 14,098 14,157 14,278 14,350 14,259 14,155 14,036 13,914 13,846 13,682 13,438 13,444 0%
International 18,710 19,412 20,323 21,151 21,908 22,266 22,744 23,205 23,941 24,849 25,516 26,593 26,831 3%
China 1,100 1,403 1,705 1,980 2,180 2,280 2,380 2,631 2,800 3,150 3,500 4,395 4,978 13%
India 155 160 250 325 363 403 405 427 277 300 350 440 468 10%
Source: McD Global, Industry, HSIE Research
Top markets: India was never a top priority market

Key Facts: India has been a small market for McD despite the fact that it entered the market in the
- $ 118bn system-wide sales (CAGR
90s. India is not even among the top 10 countries in the emerging market. India
of 4% since 2004)
contributes 2% and 1% of McD’s international and total stores, respectively (not much
- Franchised sales contribute 90%
- 50mn of active MyMcDonald’s change in the last 12 years). China has seen massive unit growth, with 13% unit CAGR
rewards users in top 6 markets over the last 12 years. McD in the US has seen a kind of stagnation in its unit expansion
- Accelerating the Arches growth in the last 10-12 years.
strategy has added $ 20bn since the
introduction
Exhibit 21: McD top international market
% of International % of
Top 20 international mkt (2021) Stores
market Total market
China 4,395 17% 11%
Japan 2,941 11% 7%
France 1,517 6% 4%
Canada 1,452 5% 4%
Germany 1,432 5% 4%
UK 1,367 5% 3%
Company Operated: Operating margin Brazil 1,052 4% 3%
was best in 2021, sharp fall in 2022 Australia 1,023 4% 3%
(US$ mn) 2019 2020 2021 2022 Russia 847 3% 2%
Sales Philippines 671 3% 2%
US 2,490 2,395 2,617 2,836 Italy 634 2% 2%
International –
Operated Mkts 6,334 5,114 6,456 5,179 India 468 2% 1%
South Korea 403 2% 1%
Rest. Profit Taiwan 402 2% 1%
US 388 405 511 429 Mexico 365 1% 1%
International –
Operated Mkts 1,266 748 1,208 913
Saudi Arabia 342 1% 1%
South Africa 323 1% 1%
Rest. Margin Malaysia 318 1% 1%
US 15.6% 16.9% 19.5% 15.1% Indonesia 254 1% 1%
International –
Hong Kong 247 1% 1%
Operated Mkts 20.0% 14.6% 18.7% 17.6%
Total 20,453 77% 51%
Business mix: McD’s margin profile is healthy

McD operates at a healthy restaurant margin for its company-operated business. The
US business margin is 15-17%, having sharply expanded in 2021 when it enjoyed
strong demand. However, the operating margin came back to normal in 2022 as
demand normalised. We have witnessed this phenomenon in other global QSR giants
too.
Page | 16
Exhibit 22: Global QSR Store Mix: Domino’s gained store share globally, including the US
System 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
YUM! 35,648 34,952 38,937 40,233 41,546 42,692 43,617 45,084 48,124 50,170 50,353 53,424 55,361
- KFC 16,853 17,401 18,198 18,875 19,420 19,952 20,604 21,487 22,621 24,104 25,000 26,934 27,760
- PH 13,432 13,747 14,357 14,967 15,605 16,064 16,409 16,748 18,431 18,703 17,639 18,381 18,381
McD 32,737 33,510 34,480 35,429 36,258 36,525 36,899 37,241 37,855 38,695 39,198 40,031 40,275
Domino's 9,351 9,742 10,255 10,886 11,629 12,530 13,811 14,856 15,914 17,020 17,644 18,848 19,519
Total 77,736 78,204 83,672 86,548 89,433 91,747 94,327 97,181 1,01,893 1,05,885 1,07,195 1,12,303 1,15,155
Mix (%)
YUM! 46% 45% 47% 46% 46% 47% 46% 46% 47% 47% 47% 48% 48%
McD 42% 43% 41% 41% 41% 40% 39% 38% 37% 37% 37% 36% 35%
Domino's 12% 12% 12% 13% 13% 14% 15% 15% 16% 16% 16% 17% 17%
US 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
YUM! 18,231 18,050 16,027 18,106 18,154 18,213 18,134 18,077 18,118 18,570 17,581 17,810 17,990
- KFC 5,055 4,780 4,556 4,491 4,370 4,270 4,167 4,109 4,074 4,065 3,943 3,953 3,918
- PH 7,542 7,600 6,209 7,846 7,863 7,822 7,689 7,522 7,456 7,416 6,561 6,548 6,536
McD 14,027 14,098 14,157 14,278 14,350 14,259 14,155 14,036 13,914 13,846 13,682 13,438 13,444
Domino's 4,929 4,907 4,928 4,986 5,067 5,200 5,371 5,587 5,876 6,126 6,355 6,560 6,643
Total 37,187 37,055 35,112 37,370 37,571 37,672 37,660 37,700 37,908 38,542 37,618 37,808 38,077
Mix (%)
YUM! 49% 49% 46% 48% 48% 48% 48% 48% 48% 48% 47% 47% 47%
McD 38% 38% 40% 38% 38% 38% 38% 37% 37% 36% 36% 36% 35%
Domino's 13% 13% 14% 13% 13% 14% 14% 15% 16% 16% 17% 17% 17%
International 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
YUM! 17,417 16,902 22,910 22,127 23,392 24,479 25,483 27,007 30,006 31,600 32,772 35,614 37,371
McD 18,710 19,412 20,323 21,151 21,908 22,266 22,744 23,205 23,941 24,849 25,516 26,593 26,831
Domino's 4,422 4,835 5,327 5,900 6,562 7,330 8,440 9,269 10,038 10,894 11,289 12,288 12,876
Total 40,549 41,149 48,560 49,178 51,862 54,075 56,667 59,481 63,985 67,343 69,577 74,495 77,078
Mix (%)
YUM! 43% 41% 47% 45% 45% 45% 45% 45% 47% 47% 47% 48% 48%
McD 46% 47% 42% 43% 42% 41% 40% 39% 37% 37% 37% 36% 35%
Domino's 11% 12% 11% 12% 13% 14% 15% 16% 16% 16% 16% 16% 17%
Exhibit 23: Stock performance

Stock CAGR (%)
Companies CMP
2 Yr 5 Yr 10 Yr 15 Yr 20 Yr
Yum! 128 8% 9% 9% 11% 14%
McD 271 10% 11% 11% 11% 16%
DPZ 312 -9% 6% 20% 23% 17%
Exhibit 24: Global QSR CEO history

Global CEO Previously Previously Previously Current
Yum! Andrall Pearson David Novak Greg Creed David Gibbs
CEO period 1997 – 1999 2001 - 2014 2015 - 2019 2020 – Present
Group since Na 1986 1994 1989
McD Jim skinner Don Thompson Stephen Easterbrook Chris Kempczinski
CEO period 2004-2012 2012 - 2015 2015 -2019 2019 - Present
Group since 1971 2015
Domino's David Brandon J. Patrick Doyle Richard E. Allison, Jr Russell J Weiner
CEO period 1999 - 2010 2010 - 2018 2018 - 2021 2022 - Present
Group since 1999 1999 2014 2008
Page | 17
India QSR: ‘Roots and Rise’

The history of QSR goes back to 1996 when global giants like McD, Pizza Hut (PH) and
Domino’s entered the Indian market. If you read the global commentary about the
Indian market (initial years of entry), the expectation level was very high (maybe
thanks to the same macro story). In the annual report and press releases, you will find
positive comments about the high potential of the Indian market. Our large population
and high spend mix on food and hygiene options would have been the promising
reason at that time. However, the experience of the first 10 years shows there has been
a consistent fallout of India's presence in terms of presentations and press releases and
even a separate India division that was merged with others. The industry initially saw
a slow scale-up and saw the exit of KFC which reentered in 1999.
Exhibit 25: Timeline of QSR chains starting in India Exhibit 26: Timeline of QSR chains starting in China
1996 2012 1990 1999 2008
1995 2001 2014 1987 1995 2005
Source: HSIE Research Source: HSIE Research
Exhibit 27: India store network by top brands

India China
Store in 2022
Stores % of International Stores % of International
YUM! 1,712 5% 12,093 32%
McD 468 2% 4,978 19%
Domino's 1,760 14% 508 4%
Total 3,940 5% 17,579 23%
Source: HSIE Research
The scale-up of QSR in India can be classified into three phases, which explains the
transition in the industry. With the rising disposable income in India, the QSR chains
have seen deeper penetration, from being focused in metros and mini metros to
entering tier 1 and 2 cities and now even deeper.
Exhibit 28: Stages of QSR in India
Phase I (1991-2001) Phase II (2001-2010) Phase III (2010 Onwards)
Penetration in newer segments (Travel,
Market High focus on Metro & Mini Metros Thin Penetration in Tier I & II Cities Education, Medical) and increased
penetration in Tier I & II cities
Ownership/ Franchise Model & Continuation with franchisee model & Emphasis on contracts more centred
Model
Management contracts JV’s around revenue sharing
Expansions under brands & emergence of
Funded by personal capital & conventional Partnerships/ JVs with related business
Funding new brands/concept. PE driving
means interest, Initiation of PE funding
expansion
New Opportunity areas with Focus on Customer engagement, format
Customer acquisition, sustainable revenue
Customer CRM, Expansion & extended capacity diversification & product enhancement,
growth
building investment on digital and technology
Page | 18
Appetite for more brands

India has seen a slew of QSR entrants over 2010-15, which have not been successful
and ended up exiting the geography. The rapid scale-up by existing brands along with
entry of brands like Burger King, Wendy's, Carl's Jr, Johnny Rockets and Fat Burger in
the burger segment and Debonairs, Eagle Boys and Sbarro in the pizza segment
flooded the Indian market. The tough competition caused many of these brands to exit.
Brands like Domino’s, KFC and Pizza Hut too had scaled back their retail footprint and
re-strategized their expansion model. Today, the brands are displaying sustainable
expansion. Besides the scale-up of existing brands, there is still potential for many
global brands to enter the country in popular segments, especially chicken.
Besides the recent entry by Popeye’s and Tim Horton’s, Dairy Queen too has expressed
its interest to enter the Indian market. Further Gloria Jeans Coffee is also looking to
reenter the Indian market. There are other brands like Chick-Fil-A and Little Caesars
which too could look to enter the country, given the similar product profile.
Different formats for QSR franchise

QSR in India is operated in different operating models (1) company owned, (2)
franchisee and (3) joint venture. The franchisee model is the most popular amongst the
global QSR brands that either appoint a master franchise or multiple master franchise
partners. In the franchisee model, the company transfers its technical know-how along
with the right to use the brand name. The brand helps its master franchiser with
supplier development, franchisee training, location assessment and consulting
expenses. A royalty fee is paid to the international brand for the same. Examples in the
franchisee model include Jubilant Foodworks for Domino’s and Popeye’s and Devyani
International and Sapphire Foods for both KFC and Pizza Hut.
A similar model is a joint venture, where the international brand partners up with a
local company that provides an understanding of the consumer behavior in the
country and provides real estate to the international brand, as well as setting up the
supply chain. Restaurant Brand Asia is the JV partner for Restaurant Brand
International.
There are few chains which adopt the company-owned model; however, this not being
scalable, is combined with a franchise model. Home-grown brands start their
operations in the company-owned model.
Exhibit 29: Master franchise Exhibit 30: Joint venture
Source: HSIE Research Source: HSIE Research
Page | 19
Exhibit 31: Brands and its formats

Multiple Franchise Master Franchise Micro Franchise
Joint Venture
Page | 20
Global QSR Parent: Commentary for India

Historical phase-wise commentary for India
Commentary Trend: 1990-2010
2006 1997 1996
Outside the United States, we have significant Outside the United States, sales in the QSR We are confident about the tremendous
share positions in the key markets in which we segment of the food service industry are growth opportunities available to
compete, including, among other countries, estimated to be $62 billion. Industry McDonald's outside of the United States.
Mexico, where we are the largest QSR company conditions vary by country, with many local This confidence is inspired by the strong
in terms of store count in any QSR category, the restaurants and fast food options present, acceptance of McDonald's brand in more
United Kingdom, Australia, South Korea, Canada, but on average competition is less than in and more markets around the world. On
Japan, Taiwan and India. Our top ten the United States as internationally branded opening day in India last Sunday, 10,000
international markets, based on store count, competition is generally limited to customers had their first taste of
accounted for approximately 82% of our McDonald's and, in certain markets, McDonald's as we opened our first
international retail sales in 2005. We believe we Domino's, Wendy's and Burger King. In restaurant ever without hamburgers on the
have a leading presence in these markets. addition, branded QSR units per population menu in Delhi. We enjoy a significant lead
in most countries are generally well below over the competition outside of the United
2010 that of the United States States and plan to extend this lead through
our Convenience Strategy. Our objective is
Yes. In most markets it has worked 2007-2010
2002
fundamentally the same as we have here. So we
probably are a little bit heavier on carryout The challenges and uncertainties associated
relative to the US. But it's still majority delivery Our core markets of Australia, Canada and with operating in developing markets, such
outside of the US. The beautiful thing about Japan will generate solid profit and cash as Russia, India and China, which face a
pizza is that it adapts incredibly well to local flow performance as they have in the past greater risk of political instability, economic
taste. So as you go around the world, there are and will continue to work on developing volatility, crime, corruption and social and
markets where the menu looks very similar to markets for growth five years from now, ethnic unrest, all of which are exacerbated
the US. But if you go into India, which has been such as KFC Europe, India and Brazil, as well in many cases by a lack of an independent
a very fast-growing market for us the last few as testing multibranding in core markets…. and experienced judiciary and uncertainties
years, for instance, you'll see toppings like in how local law is applied and enforced,
paneer and other localized toppings that Alongside our larger franchisees, there are including in areas most relevant to
account for about half of our sales. But if you many new partners in markets where our commercial transactions and foreign
take just the basics of the dough, the sauce and growth curve has just started. A great investment;
the cheese, that works everywhere. And then example of this is India, where after several
you can localize the toppings as appropriate to years of cautious, slow growth, our core
2008
the taste in that market. franchisees now cover the major cities and
are doubling rates of expansion each year. Just a question on India, an area with a very
large population we haven't heard
2010
discussion of today. I think the only other
Well they vary drastically depending on where 2004 thing we haven't heard about is Ronald
they are in the different countries. So you could McDonald today. But I'd like to just hear
Let's just go quickly through the list. India, at
have very low volumes internationally. It's hard to some comments about India and what
the top of the list, with over 1 billion people.
compare the international versus domestic. We might be the potential there.
And with an economic, retail and the
have stores in India that are extremely low Well we think the potential is still strong
consumer environment that is as ready for
volume but very efficient models and low cost of there. It's not as strong as China, if you
our brands as we are for them. We've got
input. So high margins. Then conversely we have compare the two populations -- the two
today almost 100 Pizza Huts in India. And
got very high volume units in the UK that again different countries, really, relative to
we've just started with KFC. But next year,
have very high margins based on their volume. So consumer spending. I think we'll open
we plan to make KFC an even bigger idea.
it's a little bit hard to compare. probably about 25 restaurants this year in
We're going to make some selective equity
India. We are at about 160, 170 right now.
investments behind KFC in India. And we
really believe that KFC in India can be an
even bigger idea than Pizza Hut.
Page | 21
2010 2008
But also growing at a pace as high as 20%. In the And about which we have huge hope for
last few years the CAGR growth of fast food the future is in India where KFC, in
industry in India would be in excess of 20%, the particular, is performing very strongly.
organized businesses growing at 15% to 20%. So We're hopeful that the rents might become
that's fairly high. You will see in a moment that a little bit more realistic in India.
how Domino's compares to these kind of growth Historically, rents have been very high,
rates. And clearly we are outstripping a lot of particularly in Delhi and in Mumbai. We
these numbers. But the interesting thing is that keep that under review for other places.
even at the holistic level the whole space is But we haven't at this point made any
growing in excess of 20%. decision to do that. One of the countries
where we will give consideration to that is
in India where infrastructure, as you know,
is a challenge. But what form that will take
is still to be resolved
2009
we're looking at balanced approach in India.

Not as dramatic as what we have in China,
which is primarily all equity. What we are
doing right now is we're investing equity to
get KFC and Taco Bell established. Pizza Hut
there is basically 100% franchise. What we
think we will have over time in India is a
balance between equity and franchise, both
KFC and Taco Bell. So we are very optimistic
about India because our brands are being so
well received, people like the food so much
2011 2011 2010

We have stores in over 65 countries today. This To be fair, we had to checkered history in India.
India: “Best Employer Brand – Restaurant”
gives you a sense of our 10 largest markets outside We went into India with KFC in the mid-nineties.
of the US. I'd point out the one that's fourth on the 2011
I think it's fair to say we were run out of town by
list, India, which has been growing very, very fast a combination of public hostility and India, we're at play in India and have a
for us over the course of the last couple of years government hostility. The environment at that structure there that we think we can grow
and has been a real star in the portfolio. But as you point was much less receptive than what it is with Malaysia, phenomenal market,
see from the delivery market position, really from today. We went back into India with KFC about tremendous opportunity for growth for us.
top to bottom, there has been a lot of success in five years ago…. Singapore, really high-performing market,
2012
So a standing start with I think we had at that great disposable income, great opportunity
point one or maybe two units that we had left for growth.
Average income levels in China are still higher
open from our first foray in the mid-90s. We
than in India. But the big positive on India is the
had always thought that India could be a big
age of the population. India is significantly
market for us. We were sensitive to the
younger average age than I think it is 11 years
differences between India and China, the
than China. And so the demographics in India, differences in the consumer base, the
while income levels are still a little bit lower, that difference in the regulatory environment, the
age, average age of the consumer, is far more important differences in the retail environment
attractive over time. And so when we look at -- as well as other unique things like equality of
we talk today about kind of 1,000 units in India, the infrastructure in India. So we never
the answer is that is if the economy doesn't underestimated the difficulty of the challenge.
continue to grow, if income levels don't Nevertheless we were always hopeful that we
continue to move up; my assumption is they will. could build a big business there. We are now
So probably that 1,000 mark will continue to highly confident that we can build a big
move as the country develops. business there.
Page | 22
2012
We're projecting 500 stores by 2015 in 100
cities. There's still plenty of potential, plenty of
2012
Next I want to talk about India. India is the
large cities in India and our experience is that
fastest-growing market around the world for we're going to be able to go into those cities and And we are on course to build over 1,300
Domino's Pizza. We've grown the business in achieve unit volumes that are at least as new restaurants this year in emerging
India by a compound annual growth rate of attractive as the ones that we have entered markets like China, Brazil, India, and Russia
almost 50% for five years running. To do that already. So we are highly confident about the and also in more established markets
one year is remarkable. To do it in five years in a future of India. One reason we're confident is including the US, France, Germany, and
row is amazing and our partners at Jubilant because of the -- what we see of the unit Australia. We will continue to go after these
economics.
FoodWorks in India have done a fabulous job. new store development opportunities when
The average unit volumes in India on these new
units, about $900,000 a year. That's slightly
and where appropriate…….. The growth
India employs a model that is almost completely below China levels. The average unit volumes in that we have in some of the others, the
corporately owned. They own all but a few of India today are actually above $1 million, about India's and the Russia's of the world -- in
the stores in the market. And over the last 15 $1.1 million a year. The core store cash you see India we have a developmental licensee and
years, they've done a very good job of creating is higher than 18%, the investment is about the a joint partner. In Russia, that is a wholly-
what I think is a distinct competitive advantage 450 there. So the payback is even better than owned market so it is McOpCo. The US we
with their supplier network and distribution and that. That's what we are seeing in India
have a mix. Markets like France we have a
generally.
commissary capabilities in the market. For those similar mix in closer to that 80% to 90%
of you that know India well, it takes a long time Our Indian team has actually gone to school on franchise range, but it's a traditional
to put together a food service business at scale the Chinese playbook and we've incorporated a franchising..
in the market and our partners at Jubilant have lot of learning and the know-how from our 2014
done a fabulous job…… Chinese team about how to develop a brand. If
Next I want to talk about India. India is the you go to India and go to China, you'll see a
fastest-growing market around the world for remarkable similarity between the brands. I Finally in the area of accessibility, we will
had the good fortune to go to China, obviously grow to the opportunity. By the end of
Domino's Pizza. We've grown the business in
been to India many times. And I have to tell 2013 we will have opened about 1,500 new
India by a compound annual growth rate of
you, the brands look virtually identical. The
almost 50% for five years running. To do that restaurants globally in both established
menu is very broad.
one year is remarkable. To do it in five years in a The consumer base is very similar. It skews very markets, like the US, France, Germany,
row is amazing and our partners at Jubilant young. Of course 70% of Indians are under 30. Canada, Australia, as well as emerging
FoodWorks in India have done a fabulous job. So it would have to if you are going to have a markets China, India. And Russia. And we
we had 750, I think is the store count potential big consumer franchise in India. We've got a lot will continue a similar growth pattern in the
in India. We believe the potential is 1,000 or of young people in our restaurants. years ahead…..
more. Now China is our biggest opportunity. But it
2011 is not our only one. As you will hear from
2013 Kenneth, the estimates for wealth creation
As I mentioned earlier, we have China and a in China alone over the next 10 years is over
Next, I will talk about India, which as all of you whole lot more. We've made incredible $9 trillion with another $9 trillion coming
know, has been a fabulous performer for us in progress in India, opening 101 new restaurants from India, the Middle East……
the Domino's system, led by Jubilant in 2011. 10 years ago we were essentially just
FoodWorks. It is our fastest growing market, yet beginning with KFC in India and now it is our You know we are heavily vested with the
again, in our system. I talked about the 500th second leading country for new unit big three -- Japan, China and Australia -- but
store that was opened in August. The team at development. In fact, we are so excited about if you go beyond that Southeast Asia
Jubilant has told their investors that they expect our prospects in India and its impact on the tremendous; Middle East, Africa
110 openings in their current fiscal year, which future growth of Yum! that we are going to tremendous; India has been a high mark.
ends in March. So growth continuing to break it out as a separate division for 2012
accelerate in India. And that's while still driving reporting.
greater than 20% same store sales growth Those of you who made it to our New York
through the first half of their fiscal year. They're meeting got to hear from Niren Chaudhary,
also significantly expanding the footprint across President of Yum! Restaurants India. Niren
the country. We now have Domino's Pizza spoke about how encouraging it is to see that
stores in 112 cities in India versus 96 a year ago. our new-unit progress with KFC in India is very
We know that the market is expanding rapidly. similar to what we saw in China during its first
We know that competitors are also excited 10 years. Niren and his team identified key
about India and coming in. But we are very elements driving success in China, and are
focused in working with our partner, Jubilant, to adapting these strategies in India to leverage
accelerate the pace of growth. So that we our iconic brands and build concepts with broad
continue to maintain a strong leadership appeal.
position in that very important country.
2012
Our KFC business model is getting stronger,

working in both large and smaller cities. The team
has gone to school on what makes KFC so
successful in China and we are applying these
strategies to India. Based on the unit economics
we are seeing, we believe there is a compelling
reason to put even more capital to work at KFC in
China -- in India, excuse me.
Page | 23
2014 2013
I think in India has seen slower same-store sales With KFC India, we have a business that has
growth – in fact, most folks have been a little bit three-year cash on cash returns. And what we're
negative over the course of the last year or two doing is we're building an aspirational brand.
years. We have certainly felt that as well and the We're starting to establish a strong core with
team is doing a great job of continuing to bring chicken products. We are developing new layers
it along. We've launched some new products in beverages with what we call her Crush bar. We
and doing a number of things to try to drive that. have a vegetarian line of products. And right now
But, we clearly need to see the economy get a we are in the midst of really developing what we
little bit more robust over there. Again, it's still call a Wow value menu where we can make our
growing and still growing pretty nicely, but it's brand even more affordable for the masses as we
not growing as much as it was three years or go forward.
four years ago. And you've had some inflation
over there, which I think has affected consumer 2016
behavior there a little bit as well. But overall, I'll
We're opening up in Nigeria, Kenya, Angola,
tell you, I remain very, very bullish on India and
Uganda, Mozambique, as well as obviously this
where it is and where it's going to continue to
very successful business we've got in South
go and certainly, our partners over there,
Africa. So I think that's a huge opportunity. And I
Jubilant FoodWorks have not taken their foot
think the last one would be India has under-
off the gas at all in terms of continuing to grow
delivered for us. If I'm just completely honest,
the system there.
we've collapsed India back into the businesses.
It's no longer a separate division. I put it back into
2016 the brands. I think that is helping us get some
traction in India, and I think we can do much
The one that I would call out here is India, and better in India than we've done in the previous
the reason I call it out is clearly, given the size of few years as well.
the market, it is very important over the long
term. We are today the largest restaurant
company in India. We have been growing. If you
look at kind of releases going back kind of in the
three store a week range for quite some time
now. We believe that we can comfortably
double store count in India, and importantly,
particularly, as you look at the emerging
markets, the assumptions that we're making for
what the potential store count can be in those
markets is that fundamentally the economy
doesn't grow anymore.
So clearly, India, given the base of population in
India, if it continues to grow in 4%, 5%, 6%, 7%
GDP over time that potential store count is
going to grow even higher than the 1,800. we
believe that we can get open as opposed to kind
of getting into the forecasting business on
Indian economic development. But even within
that, we believe today we could double store
count in India, as India continues to grow, then
that number may well go up as it has in the past.
2018
As you've recently heard from Jubilant

FoodWorks, our master franchise in India, the
reaccelerating of sales in the market is leading
them to also reaccelerate their commitment to
store growth within India; this at the same time
that one major competitor has left the market and
another is struggling. Our unit openings in
international were a bit slower than usual in Q1,
but we remain confident in our long-term outlook
of 6% to 8% net unit openings.
2019
Things can also change for the better. I mean,
fortressing also gives you the ability to potentially
close the competition. We saw that in India.
Competition is gone. And that then becomes a
tailwind. And so really that's why kind of year-by-
year we can continue to plow through the
numbers.
Page | 24
2021 2021 2020
After some strategic store closures earlier in the India Delhi that were refranchised as part of
year, Jubilant FoodWorks, our master franchise As discussed further in Note 20, on January 29,
the sale of the market.
partner dramatically accelerated growth with 50 2020, we received an order from the Special
Impairment and other charges, net for the
net stores in their most recent reported quarter. Director of the Directorate of Enforcement in
quarter reflected $14.4 million of costs
And as we look forward into 2021, I remain very India imposing a penalty on Yum! Restaurants
related to the write-off of software no longer
optimistic about the long-term growth potential India Private Limited of approximately Indian
being used, mostly offset by $13.0 million of
of our international business. The opportunity is Rupee 11 billion, or approximately $150 million,
income primarily comprised of a reversal of a
there, our unit economics are strong, and our primarily relating to alleged violations of
reserve associated with the Company's sale
master franchisees are committed. Combined operating conditions imposed in 1993 and 1994.
of its business in the India Delhi market in
with our corporate support and best practice We have been advised by external counsel that
January 2020.
sharing around the globe, we have the recipe to the order is flawed and have filed a writ petition
take this business to its full potential. with the Delhi High Court, which granted an
interim stay of the penalty order on March 5,
2022 2020. The stay order remains in effect, and the
next hearing is scheduled for March 24, 2021.
India once again led our international markets in We deny liability and intend to continue
store growth and opened their 1500th store vigorously defending this matter. We do not
during the quarter. This was accompanied by consider the risk of any significant loss arising
continued same-store sales growth. We also from this order to be probable
continue to see strong sales and store growth
from China and I'd like to congratulate Almar
Foods, our master franchisee across 11 markets in
the Middle East and North Africa on the opening
of their 500th store during the first quarter.
2022
Meaning, they were achieved without any of

our master franchisees, conducting a large scale
conversion of another piece of chain. One of my
personal highlights during the quarter was the
opportunity to be in market with one of our
largest master franchisees, Jubilant FoodWorks.
In December, I met with their team in New Delhi
where they reiterated their goal to grow to over
3,000 stores in India, over the next five years,
which would further cement Domino's position
as the leading QSR brand in this critical global
market.
Additionally, Jubilant is inspiring our global
system to raise the bar on service with their new
20-minute delivery results, as I able to see these
in action, when I was touring stores. Service has
always been a key differentiator for the
Domino's brand and Jubilant is extending its
delivery service advantage in India. How are
they able to do this? With incredible operations,
enhanced by global fortressing strategy. When
we and our franchisees build more stores, we
can get closer to customers and improve
delivery and carryout service.
Page | 25
Exhibit 32: Global commentary trend for India vs. store opening
Last
Particulars 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Total 10
Yrs
Commentary
Trend
Domino's 0 0 0 0 0 0 6 1 1 2 4 3 9 9 9 10 16 20 9 11 40 15 13 12 10 200 165
Yum! 1 1 1 2 1 3 4 8 12 9 10 15 18 25 19 22 22 23 24 13 20 15 16 27 38 349 239
McD 0 0 0 1 1 0 0 1 0 4 9 10 11 5 6 4 4 2 1 3 10 13 11 13 11 120 78
Stores in
India
Domino's 78 104 129 181 241 306 364 439 552 677 830 989 1,106 1,126 1,195 1,312 1,313 1,495 1,760
Yum! 77 100 121 148 171 200 230 278 466 593 733 833 811 668 735 844 967 974 1,309 1,712
McD 30 55 80 105 130 155 160 250 325 363 403 405 427 277 300 350 440 468 500
Source: Bloomberg, Global fillings, Industry, HSIE Research
Exhibit 33: Phase-wise QSR store opening

Entry in
QSRs Upto FY05 FY05-FY10 FY10-FY20 FY20-FY23E
India
Domino's 1996 78 228 1,029 457
McDonald's 1996 <50 125 195 156
Yum! 1995 100 130 656 693
- KFC 1995 na 72 371 354
- Pizza Hut 1996 100 58 285 339
Subway 2001 <50 125 521 (68)
Burger King 2014 0 0 260 130
Barbeque 2006 0 na 164 61
Total store addition 250 608 2,825 1,429
Total store addition/year 25 122 283 475
Page | 26
Global QSR commentary for India: outlook for 2023 and beyond
DPZ: Domino’s parent
DPZ has continued to see emerging markets as larger store opening markets and see
3x potential of the store network to >11,000 stores vs. ~4,000 stores. India is a top
international market for DPZ, with stores, at +1,750, not only lead in the emerging
market but also leading among the developed markets. DPZ had guided 1,800 store
potential in India in 2017 when its stores were ~1,100, within 5 years (despite COVID),
it could achieve a large part of its guidance (1,760 stores). DPZ has revised its guidance
to 3,000 store potential in India over the next five years. Thereby, the yearly store
opening needs to be around 250 stores in India for Domino’s. Within emerging markets,
DPZ is also aggressive for China where they have a very limited presence as compared
to Pizza Hut.
Exhibit 34: Domino’s future store potential guidance Exhibit 35: Domino’s key master franchisees
Source: DPZ, HSIE Research Source: DPZ, HSIE Research
Exhibit 36: Domino’s store guidance

India 2,017 2,022
Store 1,081 +1,700
Store potential guidance 1,800 3,000
Exhibit 37: Domino’s SSSG in US vs. International

US SSSG International SSSG AVG US SSSG AVG Int. SSSG
14.0%
9.0%
5%
4.0%
4%
-1.0%
-6.0%
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Source: DPZ, HSIE Research
Page | 27
YUM!: KFC, PH Parent

Yum! has been bullish on emerging markets and it has seen an immense store network
in China. India is also one of the key markets for Yum!, contributing 5% of the store
network of its international stores. As per Yum!, India will have 200mn (US 300mn
currently) consuming classes by 2027. India's consuming class is based on a five-year
projection representing middle- and high-income consumers in the age band of 15-45,
excluding an estimated 10% vegetarian population. For such a large consuming class,
India will have eight stores per one million consuming class population. The US has 60
stores per one million consuming population. Thereby, the store network potential in
India is very high as per Yum!, which has a high ambition of adding 100,000 more Yum!
restaurants around the world (currently at +55,000 stores).
Yum’s growth hungry Yum’s market position Market share Future store opportunity
opportunity
Note: Store count as of Q3 2022. India consuming class based on a five-year projection representing middle-and-high income consumers in the age
band of 15-45, excluding an estimated 10% vegetarian population
Source: Yum! PPT, HSIE Research
Exhibit 38: Massive whitespace for restaurant growth Exhibit 39: KFC’s fast global store opening
Source: Yum! PPT, HSIE Research Source: Yum! PPT, HSIE Research
Page | 28
Exhibit 40: Yum!’s store in US vs. emerging markets in Exhibit 41: Yum!’s store in US vs. emerging markets in
2012 (58 stores vs. 2 stores) 2022 (54 stores vs. 5 stores)
Exhibit 42: Yum!’s modern technology Exhibit 43: Yum!’s investment on technology
Page | 29
MCD: McD Global

McD plans to open (net) 1,500 stores in 2023, out of which store openings in the US will
be negligible (20 stores). McD’s last 15-year store expansion story has been in the
international market as US stores were almost flat over the last 15 years. New store
addition will be in the international market; wherein emerging markets remain the key
focus area.
Exhibit 44: McD projected store opening in 2023
Source: McD, HSIE Research
Page | 30
India QSR: City-wise store network and projection

QSR network in India is highly concentrated in the top cities of India. The top 30 cities
in India contribute around two-thirds (66%) of the total store network while these top
30 cities contribute <15% of India’s population. QSR is a higher consumer eating-out
frequency and increases store penetration. However, despite global giants’ long
presence in India (~30 years), a large part of the growth has come from frequency. The
top 30 cities have 15 stores per mn population as compared to 3 stores per mn for India.
Some cities like Bengaluru, Pune, Hyderabad, NCR, etc., are above the 15 stores
average. Thereby, for incremental store growth, companies will require to move out of
the top 30 cities.
We have noticed that some companies have already started expanding their city
network in the last two years. Domino’s is the best-penetrated brand among QSR that
has a city network of ~400 cities, which itself has moved significantly from 266 cities in
FY18 to 387 cities in 9MFY23.
Exhibit 45: India’s top-30 cities store per mn at 15 stores

32 30 29
26
22
24 20
17 17 17 16
15 15 14 14
16 12 11 11 10
9 9 9
8 8 8 8 7 7
8 5 4
3
-
Mumbai,…
Vishakhapat…
Ahmedabad
Vadodara
Chennai
Kolkata
Pune
NCR
Bengaluru
Indore
Coimbatore
Varanasi
Goa
Lucknow
Trivandrum
Amritsar
Chandigarh
Hyderabad
Ludhiana
Kanpur
Surat
Rajkot
Madurai
Patna
Ernakulam
Bhopal
Nagpur
Nashik
Jaipur
Exhibit 46: India’s top-30 cities mix for population vs. food service vs. store
network
100%
73%
75% 66% 69%
65%
57%
51%
50%
25%
13%
0%
Population Food service QSR store Domino's KFC PH McD
Page | 31
Exhibit 47: Top QSR presence in US and stores per mn population

Stores (no.) Stores per million population
Population Yum Domino's McD Total Yum Domino's McD Total
State Code State name
(2021)
Taco Total
KFC PH Habit
Bell Yum
CA California 3,92,00,000 432 549 830 244 2,055 586 1,165 3,806 52 15 30 97
FL Florida 2,18,00,000 260 447 434 9 1,150 481 728 2,359 53 22 33 108
GA Georgia 37,00,000 155 242 231 0 628 231 365 1,224 170 62 99 331
IL Illinois (Chicago) 1,27,00,000 148 193 263 0 604 224 647 1,475 48 18 51 116
IN Indiana 68,00,000 113 198 245 0 556 130 326 1,012 82 19 48 149
MI Michigan 1,01,00,000 153 129 308 0 590 150 545 1,285 58 15 54 127
NC North Carolina 1,06,00,000 168 252 230 0 650 301 374 1,325 61 28 35 125
NY New York 84,67,513 159 127 215 0 501 233 655 1,389 59 28 77 164
OH Ohio 1,18,00,000 196 294 383 0 873 269 616 1,758 74 23 52 149
Tx Texas 2,95,00,000 283 879 649 0 1,811 719 834 3,364 61 24 28 114
Top 10 states 15,46,67,513 2,067 3,310 3,788 253 9,418 3,324 6,255 18,997 61 21 40 123
Top 10 state mix (%) 47% 53% 51% 53% 75% 52% 50% 47% 50%
Total 33,19,00,000 3,918 6,536 7,198 338 17,990 6,643 13,444 38,077 54 20 41 115
Source: US Census Bureau, Yum, Industry, HSIE Research
Exhibit 48: Top QSR: cities presence in India, US and China

Cities Stores Stores/city (x)
Countries India US China India US China India US China
KFC 225 2,196 1,800 823 3,918 9,094 4 2 5
PH 200 3,065 550 764 6,536 2,903 4 2 5
McD 103 4,649 na 506 13,444 4,978 5 3 na
Domino's 387 3,255 15 1,760 6,643 508 5 2 34
Source: Global filling, companies, industry, HSIE Research
Note: some cities numbers are approximate
Exhibit 49: Store mix change in the favour of Domino’s over the last decade
Domino's Yum McD Subway Burger Kings
100% - - - - - - - - - 0 2 3 4 6 7 7 7 8
15 17 18 18 18 22 22 21 18
23 20 21 15 14 12
22 20 19
80%
17 19 18 15 11 10
19 19 15 17 16 15 14 9 12
14 10 10
60%
37 27 32 29 23 25 26 27 27 31 34
34 31 29 26 31 31 32
40%
20% 35 36 36 36 38 39 38 37 38 37 36
32 30 32 31 30 32 34
0%
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23E
Source: Global filling, Companies, HSIE Research

Note: Store addition of Subway, Burger Kings and McD (North region) are our own estimates based on
management commentaries
Page | 32
Exhibit 50: Store potential: Consuming class and store expansion

QSR industry (top brands) has seen
China 2013
fast store expansion during FY22 and
Consuming class (mn) 300
FY23 and combined added ~1,400
Stores (No.)
stores. It was also to recoup from the
KFC 4,563
COIVD led impact on store expansion
in FY21. Average store expansion by PH 1,264
industry is ~400 annually. McD 1,980

Domino's 35
China’s top brands had 26 stores per Burger King 70
mn consuming class in 2013. As per Total 7,912
Yum, China had a 300mn consuming Stores per mn consuming class (No.) 26
class in 2013. Yum expects that India
will reach 200mn consuming class by
2027. We believe the last two years’
India 2027E 2030E
fast store opening and weak
Consuming class (mn) 200 250 (@8% growth)
consumer sentiment will decelerate
Scenario-1 Scenario-2 Scenario-3 Scenario-1 Scenario-2 Scenario-3
the store opening pace in the next
three years. Stores per mn consuming class (No.) 27 30 35 27 30 35
Total store potential 5,400 6,000 7,000 6,750 7,500 8,750
India can open an average of 500 Stores in 2023 4,995 4,995 4,995 4,995 4,995 4,995
stores annually by 2030 with the Opportunity to add Nil 1,005 2,005 1,755 2,505 3,755
assumption that consuming class will Addition per year - 251 501 251 358 536
reach 250mn by 2030. It will lead to 6 Stores per mn total population 3.8 4.2 4.9 4.6 5.1 6.0
stores per mn on total population as Source: Yum PPT, Industry, HSIE Research
compared to ~3 stores per mn
currently.
China store addition Exhibit 51: India QSR: Industry store expansion over the multiple phases and
Stores 2013 2022 expectation
KFC 4,563 9,094 Period 1995-2005 2005-2010 2010-2020 2020-2023 2023-2030E
PH 1,264 2,903 Average store addition/year 25 125 300 475 550
McD 1,980 4,978 Total stores <350 <1,000 3,500 5,000 8,850
Domino's 35 508 CAGR (%) 24% 14% 13% 9%
Burger King 70 1,400
Total 7,912 18,883
Store
1,200
addition/year
CAGR (%) 10%
Exhibit 52: Pizza stores per mn population (2021) Exhibit 53: QSR stores per mn population
250 227 7
Store per mn population
6
200 6
166
5
150 5
96 4
100
3 3
50 28 28
11 4 2
-
1
USA
Australia
UK
Korea
Japan
India
China
South
0
2022 2027E 2030E
Source: DPC DASH IPO Filling, HSIE Research Source: Yum! PPT, HSIE Research
Page | 33
Our thesis and assumptions

Multi-year growth opportunity, but don’t expect non-linear play
The first question that comes to our mind with various consumption alternatives
(discretionary and non-discretionary) available to invest is why one should play QSR.
With India’s long-term growth and consumption theme, QSR is one of the best-fit
stories. QSR provides a multi-year growth opportunity, particularly for countries like
India where the population will always be in favour of such food alternatives. QSR is
more of a macro story play that India’s fast-changing ecosystem (internet, mobile,
young population, large population, rising hygiene preferences, etc.) will continue to
support.
However, the shift in consumption patterns (home/traditional food to eat-out/fast food
alternatives) is quite slow in India vs. other countries (particularly in China). This is
why, despite the global giants’ early entry in India (mid 90’s), the store network is still
quite low. India is quite low on (1) stores per million population (~3 stores), (2) city
penetration (<400 cities presence), and (3) stores per city (even metro cities are much
lower than global comparison). Thereby, QSR will be a multi-year growth potential
market for global giants but we reckon that store expansion will be linear (8-10% store
growth).
Is non-linearity in QSR a reality?

The history of QSR goes back to 1996 when global giants like McD, Pizza Hut (PH) and
India QSR store network (top Domino’s entered the Indian market. If you read the global commentary about the
brands) have grown at 17% Indian market (initial years of entry), the expectation level was very high (maybe
CAGR between 2006-2023E. thanks to the same macro story). In the annual report and press releases, you will find
positive comments about the high potential of the Indian market. Our large population
The network expansion and high spend mix on food and hygiene options would have been the promising
during the last 10 years (2013- reason at that time. However, the experience of the first 10 years shows there has been
2023), it has grown at 10% a consistent fallout of India's presence in terms of presentations and press releases and
CAGR. even a separate India division that was merged with others.
The QSR network was <400

On the question of non-linearity of growth, if you look at India's QSR store network,
stores in 2006 which is
the network (top brands) has grown at 17% CAGR between 2006-2023E. It reflects that
the QSR network has grown 2-3x of real GDP growth during the period, a real GDP
expected to become 5,000
multiplier story. However, if you look at it more precisely, we are seeing such high
stores by the end of FY23.
growth when the entire QSR network in 2006 was <400 stores. The same network is
likely to reach ~5,000 stores by the end of FY23. We noticed that most discretionary
consumption categories (consumer durable, discretionary FMCG, etc.) have seen a
similar kind of non-linearity during 2000-2015. Thereby, comparing such a small base
is not the right way to understand non-linearity. Hence, if you look at the network
expansion of the last 10 years (2013-2023), it has grown at 10% CAGR. Which is not bad
growth, but where is my non-linearity play? It is quite close to what many linear
consumption categories have delivered over this period. Thus, we would say that QSR
is also a linear growth category (despite a variety of macro tailwinds) but within linear
growth basket, QSR stands among the best strata for growth.
Page | 34
QSR companies are focusing on aggressive store expansion and want to sustain the
new store opening pace despite the weak consumer sentiment. The new store additions
are expected to maintain growth ahead of their historical growth.
Exhibit 54: Store expansion (India)
Store expansion (India) FY19 FY20 FY21 FY22 FY23E FY24E FY25E FY26E
Jubilant 1,265 1,370 1,406 1,621 1,882 2,149 2,451 2,763
Devyani 533 575 655 892 1,182 1,371 1,590 1,814
Sapphire 311 361 365 482 617 737 857 957
Westlife 296 319 305 326 361 401 451 491
Total 2,405 2,625 2,731 3,321 4,042 4,658 5,349 6,025
Store Addition (no.)
Jubilant 105 36 215 261 267 302 312
Devyani 42 80 237 290 189 219 224
Sapphire 50 4 117 135 120 120 100
Westlife 23 (14) 21 35 40 50 40
Total 220 106 590 721 616 691 676
Store growth (%)
Jubilant 8% 3% 15% 16% 14% 14% 13%
Devyani 8% 14% 36% 33% 16% 16% 14%
Sapphire 16% 1% 32% 28% 19% 16% 12%
Westlife 8% -4% 7% 11% 11% 12% 9%
Total 9% 4% 22% 22% 15% 15% 13%
Store growth > consumption growth, competitive pressure to rise

India is a relatively low-penetrated market for global QSR giants as compared to other
geographies. The country’s highly penetrated street shops, traditional shops, etc., will
continue to impact the shift from local food to global food. The store expansion will
increase the current ~3 stores per million population to ~6 stores per million population
by 2030. Consumption and eat-out shift will not grow non-linearly as compared to the
store opening spree. It will lead to higher competition among the top brands. Every
brand is moving out of its top markets and entering markets where other brands were
enjoying less competition. India’s long-term store growth story remains intact but the
intense competition will take a toll on unit economics.
Page | 35
Weak sentiment to impact SSSG and ADS in FY24

Weakness in general consumption sentiment has started impacting the demand for
Consumer Confidence
QSR as well, although the impact was relatively late vs. other consumption baskets like
Index: Weakness sustains FMCG, durables, etc. Pent-up, mobility (malls, etc.) and a higher urban mix was
Current Situation Index
driving QSR for the past few quarters. High and prolonged inflation is impacting the
Future Expectations Index
140 variety of consumption baskets; we expect QSR will also see similar pressure in the
120 near term (FY24). Urban consumption was supporting the overall consumption
100
(especially premium and discretionary categories) in the last 9-12 months when rural
and mid-economy demand was struggling. It seems that urban consumption is also
80
seeing deceleration (consistent high inflation, higher interest rate, weak job sentiment)
60
and will impact relevant categories like QSR.
40
Jul-15
Jul-16
Jul-17
Jul-18
Jul-19
Jul-20
Jul-21
Jul-22
Jan-16
Jan-17
Jan-18
Jan-19
Jan-20
Jan-21
Jan-22
Jan-23
Exhibit 55: Weak SSSG period and margin pressure

Macro variables FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 Feb'23
Inflation (CPI) 12.1% 8.9% 9.3% 10.9% 6.4% 5.9% 5.0% 2.5% 4.9% 7.7% 5.6% 4.9% 5.9% 6.2%
GDP Growth (%) 7.4% 8.5% 5.2% 5.5% 6.4% 7.4% 8.0% 8.3% 6.8% 6.5% 3.7% -6.6% 8.7% 7.7%
Housing rate (%) Base rate 7.5% 8.3% 9.8% 10.0% 10.0% 9.9% 9.6% 9.1% 8.7% 8.5% 8.2% 7.4% 7.6% 10.1%
Unemployment rate (%) 5.7% 5.7% 5.7% 5.7% 5.6% 5.6% 5.5% 5.4% 5.3% 5.3% 7.1% 6.7% 7.2% 7.5%
Crude 80 114 103 93 101 45 39 51 63 63 23 61 98 71
USD/INR 47.4 45.6 48.0 54.4 60.5 61.2 65.5 67.1 64.5 69.9 70.9 74.2 74.5 80.4
Jubilant FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23E
Revenue (INR mn) 4,239 6,783 10,174 14,076 17,235 20,745 24,102 25,461 29,804 35,307 38,858 32,688 43,311 50,849
Revenue Gr. (%) 51% 60% 50% 38% 22% 20% 16% 6% 17% 18% 10% -16% 32% 17%
Store (No.) 306 378 465 576 726 876 1026 1117 1134 1227 1335 1360 1567 1817
Store Gr. (%) 27% 24% 23% 24% 26% 21% 17% 9% 2% 8% 9% 2% 15% 16%
SSSG (%) 22% 37% 30% 16% 2% 0% 3% -2% 14% 16% 3% -18% 37% 7%
Cities 69 90 105 123 150 196 235 264 266 273 282 293 296 299
GM (%) 75% 75% 74% 74% 74% 75% 76% 76% 75% 75% 75% 78% 78% 76%
EBITDA (Pre IND AS) 658 1,201 1,904 2,444 2,551 2,628 2,718 2,466 4,464 6,078 5,794 4,709 8,104 8,727
EBITDA margin (%) 16% 18% 19% 17% 15% 13% 11% 10% 15% 17% 15% 14% 19% 17%
EBITDA Growth 96% 83% 58% 28% 4% 3% 3% -9% 81% 36% -5% -19% 72% 8%
Westlife FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23E
Revenue (INR mn) 2,745 3,793 5,479 6,833 7,403 7,643 8,334 9,308 11,349 14,020 15,478 9,860 15,765 22,902
Revenue Gr. (%) 33% 38% 44% 25% 8% 3% 9% 12% 22% 24% 10% -36% 60% 45%
Store (No.) 87 107 130 161 184 209 236 258 277 296 319 305 326 361
Store Gr. (%) 18% 23% 21% 24% 14% 14% 13% 9% 7% 7% 8% -4% 7% 11%
SSSG (%) na Na na 6% -6% -6% 2% 4% 16% 17% 4% -24% 58% 38%
Cities na Na na 16 0 0 30 34 41 41 42 43 47 52
GM (%) na 0% 55% 55% 58% 58% 60% 61% 63% 64% 65% 65% 65% 66%
EBITDA (Pre IND AS) na 357 648 599 497 204 488 495 848 1,243 1,453 (24) 1,304 3,095
EBITDA margin (%) na 9% 12% 9% 7% 3% 6% 5% 7% 9% 9% 0% 8% 14%
EBITDA Growth na 0% 82% -8% -17% -59% 139% 1% 71% 46% 17% na na 137%
Page | 36
Margin tailwinds are over; expect pressure across companies

QSR sector has benefited as mobility resumed in the post-Covid period. Many
consumption categories have seen such pent-up benefits in the last two years. Some
categories have seen early benefits like FMCG, some enjoyed in between like home
improvement and some categories like QSR saw benefits at the end of the Covid wave.
Because of this one-time spur in demand, we have seen operating margins expanding
sharply (even compared to pre-Covid). However, after seeing normalised growth, such
categories/ companies have gone back to their normal margin range.
QSR companies have also seen sharp margin improvement in 9MFY23 (particularly
dine-in focus; delivery focus had seen benefits prior to that), led by higher consumer
mobility, focus on branded food and positive consumer sentiment. We believe a large
part of these tailwinds are behind and RM inflation will continue to impact gross
margin, with these companies expected to see margin normalisation in FY24.
Exhibit 56: Jubilant FoodWorks: Operating metric change vs. pre-Covid and our estimates
Chg vs.
COVID
Revenue (INR) 26,655 29,879 22,430 31,732 38,437 9% 50,849 56,799 65,432 74,265
YoY Gr (%) 12% -25% 41% 21% 17% 12% 15% 14%
SSSG (%) 20% 5% -28% 49% 10% 7% 2% 6% 4%
ADS per store (INR) 82,268 83,520 80,886 -1% 77,737 76,330 78,445 80,363
Stores (No.) 1,200 1,325 1,314 1,495 1,760 10% 1,817 2,067 2,317 2,567
Gross Profit (INR) 19,967 22,470 17,592 24,664 29,262 9% 38,696 42,769 49,598 56,442
GM (%) 74.9% 75.2% 78.4% 77.7% 76.1% 93bps 76.1% 75.3% 75.8% 76.0%
EBITDA (Pre IND AS) 4,602 4,854 2,996 5,971 6,814 12% 8,727 9,017 10,906 12,604
EBITDA (INR) 4,602 7,077 5,174 8,149 9,070 9% 11,817 12,930 15,414 17,720
PBT (INR) 3,797 3,811 1,718 4,353 4,455 5% 5,701 6,009 7,551 8,891
PBT margin (%) 14.2% 12.8% 7.7% 13.7% 11.6% -117bps 11.2% 10.6% 11.5% 12.0%
Exhibit 57: Westlife Foodworld: Operating metric change vs. pre-Covid and our estimates
Chg vs.
COVID
Revenue (INR) 10,624 12,114 6,284 11,214 17,218 12% 22,902 25,696 30,393 35,534
YoY Gr (%) 14% -48% 78% 54% 45% 12% 18% 17%
SSSG (%) 21% 8% -40% 104% 52% 38% 3% 8% 8%
ADS per store (INR) 1,34,758 1,42,438 1,87,011 9% 1,74,799 1,76,686 1,85,994 1,99,897
Stores (No.) 292 315 304 316 341 3% 361 401 451 491
Gross Profit (INR) 6,757 7,890 4,000 7,355 11,297 13% 15,001 16,703 19,907 23,452
GM (%) 63.6% 65.1% 63.6% 65.6% 65.6% 48bps 65.5% 65.0% 65.5% 66.0%
EBITDA (Pre IND AS) 983 1,257 (348) 778 2,339 23% 3,095 3,263 4,227 5,234
EBITDA (INR) 983 1,809 120 1,343 3,012 19% 3,991 4,269 5,418 6,628
PBT (INR) 316 256 (1,284) (226) 1,218 68% 1,476 1,539 2,435 3,461
PBT margin (%) 3.0% 2.1% -20.4% -2.0% 7.1% 496bps 6.4% 6.0% 8.0% 9.7%
Page | 37
Exhibit 58: Devyani International: Operating metric change vs. pre-Covid and our estimates
Chg vs. Pre-
COVID
Revenue (INR) 13,106 15,164 7,017 14,933 22,427 14% 29,557 35,272 42,831 50,232
Revenue - KFC 4,641 6,091 3,903 8,664 13,275 30% 17,725 21,586 27,053 32,490
Revenue - PH 4,232 4,174 1,843 3,854 5,299 8% 6,908 7,858 9,394 10,739
Revenue - Costa 902 820 129 274 687 -6% 938 1,325 1,575 1,887
Revenue - International 1,104 1,491 346 1,420 1,756 6% 2,262 2,607 2,817 3,027
YoY Gr. (%) - Devyani 18% 16% na 113% 50% 42% 19% 21% 17%
YoY Gr. (%) - KFC 31% 31% na 122% 53% 45% 22% 25% 20%
YoY Gr. (%) - PH 9% -1% na 109% 37% 30% 14% 20% 14%
YoY Gr. (%) - Costa 4% -9% na 112% 151% 128% 41% 19% 20%
YoY Gr. (%) - International 4% -9% na 112% 151% 137% 41% 20% 21%
SSSG (%) - KFC 5% 3% na 60% 22% 16% 2% 9% 5%
SSSG (%) - PH 5% -4% na 81% 7% 7% 1% 9% 5%
SSSG (%) - Costa 3% -4% na 154% 62% 60% 6% 7% 7%
Stores (No.) 566 610 608 884 1,177 24% 1,243 1,442 1,668 1,899
Stores (No.) - KFC 134 172 240 339 461 39% 489 589 709 834
Stores (No.) - PH 268 269 273 391 483 22% 503 573 643 713
Stores (No.) - Costa 67 63 45 50 103 18% 115 130 155 180
Gross Profit (INR) 9,217 10,560 4,811 10,632 15,737 14% 20,650 24,532 29,997 35,161
GM (%) 70.3% 69.6% 68.6% 71.2% 70.2% 53bps 69.9% 69.6% 70.0% 70.0%
GM (%) - KFC 66.0% 64.8% 69.4% 69.2% 68.2% 337bps 67.8% 67.5% 68.0% 68.0%
GM (%) - PH 74.0% 74.9% 73.0% 75.6% 74.7% -16bps 74.5% 74.0% 75.0% 75.0%
GM (%) - Costa 76.9% 77.3% 77.5% 79.6% 79.3% 203bps 79.0% 79.0% 79.1% 79.1%
EBITDA (Pre IND AS) 969 575 1,085 2,017 3,434 81% 4,480 4,932 6,361 7,748
EBITDA (INR) 2,789 2,555 1,152 3,327 5,038 25% 6,655 7,456 9,280 11,071
PBT (INR) (712) (1,115) (875) 951 2,208 na 2,620 2,350 3,370 4,350
PBT margin (%) -5.4% -7.4% -12.5% 6.4% 9.8% na 8.9% 6.7% 7.9% 8.7%
Page | 38
Exhibit 59: Sapphire Foods: Operating metric change vs. pre-Covid and our estimates
Chg. vs.
COVID
Revenue (INR) 11,938 13,404 10,122 6,790 12,247 17,052 19% 22,988 27,344 33,383 38,784
Revenue – KFC 6,584 7,753 5,974 3,816 7,383 10,838 22% 14,690 17,965 22,397 26,451
Revenue – PH 3,071 3,344 2,603 1,441 2,678 3,993 15% 5,189 6,092 7,386 8,439
YoY Gr. (%) – KFC na 18% na -36% 93% 47% 42% 22% 25% 18%
YoY Gr. (%) – PH na 9% na -45% 86% 49% 40% 17% 21% 14%
SSSG (%) – KFC 14% 5% 9% -42% 70% 20% 16% 2% 9% 5%
SSSG (%) – PH 5% -5% -7% -48% 62% 18% 16% 1% 9% 6%
Stores (No.) 374 425 426 425 550 716 19% 740 862 987 1,097
Stores (No.) – KFC 158 187 183 196 250 325 21% 348 418 498 568
Stores (No.) – PH 153 174 173 161 209 274 17% 269 319 359 389
Gross Profit (INR) 7,992 9,087 6,903 4,697 8,524 11,442 18% 15,371 18,356 22,728 26,570
GM (%) 66.9% 67.8% 68.2% 69.2% 69.6% 67.1% -110bps 66.9% 67.1% 68.1% 68.5%
GM (%) - KFC 65.1% 65.4% 65.3% 67.5% 68.5% 66.5% 120bps 66.5% 67.0% 68.0% 68.5%
GM (%) - PH 73.9% 76.2% 76.3% 75.4% 75.8% 74.8% -150bps 74.6% 74.0% 74.5% 74.5%
EBITDA (INR) 1,460 1,856 1,383 1,165 2,052 3,303 34% 4,366 5,029 6,241 7,310
PBT (INR) (683) (666) (383) (854) 228 961 na 1,093 937 1,544 2,061
PBT margin (%) -5.7% -5.0% -3.8% -12.6% 1.9% 5.6% 942bps 4.8% 3.4% 4.6% 5.3%
Page | 39
Comparative scorecard (9MFY23)

Following is the 9MFY23 performance comparison of each company on key metrics i.e.
ADS, store, revenue per store, and operating margin. To compare, Jubilant’s restaurant
margin and pre IND AS EBITDA is based on our estimates. Besides, corporate
overheads for Sapphire and Devyani, we maintain similar (% of sales) for KFC and PH
to get EBITDA (Pre IND AS).
Exhibit 60: QSR comparative scorecard – 9MFY23

9MFY23 Westlife Jubilant Sapphire Devyani
(INR mn) KFC PH Others Total KFC PH Others Total
ADS 1,87,011 80,886 1,38,000 61,000 70,296 88,204 1,21,000 44,000 61,254 70,573
Store 341 1760 325 274 117 716 461 483 233 1177
Revenue 17,218 38,437 10,838 3,993 2,221 17,052 13,275 5,299 3,853 22,427
Revenue/store 50 22 33 15 19 24 29 11 17 19
SSSSG 52% 10% 20% 18% 22% 7%
Gross Profit 11,297 29,262 7,207 2,987 1,248 11,442 9,050 3,960 2,727 15,737
GM (%) 65.6% 76.1% 66.5% 74.8% 56.2% 67.1% 68.2% 74.7% 70.8% 70.2%
Rest EBITDA 3,247 8,543 2,113 587 312 3,013 2,808 856 697 4,361
Rest operating margin 18.9% 22.2% 19.5% 14.7% 14.1% 17.7% 21.2% 16.2% 18.1% 19.4%
Corp overheads 908 1,730 590 217 121 929 549 219 159 927
Corp overheads % of sales 5.3% 4.5% 5.4% 5.4% 5.4% 5.4% 4.1% 4.1% 4.1% 4.1%
EBITDA (Pre IND AS) 2,339 6,814 1,523 370 191 2,084 2,259 637 538 3,434
EBITDA margin (Pre IND AS) 13.6% 17.7% 14.1% 9.3% 8.6% 12.2% 17.0% 12.0% 14.0% 15.3%
EBITDA (Post IND AS) 3,012 9,070 3,303 5,038
EBITDA margin (Post IND AS) 17% 24% 19% 22%
PBT margin 1,218 4,455 961 2,208
PBT margin (%) 7.1% 11.6% 5.6% 9.8%
Per store
Revenue 50.5 21.8 33.3 14.6 19.0 23.8 28.8 11.0 16.5 19.1
GP 33.1 16.6 22.2 10.9 10.7 16.0 19.6 8.2 11.7 13.4
Rest Operating profit 9.5 4.9 6.5 2.1 2.7 4.2 6.1 1.8 3.0 3.7
EBITDA (Pre IND AS) 6.9 3.9 4.7 1.3 1.6 2.9 4.9 1.3 2.3 2.9
Channel mix (%)
Delivery 40% 63% 36% 50% 36% 57%
Dine-in+ Takeaway 60% 37% 64% 50% 64% 43%
Cities 52 387 75 52 133 136 227
Store/city 7 5 4 5 3 4 5
Note: Jubilant restaurant margin and pre IND AS EBITDA is based on our estimates, Corp overheads for Sapphire and Devyani we maintain similar
for KFC and PH to get EBITDA (Pre IND AS).
Page | 40
High valuation to correct but longevity to keep

valuations rich
 Our long-term thesis: (1) QSR is more of a macro story play with India’s fast-
changing ecosystem (internet, mobile, young population, large population, rising
hygiene preferences, etc.) driving penetration. (2) QSR store growth is sustainable
at 10% with the industry expected to reach six stores per mn population by 2030
from three stores per mn currently. (3) Long-term SSSG to sustain at mid-high
single digit (most global QSRs achieved in the US in the long run). (4) Earnings
growth driven more by unit growth than margin expansion. (5) Macro will remain
favorable (sensitivity is high for QSR).
 Rich valuation to sustain: QSR industry has multi-year growth potential and
global QSR giants will be fit for the change in India’s rapid ecosystem. They have
more right to win in India’s consumption metric with a rising consumer base,
eating-out frequency, quicker delivery and value-for-money proposition. Thus,
despite near-term challenges, we believe the long-term rich valuation will sustain
for QSR players. Upside risk: GST council allowing an input tax credit for the
restaurant sector.
Page | 41
Devyani vs. Sapphire

Store network: Devyani and Sapphire
Devyani has a store network of ~1,180 stores out of which 1,120 stores are in India. It
had a network of 461 KFC stores, 483 Pizza Hut stores, and 103 Costa Coffee stores in
India in 9MFY23. Besides, the company also operates non-core brands with a network
of 73 stores, including brands like Vaango (south Indian), The Food Street, Iile Bar,
AMRELI, and Ckrussh Juice Bar. The key markets are NCR, Bengaluru, Kolkata, and
Hyderabad, which contribute ~40% of the domestic store network.
Exhibit 61: Devyani: Top 10 cities store mix
Top 10 cities FY19 FY20 FY21 FY22 9MFY23
Bengaluru 23 30 80 106 125
New Delhi 67 70 54 67 83
Kolkata 39 39 42 52 59
Gurgaon 35 34 34 38 46
Noida 30 29 28 32 39
Hyderabad 16 25 32 60 77
Lucknow 18 18 19 21 31
Mumbai 20 16 15 15 20
Ghaziabad 13 12 12 16 23
Jaipur 9 9 9 11 13
Total 270 282 325 418 516
% of core brands 58% 56% 54% 50% 49%
% of domestic store network 51% 49% 50% 47% 46%
Total Metros 316 407 503
Total Non-Metros 289 425 544
Cities 105 139 155 204 227
Store - core brands 469 504 605 832 1,047
Store – India 533 575 655 892 1,120
Sapphire has a store network of ~715 stores, out of which 600 stores are in India in
9MFY23. In India, Sapphire has a network of 325 KFC stores and 274 Pizza Hut stores.
The company also operates stores in Sri Lanka where the company has a network of
114 stores.
KFC Stores (No) Stores Mix (%)
Chg vs.
State-wise stores FY21 FY22 9MFY23 FY21 FY22 9MFY23 Chg mix
FY21
Tamil Nadu 50 62 77 27 24% 24% 24% 23%
Maharashtra 46 58 77 31 22% 22% 24% 26%
Delhi 34 45 53 19 16% 17% 16% 16%
Punjab 32 40 46 14 15% 15% 14% 12%
UP 11 15 19 8 5% 6% 6% 7%
Gujarat 13 14 15 2 6% 5% 5% 2%
MP 6 9 13 7 3% 3% 4% 6%
Uttarakhand 7 9 10 3 3% 3% 3% 3%
Haryana 6 5 9 3 3% 2% 3% 3%
Chhattisgarh 3 5 6 3 1% 2% 2% 3%
Total 208 262 325 117 100% 100% 100% 100%
Page | 42
Pizza Hut Stores (No) Stores Mix (%)

Chg vs.
FY21 FY22 9MFY23 FY21 FY22 9MFY23 Chg mix
FY21
Maharashtra 44 55 63 19 26% 25% 23% 18%
Karnataka 33 41 48 15 19% 19% 17% 14%
Tamil Nadu 27 36 42 15 16% 16% 15% 14%
Gujarat 17 23 36 19 10% 10% 13% 18%
Telangana 18 22 31 13 11% 10% 11% 13%
Kerala 11 17 24 13 6% 8% 9% 13%
AP 6 8 8 2 4% 4% 3% 2%
Haryana 7 7 8 1 4% 3% 3% 1%
MP 4 6 7 3 2% 3% 3% 3%
Goa 4 4 5 1 2% 2% 2% 1%
Chhattisgarh 0 1 3 3 0% 0% 1% 3%
Total 171 220 275 104 100% 100% 100% 100%
Page | 43
Business mix: Devyani and Sapphire

Devyani’s KFC contributed ~40% of store count but its contribution to revenue and
restaurant EBITDA was high at ~58% and ~63% respectively during FY22. KFC’s
revenue/store metric is also far superior to Pizza Hut’s at around 33mn/store as
compared to Pizza Hut's at ~13mn/store. Devyani is diversifying its business by
focusing on international operations (Nigeria and Nepal) along with operating its own
stores (non-core). These two diversifications contributed revenue and EBITDA mix of
14% and 12% respectively.
KFC Pizza Costa Inter- Others KFC Pizza Costa Inter- Others KFC Pizza Costa Inter- Others
Hut Coffee nation Brands Hut Coffee nation Brands Hut Coffee nation Brands
6% 6% 5% 2%
5% 2% 10%
9% 3%
39%
21%
26%
58%
63%
44%
Source: Company, HSIE Research Note: FY22 Data

Sapphire acquired 125 KFC stores from various franchises in FY16. KFC contributed
46% of store count for Sapphire but its contribution to revenue and restaurant EBITDA
was high at 61% and 63% respectively during FY22. KFC’s revenue/store metric is also
far superior than Pizza Hut at around 40mn/store as compared to Pizza Hut at
~20mn/store. In India, there are ~750 Pizza Hut stores, out of which ~274 stores are
operated by Sapphire. Pizza Hut is seeing improving in its unit economics but its
contribution to store, revenue and EBITDA still stands at 38/22/16% respectively.
KFC Pizza Hut Sri Lanka KFC Pizza Hut Sri Lanka KFC Pizza Hut Sri Lanka
16% 18% 22%
46%
22% 16%
61% 63%
38%
Source: Company, HSIE Research Note: FY22 Data
Page | 44
Exhibit 62: Business Comparison: Devyani vs. Sapphire

Particulars (INR mn) FY19 FY20 FY21 FY22
Net Revenue (Consolidated)
Devyani 13,106 15,164 11,348 20,840
Sapphire 11,938 13,404 10,196 17,216
Net Revenue (India)
Devyani 12,002 13,620 10,135 18,938
Sapphire 9,820 11,246 8,194 14,171
Stores (No.) - (Consolidated)
Devyani 566 610 692 938
Sapphire 374 425 435 579
Stores (No.) - India
Devyani 533 575 655 892
Sapphire 311 361 365 482
Revenue/store (INR)
Devyani 23.2 24.8 16.3 22.2
Sapphire 31.6 31.3 23.4 29.6
Gross Margin (%)
Devyani 70% 70% 70% 71%
Sapphire 67% 68% 70% 69%
Employee Cost
Devyani 15% 15% 14% 12%
Sapphire 17% 17% 19% 16%
Restaurant Overheads (ex-RM)- % of sales
Devyani 56% 58% 55% 51%
Sapphire 55% 56% 57% 51%
Restaurant EBITDA
Devyani 1,838 1,748 1,634 4,146
Sapphire 1,383 1,596 1,325 3,207
Restaurant EBITDA margin (%)
Devyani 14% 12% 14% 20%
Sapphire 12% 12% 13% 19%
Corporate overheads (on pre IND AS)
Devyani 869 1,173 791 1,151
Sapphire 948 934 943 1,399
Corporate overheads (% of sales)
Devyani 7% 8% 7% 6%
Sapphire 8% 7% 9% 8%
EBITDA
Devyani 2,789 2,555 2,346 4,760
Sapphire 1,460 1,856 1,244 3,050
EBITDA margin
Devyani 21% 17% 21% 23%
Sapphire 12% 14% 12% 18%
EBITDA (Pre-IND AS)
Devyani 969 575 842 2,995
Sapphire 435 662 382 1,808
EBITDA (Pre-IND AS) Margin (%)
Devyani 7% 4% 7% 14%
Sapphire 4% 5% 4% 11%
PBT margin (%)
Devyani -5% -7% -11% 7%
Sapphire -6% -5% -10% 3%
Gross Block/store
Devyani 12.8 12.6 10.5 10.3
Sapphire 14.6 15.5 15.9 15.5
Page | 45
Exhibit 63: KFC: Devyani vs. Sapphire

KFC FY19 FY20 FY21 FY22
Revenue
Devyani 4,641 6,091 6,443 12,189
Sapphire 6,584 7,753 5,897 10,349
Store Network
Devyani 134 172 264 364
Sapphire 158 187 203 263
Revenue/store (INR mn)
Devyani 35 35 24 33
Sapphire 42 41 29 39
SSSG (%)
Devyani 5% 3% -34% 49%
Sapphire 14% 5% -30% 31%
Avg. daily sales per store
Devyani 1,13,851 1,16,740 1,00,269 1,17,000
Sapphire 1,25,210 1,29,630 1,06,250 1,30,000
Gross Margin (%)
Devyani 66% 65% 68% 69%
Sapphire 65% 65% 68% 68%
Rest. related expenses (ex-RM) -% of sales
Devyani 48% 49% 49% 48%
Sapphire 52% 52% 54% 49%
Rest. EBITDA
Devyani 854 973 1,182 2,602
Sapphire 836 1,021 828 2,018
Rest. EBITDA Margin (%)
Devyani 18% 16% 18% 21%
Sapphire 13% 13% 14% 20%
Cities
Devyani 57 76 97 133
Delivery Sales (INR mn)
Devyani 511 975 2,384 5,363
Sapphire 1,100 1,535 2,247 4,554
Delivery sales share (%)
Devyani 11% 16% 37% 44%
Sapphire 17% 20% 38% 44%
Page | 46
Exhibit 64: Pizza Hut: Devyani vs. Sapphire

Pizza Hut FY19 FY20 FY21 FY22
Revenue
Devyani 4,232 4,174 2,879 5,318
Sapphire 3,071 3,344 2,218 3,710
Store Network
Devyani 268 269 297 413
Sapphire 153 174 162 219
Devyani 16 16 10 13
SSSG (%)
Devyani 5% -4% -30% 45%
Sapphire 5% -5% -35% 42%
Avg daily sales per store
Devyani 44,679 43,917 34,900 43,000
Sapphire 61,250 57,900 48,170 57,000
Gross Margin (%)
Devyani 74% 75% 74% 76%
Sapphire 74% 76% 76% 76%
Rest. related expenses (ex-RM) -% of sales
Devyani 59% 64% 61% 59%
Sapphire 66% 69% 71% 62%
Rest. EBITDA
Devyani 655 439 372 865
Sapphire 229 245 112 497
Rest. EBITDA Margin (%)
Devyani 15% 11% 13% 16%
Sapphire 7% 7% 5% 13%
Cities
Devyani 83 82 100 136
Delivery Sales (INR mn)
Devyani 1,312 1,544 1,641 3,350
Sapphire 998 1,164 1,176 2,115
Delivery sales share (%)
Devyani 31% 37% 57% 63%
Sapphire 33% 35% 53% 57%
Page | 47
27 March 2023 Company Update
Jubilant FoodWorks
Weak in near term; investments to remain competitive ADD
Jubilant has seen a deceleration in all its key metrics (ADS, EBITDA and PBT CMP (as on 24 Mar 2023) INR 440
margin) over the last 2-3 quarters as delivery business started normalising.
Target Price INR 475
Other players (more dine-in focus) performed relatively better on key metrics.
Demand trends are expected to remain soft in the near term. Besides, NIFTY 16,945
inflationary headwinds will continue to impact the margin and price hike
levers have already played out, with no further hike expected. Jubilant is KEY
OLD NEW
CHANGES
stepping up its investments in dine-in along with strengthening its backend by
Rating REDUCE ADD
setting up new commissaries in Bengaluru and Mumbai over the next 12-15
months (capex of INR 2.5bn for each commissary). With weak consumer Price Target INR 475 INR 475
sentiment, pressure on margin, and higher investments, we cut our EPS by 13% FY23E FY24E
and 12% for FY24 and FY25. The stock corrected by >30% in the last six months EPS %
-13% -12%
(despite it coming off of its peak) and normalised the valuation to some extent.
We value Jubilant on 55x P/E on Jun’25 EPS (earlier 47x on pre-IND AS) to
KEY STOCK DATA
derive a TP of INR 475. We upgrade the stock from REDUCE to ADD.
▪
Bloomberg code JUBI IN
Weakness in key metrics to continue in the near term: Demand deceleration
No. of Shares (mn) 660
will continue for Jubilant’s delivery business (although growing in low
double digits); however, the worry was on the slow pick-up of its dine-in MCap (INR bn) / ($ mn) 291/3,534
business. Other players are stronger for dine-in business, thereby key metric 6m avg traded value (INR mn) 1,342
performance was weaker for Jubilant. Overall, the sluggish consumer
52 Week high / low INR 652/412
sentiment has started impacting demand for discretionary categories. It has
also taken a toll on growth for the QSR industry. We have noticed the
STOCK PERFORMANCE (%)
sequential weakness for demand in the near term, which will continue to
3M 6M 12M
impact Jubilant’s growth metrics. The company wants to remain aggressive
in store expansion, particularly for Domino’s and Popeye’s. We model Absolute (%) (13.8) (29.0) (15.8)
Domino’s store expansion of 250 stores each for FY24/25/26 while overall store Relative (%) (9.9) (28.0) (15.7)
addition will be 277/312/322 stores. Jubilant has started taking initiatives to
improve the dine-in business but we believe the benefits will be visible SHAREHOLDING PATTERN (%)
gradually. We model 14% revenue CAGR during FY23-26E.
▪ Margin pressure to continue in the near term: With RM inflation sustaining
Sep-22 Dec-22
(mainly dairy inflation, contributing 30-35% of RM) and in the absence of any Promoters 41.94 41.94
price hike levers, we expect the gross margin to remain soft in the ensuing FIs & Local MFs 19.94 20.89
quarters. Gross margin has contracted by +150bps YoY to 76.1% in 9MFY23 FPIs 28.66 26.77
while EBITDA margin and PBT margin dipped by 200bps YoY each to 23.6%
Public & Others 9.46 10.40
and 11.6% respectively. Jubilant, compared to its peers, has already seen a
contraction in the margin in the last few quarters. We expect margin pressure Pledged Shares 0.70 0.70
to sustain in the near term, owing to softness in demand and RM pressure. Source : BSE
Besides, investment in stores (to improve dine-in) and setting up a new Pledged shares as % of total shares
commissary will further impact the PBT margin for Jubilant. We build an
EBITDA margin of 22.8/23.6/23.9% for FY24/25/26 while the PBT margin is at Naveen Trivedi
10.6/11.5/12.0%. naveen.trivedi@hdfcsec.com
Quarterly/annual financial summary +91-22-6171-7324
(INR mn) FY22 FY23E FY24E FY25E FY26E
Net Sales 43,961 51,549 57,788 66,818 75,894 Varun Lohchab
EBITDA 11,088 11,713 12,880 15,344 17,638 varun.lohchab@hdfcsec.com
APAT 4,586 4,599 4,385 5,561 6,555 +91-22-6171-7334
EPS (INR) 6.3 6.2 6.6 8.4 9.9
P/E (x) 69.6 71.4 66.4 52.3 44.4
Paarth Gala
EV / EBITDA (x) 35.1 33.1 31.7 26.0 22.1
RoCE (%) 23.5 18.3 17.7 20.0 22.5
paarth.gala@hdfcsec.com
Source: Company, HSIE Research +91-22-6171-7336
Jubilant FoodWorks: Company Update
Recent updates
Store count City coverage Channel mix
Source: Company, HSIE Research
Quarterly app installs MAU Domino’s cheesy reward members

Note: MAU is defined as unique user who opens Domino’s India app in a month
20-minute delivery across 14 cities Introduced Viva Roma Menu @ INR 49 each
Page | 49
Exhibit 65: Multi-brand integrated supply chain network
Exhibit 66: Jubilant store network
Chg vs.
COVID
Revenue (INR) 26,655 29,879 22,430 31,732 38,437 9% 50,849 56,799 65,432 74,265
YoY Gr (%) 12% -25% 41% 21% 17% 12% 15% 14%
SSSG (%) 20% 5% -28% 49% 10% 7% 2% 6% 4%
ADS per store (INR) 82,268 83,520 80,886 -1% 77,737 76,330 78,445 80,363
Stores (No.) 1,200 1,325 1,314 1,495 1,760 10% 1,817 2,067 2,317 2,567
Gross Profit (INR) 19,967 22,470 17,592 24,664 29,262 9% 38,696 42,769 49,598 56,442
GM (%) 74.9% 75.2% 78.4% 77.7% 76.1% 93bps 76.1% 75.3% 75.8% 76.0%
EBITDA (Pre IND AS) 4,602 4,854 2,996 5,971 6,814 12% 8,727 9,017 10,906 12,604
EBITDA (INR) 4,602 7,077 5,174 8,149 9,070 9% 11,817 12,930 15,414 17,720
PBT (INR) 3,797 3,811 1,718 4,353 4,455 5% 5,701 6,009 7,551 8,891
PBT margin (%) 14.2% 12.8% 7.7% 13.7% 11.6% -117bps 11.2% 10.6% 11.5% 12.0%
Page | 50
Financials (Consolidated)
Profit & Loss
Year End (March) - INR mn FY20 FY21 FY22 FY23E FY24E FY25E FY26E
Net Revenues 39,273 33,119 43,961 51,549 57,788 66,818 75,894
Growth (%) 10.2% -15.7% 32.7% 17.3% 12.1% 15.6% 13.6%
Material Expenses 9,835 7,262 9,899 12,154 14,029 15,835 17,824
Employee Expense 7,964 7,469 7,684 9,106 10,151 11,708 13,296
A&P Expense 2,469 2,751 3,020 3,305 3,692 4,188 4,753
Rent 829 111 453 1,173 1,513 1,668 1,810
Other Expenses 9,419 7,813 11,818 14,098 15,522 18,075 20,573
EBITDA 8,756 7,712 11,088 11,713 12,880 15,344 17,638
EBITDA Growth (%) 46.0% -11.9% 43.8% 5.6% 10.0% 19.1% 15.0%
EBITDA Margin (%) 22.3% 23.3% 25.2% 22.7% 22.3% 23.0% 23.2%
EBITDA (Pre IND AS) 5,755 4,756 8,131 8,622 8,967 10,837 12,522
EBITDA Growth (%) Pre IND AS -4.0% -17.4% 71.0% 6.0% 4.0% 20.8% 15.6%
EBITDA Margin (%) Pre IND AS 14.7% 14.4% 18.5% 16.7% 15.5% 16.2% 16.5%
Depreciation 3,523 3,754 3,931 4,585 5,297 6,087 6,891
EBIT 5,233 3,958 7,157 7,127 7,583 9,257 10,747
Other Income 696 731 414 410 585 700 805
Interest 1,652 1,627 1,761 1,941 2,208 2,475 2,742
PBT 4,277 3,062 5,810 5,596 5,960 7,482 8,809
PBT Gr (%) -13% -28% 90% -4% 6% 26% 18%
PBT margin (%) 10.9% 9.2% 13.2% 10.9% 10.3% 11.2% 11.6%
Total Tax 1,240 757 1,452 1,371 1,475 1,871 2,205
RPAT 2,788 2,306 4,181 4,075 4,385 5,561 6,555
Exceptional Gain/(loss) - net of taxes (749) (292) (405) (524) - - -
Adjusted PAT 3,537 2,598 4,586 4,599 4,385 5,561 6,555
APAT Growth (%) 11.2% -26.6% 76.5% 0.3% -4.7% 26.8% 17.9%
EPS (INR) 4.2 3.5 6.3 6.2 6.6 8.4 9.9
EPS Growth (%) -12.3% -17.3% 81.3% -2.5% 7.6% 26.8% 17.9%
Balance Sheet
Year End (March) FY20 FY21 FY22 FY23E FY24E FY25E FY26E
SOURCES OF FUNDS
Share Capital - Equity 1,320 1,320 1,320 1,320 1,320 1,320 1,320
Reserves 9,901 12,949 18,130 21,721 23,009 24,981 27,605
Total Shareholders Funds 11,220 14,268 19,450 23,040 24,329 26,301 28,925
Minority Interest 107 94 101 101 101 101 101
Long Term Debt - - 1,198 1,198 1,198 698 198
Short Term Debt - - - - - - -
Total Debt - - 1,198 1,198 1,198 698 198
Net Deferred Taxes (751) (831) (526) (526) (526) (526) (526)
Lease Liabilities 16,706 16,205 19,868 21,092 23,994 26,896 29,798
TOTAL SOURCES OF FUNDS 27,281 29,736 40,091 44,905 49,096 53,470 58,496
APPLICATION OF FUNDS
Net Block 8,196 8,413 10,452 14,110 17,517 19,212 20,695
CWIP 407 263 397 397 397 397 397
Right to use asset 13,310 12,677 16,346 17,353 18,148 18,616 18,742
Other non-current assets 2,058 2,362 1,965 2,264 2,509 2,864 3,221
Non-Current Investments - 4,353 8,271 8,271 8,271 8,271 8,271
Total Non-current Assets 24,356 28,455 38,067 43,030 47,478 49,996 51,961
Inventories 947 1,331 1,612 1,890 2,119 2,450 2,783
Debtors 166 168 220 259 290 335 381
Other Current Assets 407 676 761 825 878 954 1,030
Cash & Equivalents 7,071 6,159 6,630 7,229 7,584 10,273 14,187
Total Current Assets 8,591 8,334 9,224 10,203 10,871 14,012 18,381
Creditors 4,470 5,330 5,370 6,355 7,125 8,238 9,357
Other Current Liabilities & Provns 1,196 1,723 1,830 1,972 2,129 2,300 2,489
Total Current Liabilities 5,666 7,053 7,200 8,328 9,253 10,538 11,846
Net Current Assets 2,925 1,281 2,024 1,875 1,618 3,474 6,535
TOTAL APPLICATION OF FUNDS 27,281 29,736 40,091 44,905 49,096 53,470 58,496
Page | 51
Cash Flow
(INR mn) FY20 FY21 FY22 FY23E FY24E FY25E FY26E
Reported PBT 4,028 3,062 5,633 5,446 5,860 7,432 8,759
Non-operating & EO Items 13 (162) 91 - - - -
Interest Expenses (Net) 1,198 1,213 1,466 1,531 1,623 1,775 1,937
Depreciation 3,523 3,754 3,931 4,585 5,297 6,087 6,891
Working Capital Change (82) 509 (275) 747 613 833 853
Tax Paid (1,402) (869) (1,410) (1,371) (1,475) (1,871) (2,205)
OPERATING CASH FLOW ( a ) 7,278 7,506 9,436 10,939 11,918 14,256 16,237
Capex (2,830) (2,181) (3,891) (6,750) (7,000) (5,750) (6,000)
Free Cash Flow (FCF) 4,448 5,326 5,544 4,189 4,918 8,506 10,237
Investments 1,502 (3,961) (2,212) (498) (445) (555) (557)
Non-operating Income 342 314 233 410 585 700 805
INVESTING CASH FLOW ( b ) (987) (5,828) (5,870) (6,838) (6,860) (5,605) (5,752)
Debt Issuance/(Repaid)
Interest Expenses (1,652) (2,844) (3,105) (3,434) (3,913) (4,508) (5,116)
FCFE 2,795 2,482 2,440 755 1,005 3,999 5,120
Share Capital Issuance 108 (43) (399) - - - -
Dividend (1,747) (0) (790) (792) (990) (1,155) (1,155)
Others (1,323) - 1,198 524 - (500) (500)
FINANCING CASH FLOW ( c ) (4,614) (2,887) (3,095) (3,702) (4,903) (6,162) (6,771)
NET CASH FLOW (a+b+c) 1,677 (1,209) 470 399 155 2,489 3,714
EO Items, Others 60 6 180 0 (0) 0 -
Closing Cash & Equivalents 6,559 5,344 5,634 6,033 6,188 8,677 12,390
Ratios
Particulars FY20 FY21 FY22 FY23E FY24E FY25E FY26E
PROFITABILITY (%)
GPM 75.0 78.1 77.5 76.4 75.7 76.3 76.5
EBITDA Margin 22.3 23.3 25.2 22.7 22.3 23.0 23.2
EBIT Margin 13.3 12.0 16.3 13.8 13.1 13.9 14.2
APAT Margin 9.0 7.8 10.4 8.9 7.6 8.3 8.6
RoE 29.7 20.4 27.2 21.6 18.5 22.0 23.7
RoIC (or Core RoCE) 38.1 20.1 23.5 18.3 17.7 20.0 22.5
RoCE 23.3 13.4 16.9 14.3 12.9 14.5 15.4
EFFICIENCY
Tax Rate (%) 29.0 24.7 25.0 24.5 24.7 25.0 25.0
Fixed Asset Turnover (x) 4.6 3.8 4.1 3.6 3.2 3.4 3.6
Inventory (days) 8.8 14.7 13.4 13.4 13.4 13.4 13.4
Debtors (days) 1.5 1.9 1.8 1.8 1.8 1.8 1.8
Other Current Assets (days) 3.8 7.5 6.3 5.8 5.5 5.2 5.0
Payables (days) 41.5 58.7 44.6 45.0 45.0 45.0 45.0
Other Current Liab & Provns (days) 11.1 19.0 15.2 14.0 13.4 12.6 12.0
Cash Conversion Cycle (days) (38.5) (53.8) (38.2) (37.9) (37.7) (37.1) (36.8)
PER SHARE DATA (Rs)
EPS 4.2 3.5 6.3 6.2 6.6 8.4 9.9
CEPS 9.6 9.2 12.3 13.1 14.7 17.7 20.4
Dividend 1.2 1.2 1.2 1.5 1.8 1.8 1.8
Book Value 17.0 21.6 29.5 34.9 36.9 39.9 43.8
VALUATION
P/E (x) 104.4 126.2 69.6 71.4 66.4 52.3 44.4
P/BV (x) 25.9 20.4 15.0 12.6 12.0 11.1 10.1
EV/EBITDA (x) 49.3 59.9 35.1 33.1 31.7 26.0 22.1
EV/Revenues (x) 7.2 8.6 6.5 5.5 4.9 4.2 3.6
OCF/EV (%) 2.6 2.6 3.3 3.8 4.2 5.1 5.9
FCF/EV (%) 1.6 1.9 1.9 1.5 1.7 3.0 3.7
FCFE/Mkt Cap (%) 1.0 0.9 0.8 0.3 0.3 1.4 1.8
Dividend Yield (%) 0.3 0.3 0.3 0.3 0.4 0.4 0.4
Page | 52
27 March 2023 Initiating Coverage
Devyani International REDUCE

Positive on store potential; worries over margin CMP (as on 24 Mar 2023) INR 138
Devyani International is the largest franchise partner of Yum in India. It has a Target Price INR 115
store network of +1,100 stores in India, with 461 KFC, 483 PH, 103 Costa Coffee
NIFTY 16,945
and 73 home-grown stores (Vangoo and Food Street). On the international front
(8-9% of revenue), it operates KFC stores in Nigeria and KFC & PH stores in
KEY STOCK DATA
Nepal. With Yum’s sustained focus on expanding the store network in India
since its entry, we believe healthy store expansion (+10% growth rate) will Bloomberg code DEVYANI IN
continue over the next many years. Devyani shares the Indian market with No. of Shares (mn) 1,205
Sapphire (Yum’s other franchise partner); we model yearly store addition for MCap (INR bn) / ($ mn) 166/2,020
Devyani at 225 stores during FY23-26. Since India has a large population and a
6m avg traded value (INR mn) 413
high share of youngsters, we believe the store penetration story will be largely
similar for most QSR players. QSR, among the other consumer categories, has 52 Week high / low INR 215/136
seen normalisation relatively late post-Covid (particularly dine-in); mobility
and pent-up had boosted the growth metric (ADS, SSSG) over the last 15-18 STOCK PERFORMANCE (%)
months. It resulted in a sharp improvement in operating metrics (restaurant 3M 6M 12M
operating margin improved >600bps in 9MFY23 vs. FY20). With the
Absolute (%) (19.4) (27.7) (17.5)
normalisation in demand and some impact of weak consumer sentiment, we
believe the operating margin will see an impact in FY24. We value Devyani on Relative (%) (15.5) (26.7) (17.3)
50xP/E on Jun-25 EPS to arrive at a TP of INR 115. We initiate on Devyani with
a REDUCE rating. SHAREHOLDING PATTERN (%)
 KFC a long term store expansion play: KFC is a long-term play as the chicken Sep-22 Dec-22
category has strong potential in India. The ADS for KFC stands at >INR
121,000/store as compared to McD at >INR 1,85,000/store. Thereby, ADS has Promoters 62.80 62.80
headroom to improve in the medium term for KFC. We believe KFC will have FIs & Local MFs 7.47 7.88
a higher mix in the store expansion for Devyani; of the total addition of 225
FPIs 14.25 14.70
stores per annum, we believe ~50% will be KFC.
 PH still needs various measures: Devyani/Yum has taken various measures Public & Others 15.48 14.62
to improve PH, but there are still gaps. Domino’s had carried out various Pledged Shares - -
changes over the last 5-6 years i.e. product quality, menu expansion, better
Source : BSE
order experience and faster delivery (20 min delivery). Apart from competing
with Domino’s, PH also has to face challenges from multiple other players. Pledged shares as % of total shares
Flavour Fun pizza can improve transaction growth but whether it will help
improve overall ADS is still uncertain. PH ADS was at INR 44,000/store in
9MFY23, Domino’s at ~INR 84,000/store. We model a flat ADS for FY25/FY26.
 Concern on margin: Devyani enjoys a better operating margin than Sapphire
despite having low ADS. The operating cost difference (due to different
geographies) provides a 150-200bps margin difference despite having a
similar gross margin. However, with the normalisation in demand, the impact
of weak sentiment and high RM inflation, we believe there will be margin
pressure in FY24. High pent-up demand benefits have expanded the Naveen Trivedi
operating margin, which will normalise over FY24 and FY25. naveen.trivedi@hdfcsec.com
 Valuation: We model 19/20% revenue and EBITDA (pre-IND AS) CAGR for +91-22-6171-7324
Devyani during FY23-26E. We value 50x P/E multiple on Jun’25 EPS to arrive
at a TP of INR 115. We initiate coverage on Devyani with a REDUCE. Varun Lohchab
Financial summary varun.lohchab@hdfcsec.com
YE Mar (INR mn) FY21 FY22 FY23E FY24E FY25E FY26E
+91-22-6171-7334
Net Sales 11,348 20,840 29,557 35,272 42,831 50,232
EBITDA 2,346 4,760 6,655 7,456 9,280 11,071
APAT (1,157) 1,679 2,358 2,044 2,522 3,255
Paarth Gala
Diluted EPS (INR) (1.0) 1.4 2.0 1.7 2.1 2.7 paarth.gala@hdfcsec.com
P/E (x) (137.6) 99.0 70.5 81.3 65.9 51.1 +91-22-6171-7336
EV / EBITDA (x) 194.0 55.7 37.4 33.8 25.9 20.9
RoCE (%) 0.4 19.4 16.2 13.8 14.7 17.4
Devyani International: Initiating Coverage
Business model, updates

Strong KFC, ramping up Pizza Hut
KFC was globally founded in 1939 and the first KFC store in India started in 1996
(re-entered in 2004). KFC has a strong global footprint and a presence in 145
countries. Globally, it has ~27,000 stores with the US and China having +4,000 and
+8,000 stores. In India, there are ~800 KFC stores, of which 461 stores are operated
by Devyani.
Devyani commenced their relationship with Yum in 1997 with a Pizza Hut (PH)
store and it has subsequently expanded operations with both KFC and PH
franchises. KFC contributes 39% of the store count for Devyani but its contribution
to revenue and restaurant EBITDA was high at ~59% and ~64% respectively
during 9MFY23. KFC’s revenue/store metric is superior to Pizza Hut’s at around
37mn/store as compared to Pizza Hut's ~14mn/store.
Pizza Hut was globally founded in 1958 and the first Pizza Hut store in India
started in 1996 (close to the KFC period). Pizza Hut has a strong global footprint
and presence in 110 countries. Globally, there are +18,000 Pizza Hut stores with
the US and China having +6,500 and +2,500 stores. In India, there are ~750 Pizza
Hut stores, of which ~483 are operated by Devyani. PH stores are 41% of the store
count for Devyani. Although PH is seeing improvement in its unit economics, its
contribution to revenue and EBITDA still stands at 24%/20% respectively.
Revenue break-up Store break-up Revenue/store
(INR mn) FY19 FY20 FY21 FY22 (No.) FY19 FY20 FY21 FY22 (INR mn) FY19 FY20 FY21 FY22
500 50
10,000
400 40
8,000
300 30
6,000
4,000 200 20
2,000 100 10
- 0 -
6% 6% 3%
5% 3% 9%
8%
4%
9%
39%
20%
24%
59%
64%
41%
Source: Company, HSIE Research Note: 9MFY23 Data
Page | 54
Product and service improvement

Devyani is trying to fix the menu gaps, both in KFC and Pizza Hut. KFC’s Biryani
Bucket was an important launch. KFC Popcorn and Nachos are also recent
The unorganised pizza market is
around 25-30%; Flavour Fun Pizza
launches. Besides, to increase the consumer base for PH, Devyani has launched
aims to capture that market. Flavour Fun Pizza costing <INR 100 (similar to Pizza Mania of Domino’s) with
five different sauces and 12 different pizzas with different toppings. Despite the
low price point, the company is ensuring that it offers a superior quality product
to competitors, to tap the unorganised pizza market, which hovers at 25-30%. At
the top end, San Francisco dough as well as Momo Mia Pizza have been
performing well. Devyani has also launched a couple of pasta options. The
company also launched Meal Box (My Box) with starting food range of INR 239,
which includes one personal pizza, two-piece plain garlic bread and one Pepsi pet
bottle. All new launches have helped maintain ADS at INR 44,000 in 9MFY23.
`KFC: PERI PERI launch KFC: Choco Lava launch New restaurant – Kolkata
Pizza Hut: new launches Pizza Hut: new launches New restaurant: Chandigarh
Page | 55
Improving underlying fundamentals

In the last three years, Devyani has started focusing on reducing store sizes to
improve unit economics. The average store size for KFC was 2000-2500 sq. ft.
which has gone down to 1500-1800 sq. ft. Similarly, Pizza Hut store size has also
gone down to 600-1000 sq. ft. as compared to >1000 sq. ft earlier. There was a
consistent effort to improvise the unit economics of both franchises. Smaller store
sizes along with quicker store expansion led to better consumer reach. It helps the
company in improving its revenue and profitability throughput.
The restaurant-related expenses have come down for both KFC and Pizza Hut.
KFC’s restaurant-related expenses have come down to 47% in 9MFY23 vs. 48% in
FY22 and FY19. For Pizza Hut, they had come down to 59% in 9MFY23 vs. 59% in
FY22 and 58% in FY19. It helps the company deliver a superior restaurant-level
margin. The restaurant EBITDA margin has improved for KFC from 18% in
FY19/21% in FY22 to 21.1% in 9MFY23. For Pizza Hut, it has improved from 15%
in FY19 /16% in FY22 to 16.2% in 9MFY23.
Avg. daily sales/store GP/store Employee expenses (store level)/

store
(INR) FY19 FY22 (INR) FY19 FY22 (INR) FY19 FY22
1,20,000 25.0 3.0
1,00,000 20.0 2.5
80,000 2.0
15.0
60,000 1.5
10.0
40,000 1.0
5.0 0.5
20,000
- - -
KFC Pizza Costa KFC Pizza Costa Total KFC Pizza Costa Total
Hut Coffee Hut Coffee Hut Coffee
Overhead expenses (store level)/ Restaurant EBITDA/store Corp overheads & EBTIDA/store
store
(INR) FY19 FY22 (INR) FY19 FY22 (INR) FY19 FY22
15.0 8.0 3.5
3.0
6.0 2.5
10.0
2.0
4.0 1.5
5.0 1.0
2.0 0.5
-
- - Corporate EBITDA (Pre-IND
KFC Pizza Costa Total KFC Pizza Costa Total overheads (on pre AS)
Hut Coffee Hut Coffee IND AS)
Page | 56
Market development initiatives

Since FY19, KFC has tripled the store Chicken and pizza are amongst the largest categories within the QSR chain. As of
count to 461 stores in 9MFY23 with FY21, KFC and Pizza Hut restaurants comprised ~7% and 6% of the total number
presence increasing from 57 cities to of outlets of key QSR brands in India. Thereby, it is imperative for Devyani to
133 cities in FY22.
keep expanding the store network to increase consumer penetration and
Pizza Hut saw a sharp acceleration
consumer frequency (led by better consumer experience).
with store network reaching 483 stores Devyani is on a fast store opening spree for both KFC and Pizza Hut and is
in 9MFY23 vs. 268 stores in FY19 and opening in new cities. Since FY19, Devyani has more than tripled its KFC store
presence increasing from 83 cities in
count to 461 stores in 9MFY23 with presence increasing from 57 cities to 133 cities
FY19 to 136 cities in FY22.
in FY22. Pizza Hut too saw a sharp acceleration (~2x) with the store network
reaching 483 stores in 9MFY23 vs. 268 stores in FY19 with presence increasing
from 83 cities in FY19 to 136 cities in FY22. North and South stores contribute 38%
and 35% respectively for Devyani. The top 10 cities contribute 47% of the core
brand stores in FY22.
Cities presence Regional store mix Metro vs. non metro store mix
(No) FY19 FY20 FY21 FY22 FY21 FY22 9MFY23 FY21 FY22 9MFY23
64%
150 136 50%
42%
133 70%
38%
38%
52%
35%
36%
51%
60%
48%
49%
40%
31%
97 100
100 50%
82
36%
76 83 30%
20%
19%
40%
19%
57
20% 30%
50
7%
8%
20%
8%
18 17 21 10%
16
10%
0 0% 0%
KFC Pizza Hut Costa Coffee North East West South Metro Share Non Metro Share

Devyani’s key markets are NCR, Bengaluru, Kolkata, and Hyderabad, which
contribute ~40% of the domestic store network. The company has been very
aggressive in store penetration, both for KFC and Pizza Hut, and has seen a sharp
increase in the city network. KFC’s cities network has been ~2x over the last four
years while Pizza Hut has seen>60% growth in the cities network.
Exhibit 67: Top 10 cities store mix
Top 10 cities FY19 FY20 FY21 FY22 9MFY23
Bengaluru 23 30 80 106 125
New Delhi 67 70 54 67 83
Kolkata 39 39 42 52 59
Gurgaon 35 34 34 38 46
Noida 30 29 28 32 39
Hyderabad 16 25 32 60 77
Lucknow 18 18 19 21 31
Mumbai 20 16 15 15 20
Ghaziabad 13 12 12 16 23
Jaipur 9 9 9 11 13
Total 270 282 325 418 516
% of core brands 58% 56% 54% 50% 49%
% of domestic store network 51% 49% 50% 47% 46%
Total Metros 316 407 503
Total Non-Metros 289 425 544
Cities 105 139 155 204 227
Store - core brands 469 504 605 832 1,047
Store – India 533 575 655 892 1,120
Page | 57
KFC’s delivery sales mix was at 11% in Ramp-up in delivery

FY19 vs. 44% in FY22; it stabilized at ~36%
Many QSR businesses that were predominately dine-in focused have changed
in 9MFY23.
their focus to delivery during COVID. Devyani too ramped up its delivery
Pizza Hut’s delivery mix was already business with KFC and Pizza Hut both seeing a pick-up in their delivery
healthy at 31% in FY19 which increased to businesses. KFC’s delivery sales mix was at 11% in FY19 which was at 44% in FY22
57% in FY22 and has stabilized at 55% in and has stabilized at ~36% in 9MFY23. Pizza Hut’s delivery mix, on the other
9MFY23. hand, was already healthy at 31% in FY19, which later increased to 63% in FY22
and is now stabilizing at 55% in 9MFY23.
Delivery mix Delivery revenue Commission and brokerage

FY19 FY20 FY21 FY22 9MFY23 FY19 FY20 FY21 FY22 9MFY23 Commission and brokerage
(INR mn)
% Off premise sales (RHS)
63%
70% 5,200 2,000 25%

57%
55%
60% 20%
44%
3,900 1,500
50%
37%
36%
37%
15%
31%
40% 1,000
2,600
30% 10%
16%
11%
20% 500
1,300 5%
10%
- 0%
0% -
FY19 FY20 FY21 FY22
KFC Pizza Hut KFC Pizza Hut
Source: Company, RHP, HSIE Research
KFC FY19 FY20 FY21 FY22 9MFY23

Off-Premise (INR mn) 511 975 2,384 5,363 4,779
On-Premise (INR mn) 4,130 5,116 4,059 6,826 8,496
Off-Premise mix (%) 11% 16% 37% 44% 36%
On-Premise mix (%) 89% 84% 63% 56% 64%
Pizza Hut FY19 FY20 FY21 FY22 9MFY23

Off-Premise (INR mn) 1,312 1,544 1,641 3,350 2,914
On-Premise (INR mn) 2,920 2,630 1,238 1,968 2,385
Off-Premise mix (%) 31% 37% 57% 63% 55%
On-Premise mix (%) 69% 63% 43% 37% 45%
Page | 58
Cost break-up and saving opportunities

Devyani has been consistently focusing on improving its unit economics. The
company could control its store-level expenses wherein both employee expenses
per store have come down from INR 2.3mn/store in FY19 to INR 1.6mn/store in
FY22. The other store-level overheads have also come down from INR
10.7mn/store to INR 9.8mn/store. All these measures improved the restaurant
EBITDA margin to ~20% in FY22 as compared to 14% in FY19.
Per Store Metrics (INR mn/store) FY19 FY20 FY21 FY22

Revenue 23.2 24.8 16.3 22.2
Gross Profit 16.2 17.2 11.3 15.8
Employee Expenses - Store level 2.3 2.5 1.3 1.6
Other Overheads - Store level 10.7 12.0 7.7 9.8
Restaurant Overheads (ex-RM) 13.0 14.4 9.1 11.4
Restaurant EBITDA 3.2 2.9 2.4 4.4
Corporate overheads (on pre IND AS) 1.5 1.9 1.1 1.2
- Employee expenses 1.1 1.2 0.9 1.1
- Other corp. expenses 0.5 0.7 0.3 0.2
EBITDA (Pre-IND AS) 1.7 0.9 1.2 3.2
IND AS Adjustment 3.2 3.2 2.2 1.9
EBITDA 4.9 4.2 3.4 5.1
% of Sales
Gross Profit 70.0% 69.5% 69.5% 71.2%
Employee Expenses - Store level 10.0% 10.0% 8.2% 7.1%
Other Overheads - Store level 46.3% 48.3% 47.3% 44.2%
Restaurant Overheads (ex-RM) 56.3% 58.3% 55.5% 51.3%
Restaurant EBITDA 14.0% 11.6% 14.5% 19.9%
Corporate overheads (on pre IND AS) 6.6% 7.8% 7.0% 5.5%
- Employee expenses 4.7% 4.9% 5.4% 4.8%
- Other corp expenses 2.0% 2.8% 1.6% 0.7%
EBITDA (Pre-IND AS) 7.4% 3.8% 7.5% 14.4%
IND AS Adjustment 13.9% 13.1% 13.3% 8.5%
EBITDA 21.3% 16.9% 20.8% 22.8%
KFC cost break-up Pizza Hut cost break-up

Per store (INR mn) FY19 FY20 FY21 FY22 Per store (INR mn) FY19 FY20 FY21 FY22
Revenue 34.6 35.4 24.4 33.5 Revenue 15.8 15.5 9.7 12.9
GP 22.9 23.0 16.5 23.2 GP 11.7 11.6 7.2 9.7
Employee expenses 2.5 2.6 1.7 1.8 Employee expenses 1.9 1.9 0.9 1.2
Other overheads 14.0 14.7 10.4 14.2 Other overheads 7.3 8.1 5.0 6.4
Rest. Level EBITDA 6.4 5.7 4.5 7.1 Rest. Level EBITDA 2.4 1.6 1.3 2.1
Source: Company, HSIE Research Source: Company, HSIE Research
Costa Coffee cost break-up International business cost break-up

Per store (INR mn) FY19 FY20 FY21 FY22 Per store (INR mn) FY19 FY20 FY21 FY22
Revenue 13.5 13.0 4.9 7.5 Revenue 33.4 42.6 31.2 41.3
GP 10.4 10.1 3.8 6.0 GP 21.9 27.7 20.2 28.7
Employee expenses 1.0 1.0 0.4 0.8 Employee expenses 4.4 4.9 3.4 4.0
Other overheads 6.7 6.3 2.7 2.9 Other overheads 13.2 16.3 12.4 14.5
Rest. Level EBITDA 2.7 2.8 0.8 2.3 Rest. Level EBITDA 4.3 6.4 4.5 10.3
Page | 59
Devyani remained competitive on A&P spending and expenses have doubled in

the last 4 years (in line with revenue size). With consistent increases in delivery
revenue, the commission and brokerage charges have seen an upsurge and the
expense % of revenue has jumped from 2% in FY19 to 8% in FY22.
Cost Index FY19 FY20 FY21 FY22

Revenue 13,106 15,164 11,348 20,840
RM 3,889 4,604 3,447 5,998
Employee Cost 1,916 2,255 1,543 2,482
Power & fuel 858 959 651 1,118
Advertisement and sales promotion 574 824 662 1,096
Commission and brokerage 239 517 819 1,596
Royalty and continuing charges 731 840 725 1,397
Freight Including Delivery charges 306 208 184 369
Misc 1,804 2,401 971 2,025
Total Expenses 10,316 12,609 9,002 16,080
EBITDA (post IND AS) 2,789 2,555 2,346 4,760
% of Sales
RM 30% 30% 30% 29%
Employee Cost 15% 15% 14% 12%
Power & fuel 7% 6% 6% 5%
Advertisement and sales promotion 4% 5% 6% 5%
Commission and brokerage 2% 3% 7% 8%
Royalty and continuing charges 6% 6% 6% 7%
Freight Including Delivery charges 2% 1% 2% 2%
Misc 14% 16% 9% 10%
Total Expenses 79% 83% 79% 77%
EBITDA (post IND AS) 21% 17% 21% 23%
Page | 60
Key model assumptions

Store network spree to continue; focus on penetration
We model a 19% revenue CAGR for Devyani between FY23-FY26E, of which India
business is expected to clock 20% CAGR. During this period, the SSSG is expected
to be ~5% while the rest of the growth will come from new store expansion.
We model a 1,900 store network for Devyani by FY26 as compared to ~1,177 stores
in 9MFY23. The company has already expanded its store network aggressively
over the last few years.
(INR mn) FY19 FY20 FY21 FY22 FY23E FY24E FY25E FY26E
Net revenues 13,106 15,164 11,348 20,840 29,557 35,272 42,831 50,232
YoY Gr (%) 18% 16% -25% 84% 42% 19% 21% 17%
KFC 4,641 6,091 6,443 12,189 17,725 21,586 27,053 32,490
Pizza Hut 4,232 4,174 2,879 5,318 6,908 7,858 9,394 10,739
Costa Coffee 902 820 214 411 938 1,325 1,575 1,887
International Business 1,104 1,491 1,154 1,902 2,262 2,607 2,817 3,027
Others Domestic Brands 2,178 2,535 599 1,020 1,725 1,896 1,992 2,088
Total 13,106 15,111 11,289 20,840 29,557 35,272 42,831 50,232
Stores (No.)
KFC 134 172 264 364 489 589 709 834
Pizza Hut 268 269 297 413 503 573 643 713
Costa Coffee 67 63 44 55 115 130 155 180
Core-brands 469 504 605 832 1,107 1,292 1,507 1,727
International Business 33 35 37 46 61 71 78 85
Others Domestic Brands 64 71 50 60 75 79 83 87
Total 566 610 692 938 1,243 1,442 1,668 1,899
KFC 35 35 24 33 36 37 38 39
Pizza Hut 16 16 10 13 14 14 15 15
Costa Coffee 13 13 5 7 8 10 10 10
International Business 33 43 31 41 37 37 36 36
Others Domestic Brands 34 36 12 17 23 24 24 24
Total 23 25 16 22 24 24 26 26
Avg daily sales per store
KFC 1,13,851 1,16,740 1,00,269 1,13,000 1,15,441 1,11,244 1,15,788 1,16,981
Pizza Hut 44,679 43,917 34,900 43,000 41,897 41,107 43,418 44,456
Costa Coffee 37,458 37,413 18,510 29,000 30,641 30,041 30,710 31,301
International Business - - 96,000 1,32,000 1,03,005 1,01,995 1,00,321 98,922
Page | 61
KFC: impressive unit economics
KFC has best-in-call store economics; its store expansion has been quite rapid over
the last four years. Despite rapid city expansion, the average revenue/store
remained healthy at INR 33-35mn. The restaurant margin remains at a strong level
of 18-20%. We expect the restaurant EBITDA margin to remain in the range of 19-
21% for FY23-26E.
KFC (INR mn) FY19 FY20 FY21 FY22 FY23E FY24E FY25E FY26E
Revenue 4,641 6,091 6,443 12,189 17,725 21,586 27,053 32,490
YoY (%) 31% 31% 6% 89% 45% 22% 25% 20%
SSSG 5% 3% -34% 49% 16% 2% 9% 5%
Stores 134 172 264 364 489 589 709 834
Revenue/store 41.1 39.8 28.4 40.1 41.6 40.0 41.7 42.1
Avg daily sales per store 1,13,851 1,16,740 1,00,269 1,13,000 1,15,441 1,11,244 1,15,788 1,16,981
YoY (%) 0% 3% -14% 13% 2% -4% 4% 1%
Raw material 1,577 2,141 2,083 3,745 5,707 7,015 8,657 10,397
Gross Profit 3,064 3,950 4,360 8,444 12,017 14,570 18,396 22,093
Gross Margin 66% 65% 68% 69% 68% 68% 68% 68%
Employee expenses 335 454 436 655 880 1,060 1,276 1,501
% of sales 7% 7% 7% 5% 5% 5% 5% 5%
Per store 3 3 2 2 2 2 2 2
Other overheads 1,875 2,523 2,743 5,187 7,486 9,366 11,709 13,932
% of sales 40% 41% 43% 43% 42% 43% 43% 43%
Per store 14 15 10 14 15 16 17 17
Operating expenses (ex-
RM) 2,211 2,977 3,178 5,842 8,366 10,426 12,985 15,433
% of sales 48% 49% 49% 48% 47% 48% 48% 48%
Per store 16 17 12 16 17 18 18 19
Rest. EBITDA 854 973 1,182 2,602 3,651 4,144 5,411 6,661
Rest. EBITDA Margin 18% 16% 18% 21% 21% 19% 20% 21%
Revenue breakup
Off-Premise 511 975 2,384 5,363 7,976 9,929 12,444 14,946
On-Premise 4,130 5,116 4,059 6,826 9,749 11,656 14,608 17,545
Off-Premise mix (%) 11% 16% 37% 44% 45% 46% 46% 46%
On-Premise mix (%) 89% 84% 63% 56% 55% 54% 54% 54%
Page | 62
Pizza Hut: a lot happening, though far from inspiring
Pizza Hut has historically seen ups and down in India; despite periods of being a
market leader, it has, many a time, lost ground in India, especially as Domino’s
became aggressive and its delivery model became more conducive for Indian
consumers. Pizza Hut’s unit economics suffered thereafter. However, the
restaurant chain has upgraded its strategy to cover lost ground.
In comparison to Domino’s, Pizza Hut has a lot of catching up to do. Its unit
economics is improving but is not comparable to Domino’s. There is ample room
for improvement across all parameters; any success on this front can result in
superior outcomes for Devyani. We expect the restaurant EBITDA margin to
remain in the range of 13-14% for FY23-26E.
Pizza Hut FY19 FY20 FY21 FY22 FY23E FY24E FY25E FY26E
Revenue 4,232 4,174 2,879 5,318 6,908 7,858 9,394 10,739
YoY (%) 9% -1% -31% 85% 30% 14% 20% 14%
SSSG 5% -4% -30% 45% 7% 1% 9% 5%
Stores 268 269 297 413 503 573 643 713
Revenue/store (INR mn) 15.8 15.5 9.7 12.9 13.7 13.7 14.6 15.1
Avg. daily sales per store 44,679 43,917 34,900 43,000 41,897 41,107 43,418 44,456
YoY (%) 0% -2% -21% 23% -3% -2% 6% 2%
Raw material 1,101 1,048 744 1,297 1,762 2,043 2,348 2,685
Gross Profit 3,131 3,126 2,135 4,021 5,146 5,815 7,045 8,054
Gross Margin 74% 75% 74% 76% 75% 74% 75% 75%
Employee expenses 513 514 273 496 604 688 772 856
% of sales 12% 12% 9% 9% 9% 9% 8% 8%
Per store 2 2 1 1 1 1 1 1
Other overheads 1,963 2,173 1,489 2,660 3,465 4,106 5,006 5,695
% of sales 46% 52% 52% 50% 50% 52% 53% 53%
Per store 7 8 5 6 7 7 8 8
Operating expenses (ex-RM) 2,476 2,687 1,762 3,156 4,069 4,793 5,777 6,551
% of sales 59% 64% 61% 59% 59% 61% 62% 61%
Per store 9 10 6 8 8 8 9 9
Rest. EBITDA 655 439 372 865 1,078 1,022 1,268 1,503
Revenue breakup
Off-Premise 1,312 1,544 1,641 3,350 4,007 4,322 5,167 5,906
On-Premise 2,920 2,630 1,238 1,968 2,901 3,536 4,227 4,833
Off-Premise mix (%) 31% 37% 57% 63% 58% 55% 55% 55%
On-Premise mix (%) 69% 63% 43% 37% 42% 45% 45% 45%
Page | 63
Costa Coffee: strong GM with top restaurant margin

Costa Coffee has seen a sharp pick-up in store expansion during 9MFY23, adding
48 stores to the existing 103 stores. ADS per store improved but was at INR 35,000
in 9MFY23. Revenue per store is still lower than INR 10mn but due to the high
gross margin of 79%, Costa commanded a restaurant operating margin of 25%
during 9MFY23.
Costa Coffee (INR mn) FY19 FY20 FY21 FY22 FY23E FY24E FY25E FY26E
Revenue 902 820 214 411 938 1,325 1,575 1,887
YoY (%) 4% -9% -74% 92% 128% 41% 19% 20%
SSSG 3% -4% -62% 95% 60% 6% 7% 7%
Stores 67 63 44 55 115 130 155 180
Revenue/store 13.5 13.0 4.9 7.5 8.2 10.2 10.2 10.5
Avg daily sales per store 37,458 37,413 18,510 29,000 30,641 30,041 30,710 31,301
YoY (%) 0% 0% -51% 57% 6% -2% 2% 2%
Raw material 208 186 46 81 197 278 329 394
Gross profit 694 634 168 330 741 1,047 1,246 1,493
Gross margin 77% 77% 79% 80% 79% 79% 79% 79%
% of sales 7% 7% 8% 11% 12% 10% 10% 10%
Per store 1 1 0 1 1 1 1 1
Other overheads 446 399 118 161 382 572 682 822
% of sales 49% 49% 55% 39% 41% 43% 43% 44%
Per store 7 6 3 3 3 4 4 5
Operating expenses (ex-RM) 512 460 135 205 497 702 837 1,002
% of sales 57% 56% 63% 50% 53% 53% 53% 53%
Per store 8 7 3 4 4 5 5 6
Rest. EBITDA 182 174 33 125 244 344 410 491
Rest. EBITDA margin 20% 21% 16% 30% 26% 26% 26% 26%
Page | 64
International: strong GM with top restaurant margin

The international business contributes 5% of the stores and 9% of the revenue mix
for Devyani. Nigeria is a big pie within international where revenue metric is also
very healthy at INR 45-50mn per store. We model 8-10 store addition every year
and expect the FY23 margin profile to sustain in the coming years too.
International (INR mn) FY19 FY20 FY21 FY22 FY23E FY24E FY25E FY26E
Revenue
Nigeria 764 1,132 932 1,451 1,710 1,935 2,025 2,115
Nepal 340 360 221 478 552 672 792 912
Total 1,104 1,491 1,154 1,902 2,262 2,607 2,817 3,027
YoY Gr (%) 0% 35% -23% 65% 19% 15% 8% 7%
Stores
Nigeria 22 23 24 28 38 43 45 47
Nepal 11 12 13 18 23 28 33 38
Total 33 35 37 46 61 71 78 85
Revenue/store
Nigeria 35 49 39 52 45 45 45 45
Nepal 31 30 17 27 24 24 24 24
Total 33 43 31 41 37 37 36 36
Cost of RM 381 522 407 580 724 834 901 969
Gross Profit 723 969 747 1,322 1,538 1,773 1,916 2,058
Gross margin (%) 65% 65% 65% 70% 68% 68% 68% 68%
% of sales 13% 12% 11% 10% 11% 11% 11% 11%
Per store 4 5 3 4 4 4 4 4
Other overheads 435 571 457 666 751 863 927 992
% of sales 39% 38% 40% 35% 33% 33% 33% 33%
Per store 13 16 12 14 12 12 12 12
Operating expenses (ex-
580 744 582 850 995 1,147 1,239 1,332
RM) - Store level
% of sales 53% 50% 50% 45% 44% 44% 44% 44%
Per store 18 21 16 18 16 16 16 16
Rest. EBITDA 143 225 165 472 543 626 676 726
Page | 65
Devyani: more store-led growth, corporate overheads already

very low
With Yum’s long-term store opening target, we believe KFC and PH will continue
to see healthy store expansion although the former has a larger potential. We see
that 9MFY23 already captured quite a healthy operating margin, but the near-
term margin will be challenging with most tailwinds over and RM pressure will
sustain in FY24. With corporate overheads already very low at 4%, we do not see
much operating leverage in the business beyond the restaurant level. We model a
PBT margin of 7/8/9% for FY24/25/26 vs. 9MFY23.
Consolidated (INR mn) FY19 FY20 FY21 FY22 FY23E FY24E FY25E FY26E
Net Revenues 13,106 15,164 11,348 20,840 29,557 35,272 42,831 50,232
Gross Profit 9,217 10,560 7,902 14,842 20,650 24,532 29,997 35,161
Restaurant EBITDA (Pre IND AS) 1,838 1,748 1,634 4,146 5,689 6,322 7,960 9,586
Corp overheads 869 1,173 791 1,151 1,209 1,390 1,598 1,838
EBITDA 2,789 2,555 2,346 4,760 6,655 7,456 9,280 11,071
EBITDA (Pre-IND AS) 969 575 842 2,995 4,480 4,932 6,361 7,748
PBT (712) (1,115) (1,283) 1,402 2,620 2,350 3,370 4,350
Adjusted PAT (692) (1,047) (1,157) 1,679 2,358 2,044 2,522 3,255
Adj. EPS (INR) (0.7) (1.0) (1.0) 1.4 2.0 1.7 2.1 2.7
Gross Margin (%) 70% 70% 70% 71% 70% 70% 70% 70%
Restaurant EBITDA margin (%) 14% 12% 14% 20% 19% 18% 19% 19%
Corp overheads 7% 8% 7% 6% 4% 4% 4% 4%
EBITDA margin 21% 17% 21% 23% 23% 21% 22% 22%
EBITDA (Pre-IND AS) Margin (%) 7% 4% 7% 14% 15% 14% 15% 15%
PBT margin (%) -5% -7% -11% 7% 9% 7% 8% 9%
Page | 66
Exhibit 68: Devyani International: Operating performance and expectation

Chg vs. Pre-
COVID
Revenue (INR) 13,106 15,164 7,017 14,933 22,427 14% 29,557 35,272 42,831 50,232
Revenue - KFC 4,641 6,091 3,903 8,664 13,275 30% 17,725 21,586 27,053 32,490
Revenue - PH 4,232 4,174 1,843 3,854 5,299 8% 6,908 7,858 9,394 10,739
Revenue - Costa 902 820 129 274 687 -6% 938 1,325 1,575 1,887
Revenue - International 1,104 1,491 346 1,420 1,756 6% 2,262 2,607 2,817 3,027
YoY Gr. (%) - Devyani 18% 16% na 113% 50% 42% 19% 21% 17%
YoY Gr. (%) - KFC 31% 31% na 122% 53% 45% 22% 25% 20%
YoY Gr. (%) - PH 9% -1% na 109% 37% 30% 14% 20% 14%
YoY Gr. (%) - Costa 4% -9% na 112% 151% 128% 41% 19% 20%
YoY Gr. (%) - International 4% -9% na 112% 151% 137% 41% 20% 21%
SSSG (%) - KFC 5% 3% na 60% 22% 16% 2% 9% 5%
SSSG (%) - PH 5% -4% na 81% 7% 7% 1% 9% 5%
SSSG (%) - Costa 3% -4% na 154% 62% 60% 6% 7% 7%
Stores (No.) 566 610 608 884 1,177 24% 1,243 1,442 1,668 1,899
Stores (No.) - KFC 134 172 240 339 461 39% 489 589 709 834
Stores (No.) - PH 268 269 273 391 483 22% 503 573 643 713
Stores (No.) - Costa 67 63 45 50 103 18% 115 130 155 180
Gross Profit (INR) 9,217 10,560 4,811 10,632 15,737 14% 20,650 24,532 29,997 35,161
GM (%) 70.3% 69.6% 68.6% 71.2% 70.2% 53bps 69.9% 69.6% 70.0% 70.0%
GM (%) - KFC 66.0% 64.8% 69.4% 69.2% 68.2% 337bps 67.8% 67.5% 68.0% 68.0%
GM (%) - PH 74.0% 74.9% 73.0% 75.6% 74.7% -16bps 74.5% 74.0% 75.0% 75.0%
GM (%) - Costa 76.9% 77.3% 77.5% 79.6% 79.3% 203bps 79.0% 79.0% 79.1% 79.1%
EBITDA (Pre IND AS) 969 575 1,085 2,017 3,434 81% 4,480 4,932 6,361 7,748
EBITDA (INR) 2,789 2,555 1,152 3,327 5,038 25% 6,655 7,456 9,280 11,071
PBT (INR) (712) (1,115) (875) 951 2,208 na 2,620 2,350 3,370 4,350
PBT margin (%) -5.4% -7.4% -12.5% 6.4% 9.8% na 8.9% 6.7% 7.9% 8.7%
Page | 67
Company background
Established in 1991, Devyani International is a multidimensional quick-service
restaurant (QSR) player with well-recognised global brands in its portfolio and is
amongst the large operators of QSRs in India. Devyani is the largest franchisee of
Yum Brands in India operating their iconic brands KFC and Pizza Hut in India as
well as in Nigeria and Nepal. They are also a franchisee for the Costa Coffee brand
and stores in India. In addition to their core brands of KFC, Pizza Hut and Costa
Coffee, Devyani has established in-house brands such as Vaango and Food Street.
As of 9MFY23, Devyani operates 461 KFCs, 483 Pizza Huts, 103 Costa Coffee
stores and 73 homegrown brands in India. They also operate 36 KFC and 21
KFC/Pizza Hut stores in Nigeria and Nepal respectively. Their total store count
stands at 1,177.
Core brand stores; India—regional split Core brand stores; India split
Page | 68
Valuation and recommendation

QSR is a multi-year growth opportunity and Yum is very positive for store growth
potential in India. Yum has seen success in multiple countries over the last many
years and is aware of globally tested models for each geography. Penetration and
consumer upgradation will remain key catalysts for the category. QSR will remain
attractive within the consumer universe owing to potential store expansion with
rapidly changing consumer preferences. The profitability profile is still improving
with some phases of weaker margin metrics and some superior ones. However, a
large part of the earnings growth depends on store growth.
We model 19% revenue CAGR and EBITDA (pre-IND AS) CAGR at 20% for
Devyani during FY23-26E. Longevity will also play a key role in Devyani’s
valuation despite the company seeing near-term growth challenges. We value
Devyani on a 50x P/E multiple on Jun’25 EPS to arrive at a TP of INR 115. We
initiate coverage on Devyani with a REDUCE rating.
Per Store Metrics (INR/store) FY19 FY20 FY21 FY22 FY23E FY24E FY25E FY26E
Revenue 23.2 24.8 16.3 22.2 23.8 24.5 25.7 26.5
Gross Profit 16.2 17.2 11.3 15.8 16.6 17.0 18.0 18.5
Employee Expenses - Store level 2.3 2.5 1.3 1.6 1.6 1.6 1.6 1.6
Other Overheads - Store level 10.7 12.0 7.7 9.8 10.4 11.0 11.6 11.9
Restaurant Overheads (ex-RM) 13.0 14.4 9.1 11.4 12.0 12.6 13.2 13.5
Restaurant EBITDA (Pre IND AS) 3.2 2.9 2.4 4.4 4.6 4.4 4.8 5.0
Corporate overheads (on pre IND AS) 1.5 1.9 1.1 1.2 1.0 1.0 1.0 1.0
- Employee expenses 1.1 1.2 0.9 1.1 0.8 0.8 0.8 0.8
- Other corp expenses 0.5 0.7 0.3 0.2 0.1 0.1 0.1 0.1
EBITDA (Pre-IND AS) 1.7 0.9 1.2 3.2 3.6 3.4 3.8 4.1
IND AS Adjustment 3.2 3.2 2.2 1.9 1.8 1.8 1.8 1.8
EBITDA 4.9 4.2 3.4 5.1 5.4 5.2 5.6 5.8
% of Sales
Gross Profit 70.0% 69.5% 69.5% 71.2% 69.9% 69.6% 70.0% 70.0%
Employee Expenses - Store level 10.0% 10.0% 8.2% 7.1% 6.7% 6.6% 6.2% 6.1%
Other Overheads - Store level 46.3% 48.3% 47.3% 44.2% 43.9% 45.1% 45.2% 44.9%
Restaurant Overheads (ex-RM) 56.3% 58.3% 55.5% 51.3% 50.6% 51.6% 51.5% 50.9%
Restaurant EBITDA (Pre IND AS) 14.0% 11.6% 14.5% 19.9% 19.2% 17.9% 18.6% 19.1%
Corporate overheads (on pre IND AS) 6.6% 7.8% 7.0% 5.5% 4.1% 3.9% 3.7% 3.7%
- Employee expenses 4.7% 4.9% 5.4% 4.8% 3.5% 3.4% 3.2% 3.2%
- Other corp expenses 2.0% 2.8% 1.6% 0.7% 0.6% 0.5% 0.5% 0.5%
EBITDA (Pre-IND AS) 7.4% 3.8% 7.5% 14.4% 15.2% 14.0% 14.9% 15.4%
IND AS Adjustment 13.9% 13.1% 13.3% 8.5% 7.4% 7.2% 6.8% 6.6%
EBITDA 21.3% 16.9% 20.8% 22.8% 22.5% 21.1% 21.7% 22.0%
Page | 69
Profit & Loss
Net Revenues 15,164 11,348 20,840 29,557 35,272 42,831 50,232
Growth (%) 15.7% -25.2% 83.6% 41.8% 19.3% 21.4% 17.3%
A&P Expense 824 662 1,096 1,773 2,116 2,570 3,014
Other Expenses 4,926 3,351 6,504 9,199 11,446 14,083 16,423
Restaurant EBITDA (Pre IND AS) 1,748 1,634 4,146 5,689 6,322 7,960 9,586
Restaurant EBITDA margin (%) 11.5 14.4 19.9 19.2 17.9 18.6 19.1
EBITDA 2,555 2,346 4,760 6,655 7,456 9,280 11,071
EBITDA Growth (%) -8.4% -8.2% 102.9% 39.8% 12.0% 24.5% 19.3%
EBITDA Margin (%) 16.8% 20.7% 22.8% 22.5% 21.1% 21.7% 22.0%
EBITDA (Pre IND AS) 575 842 2,995 4,480 4,932 6,361 7,748
EBITDA Growth (%) - (Pre IND AS) -40.7% 46.5% 255.6% 49.6% 10.1% 29.0% 21.8%
EBITDA Margin (%) - (Pre IND AS) 3.8% 7.4% 14.4% 15.2% 14.0% 14.9% 15.4%
Depreciation 2,233 2,295 2,213 2,891 3,622 4,212 4,826
EBIT 322 52 2,546 3,764 3,834 5,069 6,245
Other Income 187 641 161 300 280 300 345
Interest 1,584 1,495 1,270 1,409 1,729 1,963 2,205
PBT (1,115) (1,283) 1,402 2,620 2,350 3,370 4,350
PBT Growth (%) na na na 86.8% -10.3% 43.4% 29.1%
PBT margin (%) -7.4% -11.3% 6.7% 8.9% 6.7% 7.9% 8.7%
Total Tax 18 (11) (320) 262 305 848 1,095
PAT (788) (813) 1,551 2,358 2,044 2,522 3,255
Adjustment 259 344 (128) - - - -
Adjusted PAT (1,047) (1,157) 1,679 2,358 2,044 2,522 3,255
APAT Growth (%) na na na 40.4% -13.3% 23.4% 29.1%
EPS (Rs) (1.0) (1.0) 1.4 2.0 1.7 2.1 2.7
EPS Growth (%) 51.2% 1.7% -239.0% 40.4% -13.3% 23.4% 29.1%
Balance Sheet
SOURCES OF FUNDS
Share Capital - Equity 1,062 1,154 1,205 1,205 1,205 1,205 1,205
Reserves (2,953) (16) 5,658 7,631 7,953 8,479 9,424
Total Shareholders Funds (1,891) 1,138 6,863 8,836 9,158 9,684 10,629
Minority Interest (391) (419) (47) (50) (52) (55) (58)
Long Term Debt 3,402 3,594 1,074 574 574 374 174
Short Term Debt 905 1,040 251 751 751 751 751
Total Debt 4,307 4,633 1,325 1,325 1,325 1,125 925
Lease Liability 12,882 8,724 11,217 13,673 15,862 18,348 20,889
Other Non-current Liabilities & Provns 179 228 229 224 220 215 211
Net Block 5,627 5,185 7,350 10,876 12,424 13,409 14,418
CWIP 135 143 68 100 100 100 100
Right-of-use assets 10,351 6,660 8,911 10,981 11,448 11,938 12,169
Intangible Assets 802 2,500 2,179 2,179 2,179 2,179 2,179
Other Non Current Assets 414 456 351 351 351 351 351
Inventories 721 622 855 1,586 1,913 2,285 2,684
Debtors 173 169 211 405 483 587 688
Other Current Assets 378 449 1,560 1,620 1,933 2,347 2,752
Cash & Equivalents 160 405 659 195 956 2,523 4,861
Creditors 1,632 1,619 1,964 2,928 3,531 4,219 4,955
Other Current Liabilities & Provns 2,118 761 1,075 1,830 2,207 2,637 3,097
Net Current Assets (ex-cash) (2,479) (1,140) (414) (1,148) (1,409) (1,637) (1,927)
Page | 70
Cash flow
Reported PBT (1,196) (641) 1,231 2,620 2,350 3,370 4,350
Non-operating & EO Items (206) (1,874) (303) (300) (280) (300) (345)
Interest Expenses (Net) 1,688 1,622 1,270 1,409 1,729 1,963 2,205
Depreciation 2,506 2,887 2,249 2,926 3,657 4,247 4,861
Working Capital Change 223 397 162 734 261 228 290
Tax Paid (8) 5 (103) (262) (305) (848) (1,095)
Capex (999) (3,673) (3,063) (4,666) (3,010) (2,712) (3,000)
Free Cash Flow (FCF) 2,008 (1,278) 1,443 2,461 4,402 5,948 7,267
Investments 25 87 (689) - - - -
Non-operating Income (5) (4) (3) (2) (1) - -
INVESTING CASH FLOW ( b ) (979) (3,590) (3,756) (4,668) (3,011) (2,712) (3,000)
Debt Issuance/(Repaid) (1,791) (1,564) (4,776) 3 2 (198) (198)
Interest Expenses - 3,476 4,340 - - - -
FCFE 217 634 1,006 2,464 4,405 5,750 7,069
Share Capital Issuance - 3,476 4,340 - - - -
Dividend (5) (4) (3) (2) (1) - -
Others (435) (492) (147) (2,927) (3,597) (4,127) (4,687)
FINANCING CASH FLOW ( c ) (2,231) 4,892 3,753 (2,926) (3,596) (4,325) (4,885)
NET CASH FLOW (a+b+c) (203) 3,698 4,504 (467) 805 1,623 2,381
EO Items, Others (93) 3,453 4,250 (4) - - -
Closing Cash & Equivalents 160 405 659 195 956 2,523 4,861
Ratios
PROFITABILITY (%)
GPM 69.6 69.6 71.2 69.9 69.6 70.0 70.0
EBITDA Margin 16.8 20.7 22.8 22.5 21.1 21.7 22.0
EBITDA Margin (Pre IND AS) 3.8 7.4 14.4 15.2 14.0 14.9 15.4
PBT Margin (7.4) (11.3) 6.7 8.9 6.7 7.9 8.7
APAT Margin (6.9) (10.2) 8.1 8.0 5.8 5.9 6.5
RoE 80.7 307.3 42.0 30.0 22.7 26.8 32.0
RoIC (or Core RoCE) 3.4 0.4 19.4 16.2 13.8 14.7 17.4
RoCE 5.8 2.2 19.4 17.0 14.3 14.5 16.1
EFFICIENCY
Tax Rate (%) (1.7) 0.8 (22.8) 10.0 13.0 25.2 25.2
Inventory (days) 17.4 20.0 15.0 19.6 19.8 19.5 19.5
Debtors (days) 4.2 5.4 3.7 5.0 5.0 5.0 5.0
Payables (days) 39.3 52.1 34.4 36.2 36.5 36.0 36.0
PER SHARE DATA (Rs)
EPS (1.0) (1.0) 1.4 2.0 1.7 2.1 2.7
CEPS 1.1 1.0 3.2 4.4 4.7 5.6 6.7
Dividend - - - - - - -
Book Value (1.8) 1.0 5.7 7.3 7.6 8.0 8.8
VALUATION
P/E (x) (139.9) (137.6) 99.0 70.5 81.3 65.9 51.1
P/BV (x) (77.5) 139.9 24.2 18.8 18.2 17.2 15.6
EV/EBITDA (x) 262.0 194.0 55.7 37.4 33.8 25.9 20.9
EV/Revenues (x) 9.9 14.4 8.0 5.7 4.7 3.8 3.2
OCF/EV (%) 2.0 1.5 2.7 4.3 4.4 5.3 6.3
FCF/EV (%) 1.3 (0.8) 0.9 1.5 2.6 3.6 4.5
FCFE/Mkt Cap (%) 0.1 0.4 0.6 1.5 2.6 3.5 4.3
Dividend Yield (%) - - - - - - -
Page | 71
Westlife Foodworld
Stepping up store addition ADD
Westlife Foodworld is the franchisee partner for McDonald’s (McD) for the
CMP (as on 24 Mar 2023) INR 678
West and South regions covering Maharashtra, Karnataka, Gujrat, Telangana,
TN, Kerala, AP, MP, Chhattisgarh, Goa and Puducherry. Westlife operates 341 Target Price INR 715
stores out of ~500 McD stores in India. Store addition is expected to improve NIFTY 16,945
(35-40 stores per year) vs. the historical trend (25 stores per year), reflecting that
Westlife is gradually becoming aggressive. Westlife is still under-indexed for KEY STOCK DATA
its south India store network vs. peers, which is potentially more margin Bloomberg code WLDL IN
accretive. The profitability metric still has enough room to improve in the
No. of Shares (mn) 156
coming years (although some shave off due to an increase in the royalty rate).
With better ADS per store, consistent new launches in the premium segment MCap (INR bn) / ($ mn) 106/1,284
and higher McCafe addition, we believe there is scope for improvement. We 6m avg traded value (INR mn) 179
model 17.8/18.7% margin for FY25/FY26. We value Westlife at 55x P/E on Jun’25
52 Week high / low INR 816/402
to arrive at a TP of INR 715. We initiate coverage with an ADD rating.
 Global focus is limited, but store expansion step-up vs. historical: As
STOCK PERFORMANCE (%)
compared to Domino’s and Yum, McD global has a limited focus on the
Indian market. Domino’s and Yum both have >1,700 stores in India while 3M 6M 12M
McD has a total store network of ~500. We believe store expansion of McD Absolute (%) (9.5) 0.3 50.7
will continue to be slower than peers due to a large store size format, revenue
Relative (%) (5.6) 1.3 50.8
extraction from one store being relatively high and a less global push for
aggressive store expansion. Westlife historically has opened ~25 stores
annually, which the company plans to step up to 35-40 stores annually in SHAREHOLDING PATTERN (%)
coming years. Thus, Westlife’s store growth will be ~10% for FY23-26E. Sep-22 Dec-22
 Presence in a limited market; but superior revenue metric: Westlife has a
Promoters 56.22 56.22
limited city network as compared to its peers at 52 cities vs. Domino’s at 387
cities, Devyani at 227 cities and Sapphire at ~75 cities. The Westlife business FIs & Local MFs 24.13 23.68
model is to extract more out of its city network; thus, its revenue per store is FPIs 9.80 10.12
significantly higher than others. McD with a relatively large format and dine-
Public & Others 9.85 9.98
in focus; its store and city expansion will be slower than others.
 Beverage gives additional revenue pool; not a tool with peers: The Pledged Shares 0.00 0.00
company’s revenue/store has scaled up significantly from INR 39mn in FY16 Source : BSE
to INR 65mn in LTM-Dec’22. This scale-up was driven by ramping up of its
Pledged shares as % of total shares
core burger portfolio, its focus on meals and combos, McCafe and new
product additions. We expect the revenue/store (AUVs) to further improve to
~INR 72mn by FY26E, driven by McCafe and product initiatives. We model
an increase in Food: Beverage mix to 71:29 in FY26, vs. 74:26 in FY22.
 EBITDA margin (pre-IND AS) to range 14-15%: Westlife has less sensitivity
to dairy inflation (as compared to Pizza players where RM dependence on
dairy is ~35%); thus, margin risk is less than others in the near term. Besides,
the restaurant’s operating margin also has levers to improve, which is ~19%
in 9MFY23, lower than KFC and Domino’s (our estimate). With better ADS
per store, consistent new launches in the premium segment and higher
McCafe addition, we believe there is scope for improvement. We model Naveen Trivedi
22.8/23.3% margin for FY25/FY26. It will lead to EBITDA (pre-IND AS) naveen.trivedi@hdfcsec.com
margin of 13.9/14.7% in FY25/FY26. +91-22-6171-7324
Financial summary
YE Mar (INR mn) FY21 FY22 FY23E FY24E FY25E FY26E Varun Lohchab
Net Sales 9,860 15,765 22,902 25,696 30,393 35,534 varun.lohchab@hdfcsec.com
EBITDA 619 2,071 3,991 4,269 5,418 6,628 +91-22-6171-7334
APAT (1,036) (17) 1,104 1,151 1,822 2,590
Diluted EPS (INR) (6.6) (0.1) 7.1 7.4 11.7 16.6
Paarth Gala
P/E (x) (102.0) (6,357.0) 95.7 91.8 58.0 40.8
EV / EBITDA (x) (4,451.1) 81.6 34.3 32.2 24.5 19.2
RoCE (%) -4.6 4.4 12.9 12.1 15.3 18.7 +91-22-6171-7336
Westlife Foodworld: Initiating Coverage

McDonald’s, a brand synonym to fast food in India and
globally
McDonald’s is by far the most scaled-up QSR brand in the world with 40,275
stores globally, of which 13,444 stores are in the US, 4,978 stores in China and ~500
in India (in 2022). The brand came into existence in 1955 while its entry into India
was in 1996. In India, McDonald’s has two franchisee partners, Hardcastle (a
wholly-owned subsidiary of Westlife Foodworld) and Connaught Plaza
Restaurants.
Westlife Foodworld operates 341 McDonald’s restaurants across 52 cities in West
and South India. While Westlife’s contribution to McDonald's system-wide sales
is less than 0.3%, India remains the focused geography for the entity with
management commentary that going forward, India will be an important market,
as more and more people move into the middle-class bracket.
Westlife India has delivered 11% revenue and 12% EBITDA CAGR over FY12-
FY22, adding ~200 stores over the same period. The company’s revenue metric
has seen a consistent rise, led by various initiatives like McCafe, delivery focus,
menu revamp, and focused expansion.
Revenue breakup (INR Mn) Store scale-up Revenue/store (INR Mn)

Food Beverage, Desserts, Others 350 60
18
300 50
15 250
40
12 200
30
9 150
20
6 100
50 10
3
- 0 -
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY16
FY21
FY17
FY18
FY19
FY20
FY22
Page | 73
Menu enhancement at its core

Westlife has undergone a robust menu revamp from FY16 onwards, adding new
product platforms while building on the success of its existing portfolio. In the
foods segment, the company not only added new burgers such as American
Cheese Supreme, Maharaja Mac and the Gourmet collection, but it also extended
into new formats such as rice bowls, flavours without borders, naan, etc. Over
FY16 to LTM Sep-22, the company attributes INR 6mn addition in AUV to the core
segment revamp.
Another format the company adopted was combos and meal upgrades where it
targeted value customers by providing bundles of food and beverages at
attractive prices. Combos and meals brought in another INR 8mn of AUV over
the same period.
Flavors without borders Gourmet offering McSaver Combo

The combos also extended to McCafe with the company offering value products,
hot/cold coffee combos and combos with breakfast menu at affordable prices to
build a coffee drinking habit. This move added another INR 5mn of AUV. McCafe
in India was only started in FY14, which has now been scaled up to 288 stores
(Q3FY23), with the company’s plan to extend this to its entire store network.
Besides the scale-up of McCafe and menu revamp, the company has also become
aggressive in the chicken segment, where it has recently added bone-in products,
in addition to its boneless portfolio. The chicken segment is about 28% of the INR
3.2tn IEO market.
Page | 74
McCafe Chicken offering Informal eating out market

The company’s menu is straddled across the pricing pyramid with the entry-level
burger starting at INR 58 and going up to INR 260 for the top-tier burgers and
meals starting from INR 205 to INR 360 for gourmet meals. This helps the
company acquire customers while retaining customers that are moving up the
chain.
Page | 75
Store expansion is slow but steady; ready for fast pace

Westlife has been adding stores at a steady pace over the last 25 years. It expanded
its store presence from 30 cities in FY16 to +52 cities in Q3FY23, taking the store
count to 341. It has invested INR 5.2bn in the past 5 years towards network
expansion and store reimaging.
The South and west formats of McDonald's stores have been consistent in terms
of sizing at 3000-3500 sq. ft., with a seating capacity of 100 to 120 customers. The
main changes in the stores, however, have been aesthetic ones. The company has
carried out a large-scale store modernization drive. Of the 341 stores, 205 stores
are equipped with EOTF, 288 stores have McCafe, and 67 have a drive-thru.
The improved unit economics has helped improve the restaurant operating
margin from 12% in FY16 to 14.3% (pre-Ind AS) in FY22 and 18.9% in 9MFY23.
The company has recently added smaller delivery-focused stores with a footprint
The company’s stores are more skewed of 2,000 sq. ft. accommodating 40-50 customers. The smaller stores have a lower
towards the west, which contributes to capex with a faster return on investments compared to the standard stores;
60% of the store count. however, SSSG is slower.
The company’s stores are more skewed towards the west, which contributes to
60% of the store count. The company is now looking to bridge the gap between
the geographies with more store additions in the South. South India has a higher
share of non-vegetarians, which the company plans to tap through its chicken
offerings.
Avg. daily sales per store Rest. related expenses (% of sales) Restaurant EBITDA Margin (%)
1,40,000 51% 20%
1,20,000 50%
1,00,000 49% 15%

48%
80,000
47% 10%
60,000
46%
40,000
45% 5%
20,000 44%
- 43% 0%
FY19
FY16
FY17
FY18
FY20
FY21
FY22
FY16
FY19
FY22
FY16
FY19
FY22
FY17
FY18
FY20
FY21
FY17
FY18
FY20
FY21
EOTF Stores scale up Store phases

140
121
120
100
80 75
66
60
40
25
20 9
1
0
FY17
FY21
FY16
FY18
FY19
FY20
FY22
Source: Company, Technopak research, HSIE Research Source: Company, Technopak research, HSIE Research
Page | 76
Omni-channel approach
Westlife has been focused on improving its delivery share since FY16 when it had
an 11% share of delivery sales to 41% in LTM Dec-22. The company, similar to
other QSRs, has seen a surge in delivery sales during COVID, which has to some
extent been maintained. The company has invested in its digital capabilities and
built future-ready infrastructure to drive its off-premise sales. For delivery sales,
the company works with 3POs like Swiggy and Zomato, besides its own app and
own delivery fleet.
Besides delivery, the company also revamped its stores with EOTF capabilities to
drive on-premise sales. The company is also betting big on drive-thru stores,
building them across city suburbs and national highways. The drive-thru format
has a fast turnaround with a service speed of about 120 seconds. About 30-35% of
the company’s new store addition will be in the drive-thru format.
Exhibit 69: Omni channel business model
Westlife off-premise sales ramp-up Stores with delivery capabilities Drive thru stores
20% 300 70
15%
225
65
10%
150 292
67
5% 60
75
124
0% 59
FY16
FY17
FY18
FY19
FY20
FY21
FY22
0 55
FY16 Q3FY23 FY16 Q3FY23
EOTF equipped store Drive-thru store
Page | 77

Westlife’s unit economics has been stable over FY19-22 across most of the
elements; however, the company’s metrics have improved over TTM Dec-22.
Many of the company’s costs per store have seen a reversal to the pre-covid level.
However, with higher revenue, it has seen operating leverage as most of the costs
have contracted. The company has managed to improve its EBITDA margin
through a combination of product mix, pricing, cost saving and operative
leverage.
Most of Westlife’s cost elements have been consistent, barring logistic costs. The
rise in logistics costs can be attributed to the upsurge in off-premise sales. A&P
spending has trended downwards from the earlier 5.5% long-term average to
4.5% in FY21 and FY22.
Cost Index FY19 FY20 FY21 FY22

Revenue 14,016 15,478 9,860 15,765
RM 5,055 5,382 3,483 5,451
Employee Cost 1,971 2,192 1,782 2,095
Royalty 641 706 448 708
Electricity utilities 892 982 638 787
Gas utilities 151 157 95 186
Conducting charges 1,272 661 367 645
Advertising and sales promotion 754 745 448 703
Logistics service charges 212 143 712 1,392
Misc 1,861 2,369 1,418 1,905
Total Expenses 12,810 13,337 9,390 13,873
EBITDA (post IndAs) 1,206 2,140 470 1,892
% of sales FY19 FY20 FY21 FY22

RM 36.1% 34.8% 35.3% 34.6%
Employee Cost 14.1% 14.2% 18.1% 13.3%
Royalty 4.6% 4.6% 4.5% 4.5%
Electricity utilities 6.4% 6.3% 6.5% 5.0%
Gas utilities 1.1% 1.0% 1.0% 1.2%
Conducting charges 9.1% 4.3% 3.7% 4.1%
Advertising and sales promotion 5.4% 4.8% 4.5% 4.5%
Logistics service charges 1.5% 0.9% 7.2% 8.8%
Misc 13.3% 15.3% 14.4% 12.1%
Total Expenses 91.4% 86.2% 95.2% 88.0%
EBITDA (post IndAs) 8.6% 13.8% 4.8% 12.0%
Page | 78

Global focus is less; store expansion will be slow but more
than historical
As compared to Domino’s and Yum, McD Global has a limited focus on the Indian
market despite almost the same entry period. Domino’s and Yum both have
>1,700 stores in India while McD has a total store network of ~500 stores. We
believe store expansion of McD will continue to be slower than peers due to the
large store size format, revenue extraction from one store being relatively high,
and lack of heavy global push for aggressive store expansion. Westlife historically
has opened ~25 stores annually, which it plans to step up to 35-40 stores annually
in coming years. Thereby, Westlife’s store growth will be ~10% for FY23-26E.
Store mix Revenue mix

McD, 9%
McD, 19%
Devynai Domino's ,
(KFC+PH), 43%
Domino's ,
26%
48%
Devynai
(KFC+PH),
21%
Sapphire Sapphire
(KFC+PH), (KFC+PH),
16% 17%
Source: Companies, HSIE Research Source: Companies, HSIE Research
Westlife has delivered 11% revenue CAGR over FY16-22, led by a mix of store
addition (90 stores added) and an increase in revenue/store (AUV) by +5% over
the same period. We expect the company to deliver a 16% revenue CAGR over
FY23-26E with ADS per store improvement of 5%. Store growth will be ~10% for
the same period. The company is shifting its aggression on store addition from 25
stores per year to 35-40 stores per year. The management has guided for adding
250-300 stores over FY22 to Dec-27, taking the count to 580-630 stores. In addition
to store expansion, the company also plans to take its share of stores with McCafe
to 100% by Dec-27 (from 84% in Q3FY23). We expect the McCafe conversion will
reach 94% by FY26 (461 stores).
Store addition Company store addition aspiration McCafe addition
600 480 461
491 413
451
500 401 355
361 360
307
400 326 262
300 240
200
120
100
0 0
FY22 FY23E FY24E FY25E FY26E FY22 FY23E FY24E FY25E FY26E
Page | 79
Presence in the limited market; but superior revenue metric

Westlife has a limited city network as compared to its peers at 52 cities vs.
Domino’s at 387 cities, Devyani at 227 cities and Sapphire at ~75 cities. The
Westlife business model is to extract more out of their city network; thus, its
revenue per store is significantly higher than others. McD has a relatively large
format and dine-in focus; store and city expansion will be slower than for others.
Cities presence Revenue per store
400 80
320
60
240
40
160
20
80
0 -
Domino's Devynai Sapphire McD Domino's Devynai Sapphire McD
ADS per store (9MFY23) SSSG (9MFY23)

2,00,000 60%
50%
1,50,000
40%
1,00,000 30%
20%
50,000
10%
- 0%
KFC - Sapphire
McD
McD
KFC - Devyani
PH - Devyani
KFC - Devyani
PH - Devyani
KFC - Sapphire
PH - Sapphire
PH - Sapphire
Domino's
Domino's
Page | 80
Menu with wide price point and age-group coverage

McD has a wide menu w.r.t. to price points that caters to wide consumer growth
in terms of age and income group. Besides, beverages, desserts, etc., further add
to the menu perfectly. Burgers are straddled across the pricing pyramid with the
entry-level burger starting at INR 58 and going up to INR 260 for the top-tier
burgers and meals starting from INR 205 to INR 360 for gourmet meals. This helps
the company acquire customers while retaining customers that are moving up the
chain.
Wide menu: Burger @INR 58-400 Omni Channel business model
Beverage gives an additional revenue pool; not a tool with peers

The company’s AUVs have scaled up significantly from INR 39mn in FY16 to INR
63mn in LTM-Sep 22. This scale-up was driven by company ramping up its core
burger portfolio, its focus on meals and combos, McCafe, and new product
additions. We expect the AUVs to further improve to INR 72mn by FY26, driven
by McCafe and product initiatives. We expect revenue from the foods business to
deliver 15% CAGR over FY23-26 and beverage revenue by 17%. Within beverages,
McCafe is expected to grow 21% CAGR over the same period.
AUV scale-up Revenue scale-up
AUV - Food AUV - Bev AUV - Total Revenue - Food Revenue - Bev
80 50,000
40,000
60
30,000
40
20,000
20 10,000
-
-
FY22 FY23E FY24E FY25E FY26E
FY22 FY23E FY24E FY25E FY26E
Page | 81
Lower operating margin than peers; the scope for improvement

The company has delivered a 690bps restaurant operating margin expansion over
FY16-LTM-Dec’22. This has been achieved through a combination of product mix,
pricing, cost savings, and operative leverage. Westlife has less sensitivity to dairy
inflation (as compared to Pizza players whose RM dependence on dairy is ~35%);
thus, margin risk is less than others in the near term. Besides, the restaurant
operating margin also has levers to improve; it; is ~19% in 9MFY23, lower than
KFC and Domino’s (our estimate). With better ADS per store, consistent new
launches in the premium segment and higher McCafe addition, we believe there
is scope for improvement. We model 22.8/23.3% margin for FY25/FY26. It will lead
to EBITDA (pre-IND AS) margin of 13.9/14.7% in FY25/FY26.
EBITDA margin expansion drivers (pre-Ind AS) Margin trajectory and drivers over FY22-25
3.7% 12.8% 30%
14% 23.9%
25% 4.1%
12% 19.1% 0.1% 0.6%
1.8% 20% -1.1%
10%
8% 5.9% 1.4% 15%
6% 10%
4% 5%
2% 0%
0%
Gross margin
improvement
Margin (FY22)
Occupancy expenses
Increase in royalty
Restaurant Op
Margin (FY25E)
Payroll exp
Restaurant Op
reduction
Net Pricing
FY16
TTM Sep-22
Product Mix
Cost saving & Op
reduction
leverage
Exhibit 70: Revenue and margin expectation

(INR mn) FY19 FY20 FY21 FY22 FY23E FY24E FY25E FY26E
Revenue 13,887 15,383 9,753 15,561 22,717 25,506 30,198 35,334
Food 13,887 15,383 9,753 15,561 22,717 25,506 30,198 35,334
Beverages 4,361 5,104 2,576 4,061 6,275 7,039 8,644 10,083
McCafe 1,675 2,175 1,088 1,653 2,845 3,310 4,224 5,026
McD Stores 296 319 305 326 361 401 451 491
McCafe Stores 190 223 225 262 307 355 413 461
Revenue/Store 47 48 32 48 63 64 67 72
Food 32 32 24 35 46 46 48 51
Beverages 15 16 8 12 17 18 19 21
SSSG (%) 17% 4% -24% 58% 38% 3% 8% 8%
Gross Profit 8,905 10,095 6,378 10,314 15,001 16,703 19,907 23,452
Gross Margin (%) 64% 65% 65% 65% 66% 65% 66% 66%
Restaurant operating profit 2,022 3,023 1,406 3,018 5,250 5,653 6,930 8,279
Restaurant operating margin (%) 14% 20% 14% 19% 23% 22% 23% 23%
Off premise sales as % of total 26% 37% 50% 50% 39% 39% 39% 39%
Page | 82
Exhibit 71: Westlife operating metric pre-COVID vs. 9MFY23 vs. expectation
Chg vs.
COVID
Revenue (INR) 10,624 12,114 6,284 11,214 17,218 12% 22,902 25,696 30,393 35,534
YoY Gr (%) 14% -48% 78% 54% 45% 12% 18% 17%
SSSG (%) 21% 8% -40% 104% 52% 38% 3% 8% 8%
ADS per store (INR) 1,34,758 1,42,438 1,87,011 9% 1,74,799 1,76,686 1,85,994 1,99,897
Stores (No.) 292 315 304 316 341 3% 361 401 451 491
Gross Profit (INR) 6,757 7,890 4,000 7,355 11,297 13% 15,001 16,703 19,907 23,452
GM (%) 63.6% 65.1% 63.6% 65.6% 65.6% 48bps 65.5% 65.0% 65.5% 66.0%
EBITDA (Pre IND AS) 983 1,257 (348) 778 2,339 23% 3,095 3,263 4,227 5,234
EBITDA (INR) 983 1,809 120 1,343 3,012 19% 3,991 4,269 5,418 6,628
PBT (INR) 316 256 (1,284) (226) 1,218 68% 1,476 1,539 2,435 3,461
PBT margin (%) 3.0% 2.1% -20.4% -2.0% 7.1% 496bps 6.4% 6.0% 8.0% 9.7%
Page | 83
Company background
Westlife Foodworld (erstwhile Westlife Development) brought McDonald’s to
India in 1997 under its wholly-owned subsidiary Hardcastle Restaurants. The
company is the franchisee partner for McDonald's for the West and South regions
covering Maharashtra, Karnataka, Gujrat, Telangana, Tamil Nadu, Kerala,
Andhra Pradesh, Madhya Pradesh, Chhattisgarh, Goa and Puducherry. In 2012,
Hardcastle, which was a privately held company, merged into Westlife, becoming
a part of the listed entity.
Exhibit 72: Westlife’s journey over the last 25 years
FY97 - FY04 FY05 - FY12 FY13 - FY15 FY16 - FY19 FY20 Onwards
The company operates 341 stores (as of Q3FY23) across 52 cities. Over the years,
the company has added global services and products like McDelivery and McCafe
in India. The company launched McDelivery in India in 2005, which was further
enhanced by the launch of its McDelivery app in 2014. Currently, the delivery
service is available across 292 stores (as of Q2FY23). In 2013, the company
launched McCafe in India, its in-house coffee chain. The company has opened
McCafe in 288 locations, i.e. at 84% of its total stores with an aim to scale it up to
100%.
Exhibit 73: Store count Exhibit 74: Store network
McCafe Stores Stores w/o McCafe
350
326
319
305
300 296
277
258
250 236
200
46 5
150 3
262 154
223 225 28
100 190
5
149 5
50 111 62
75
27
0 13
FY16 FY17 FY18 FY19 FY20 FY21 FY22
Page | 84
The company has created an ecosystem of resource vendors (65 in FY21) to reduce
its dependence on imports. It claims to have one of the most competitive supply
chain networks—farm to fork—in India’s quick service western style restaurants
sector. It is one of the few QSR players to have developed a backward integrated
closed loop supply chain, enabling it uninterrupted supply of materials while
maintaining hygiene at every step.
Exhibit 75: Supply Chain quality management
Page | 85

McD Global has not shown enough aggression so far for its India business, but
considering India QSR is a multi-year growth opportunity, we believe
Westlife’s own initiatives will play a bigger role than the global push. Store
addition is expected to improve vs. historical trend, reflecting Westlife’s
gradual pick-up in aggression. Penetration and consumer upgradation will
remain key catalysts for the category. Westlife is still under-indexed for its
south India store network (potentially more margin accretive). The profitability
metric still has enough room to improve in the coming years (although some
shave off due to the increase in the royalty rate). Westlife earnings growth will
have a balance mix of store growth and margin expansion.
Westlife during FY23-26E. Longevity will also play a key role in Westlife’s
valuation despite seeing near-term growth challenges. We value Westlife on a
55x P/E multiple on Jun’25 EPS to arrive at a TP of INR 715. We initiate coverage
on Westlife with an ADD rating.
Exhibit 76: Consolidated per-store metric
Per Store Metrics (INR mn/store) FY19 FY20 FY21 FY22 FY23E FY24E FY25E FY26E
Revenue 47.4 48.5 32.3 48.4 63.4 64.1 67.4 72.4
Gross Profit 30.1 31.6 20.9 31.6 41.6 41.7 44.1 47.8
Employee Expenses - Store level 4.9 5.3 4.0 4.4 5.5 5.6 5.7 5.9
Royalty 2.2 2.2 1.5 2.2 2.9 3.2 3.7 4.0
Occupancy and other expenses 16.2 14.7 10.8 15.8 18.6 18.7 19.3 21.0
Restaurant EBITDA 6.8 9.5 4.6 9.3 14.5 14.1 15.4 16.9
Restaurant EBITDA (pre-IND AS) 6.8 7.1 2.5 6.9 12.1 11.6 12.7 14.0
- Employee expenses 1.7 1.6 1.8 2.0 2.7 2.7 2.6 2.6
- Other corp. expenses 0.9 1.0 0.8 0.9 0.8 0.7 0.7 0.7
EBITDA (pre-IND AS) 4.2 4.6 (0.1) 4.0 8.6 8.1 9.4 10.7
IND AS Adjustment (0.0) (2.3) (2.1) (2.4) (2.5) (2.5) (2.6) (2.8)
EBITDA 4.2 6.9 2.0 6.4 11.1 10.6 12.0 13.5
PBT 1.2 0.2 (4.4) (0.1) 4.1 3.8 5.4 7.0
% of Sales FY19 FY20 FY21 FY22 FY23E FY24E FY25E FY26E

Gross Profit 63.5% 65.2% 64.7% 65.4% 65.5% 65.0% 65.5% 66.0%
Employee Expenses - Store level 10.4% 10.9% 12.4% 9.1% 8.7% 8.8% 8.5% 8.1%
Royalty 4.6% 4.6% 4.5% 4.5% 4.6% 5.1% 5.6% 5.6%
Occupancy and other expenses 34.2% 30.2% 33.4% 32.7% 29.3% 29.2% 28.6% 29.0%
Restaurant EBITDA 14.4% 19.5% 14.3% 19.1% 22.9% 22.0% 22.8% 23.3%
Restaurant EBITDA (Pre IND AS) 14.4% 14.7% 7.7% 14.3% 19.0% 18.1% 18.9% 19.4%
- Employee expenses 3.7% 3.2% 5.6% 4.2% 4.3% 4.2% 3.9% 3.6%
- Other corp. expenses 1.9% 2.1% 2.3% 1.8% 1.2% 1.2% 1.1% 1.0%
EBITDA (Pre-IND AS) 8.9% 9.4% -0.2% 8.3% 13.5% 12.7% 13.9% 14.7%
EBITDA 8.9% 14.2% 6.3% 13.1% 17.4% 16.6% 17.8% 18.7%
PBT 2.5% 0.5% -13.5% -0.1% 6.4% 6.0% 8.0% 9.7%
Page | 86
Profit & Loss
Net Revenues 15,478 9,860 15,765 22,902 25,696 30,393 35,534
Growth (%) 10.4% -36.3% 59.9% 45.3% 12.2% 18.3% 16.9%
A&P Expense 745 448 703 1,045 1,173 1,389 1,625
Other Expenses 5,461 4,084 6,101 7,980 9,011 10,508 12,306
EBITDA 2,199 619 2,071 3,991 4,269 5,418 6,628
EBITDA Growth (%) 77.0% -71.8% 234.4% 92.7% 7.0% 26.9% 22.3%
EBITDA Margin (%) 14.2% 6.3% 13.1% 17.4% 16.6% 17.8% 18.7%
Adj EBITDA 1,453 (24) 1,304 3,095 3,263 4,227 5,234
Adj. EBITDA Growth (%) 16.9% na na 137.3% 5.4% 29.5% 23.8%
Adj. EBITDA Margin (%) 9.4% -0.2% 8.3% 13.5% 12.7% 13.9% 14.7%
Depreciation 1,384 1,406 1,365 1,562 1,762 2,011 2,210
EBIT 816 (786) 707 2,429 2,508 3,407 4,418
Other Income 127 452 186 105 201 298 412
Interest 808 845 826 924 1,030 1,125 1,220
PBT 76 (1,329) (21) 1,476 1,539 2,435 3,461
PBT Growth (%) -78.4% na na na 4.3% 58.3% 42.1%
PBT margin (%) 0.5% -13.5% -0.1% 6.4% 6.0% 8.0% 9.7%
Total Tax (14) (293) (4) 371 387 613 871
PAT (76) (994) (17) 1,104 1,151 1,822 2,590
Adjustment (166) 42 - - - - -
Adjusted PAT (post IND AS) 90 (1,036) (17) 1,104 1,151 1,822 2,590
APAT Growth (%) -57.6% na na na 4.3% 58.3% 42.1%
Adjusted EPS (Rs) 0.6 (6.6) (0.1) 7.1 7.4 11.7 16.6
EPS Growth (%) -57.6% -1247.0% -98.4% -6740.3% 4.3% 58.3% 42.1%
Balance Sheet
SOURCES OF FUNDS
Share Capital - Equity 311 312 312 312 312 312 312
Reserves 5,459 4,501 4,309 5,485 6,497 8,353 10,706
Minority Interest - - - - - - -
Long Term Debt - - - - - - -
Short Term Debt 1,837 2,152 2,010 1,910 1,810 1,710 1,610
Total Debt 1,837 2,152 2,010 1,910 1,810 1,710 1,610
Lease Liability 7,822 7,528 8,536 9,293 10,308 11,525 12,743
Other Non-current Liabilities & Provns - - - - - - -
Net Block 5,424 4,949 5,022 5,321 5,659 6,177 6,209
CWIP 226 256 355 850 850 850 850
Intangible Assets 935 885 883 820 758 695 633
Right to use assets 7,722 7,008 7,718 8,546 9,493 10,677 11,624
Inventories 411 465 559 817 917 1,086 1,270
Debtors 47 88 133 194 218 258 302
Other Current Assets 555 533 603 693 797 917 1,054
Cash & Equivalents 749 1,571 1,262 1,563 2,387 4,011 6,876
Creditors 1,280 1,851 1,722 2,158 2,506 3,127 3,810
Other Current Liabilities & Provns 921 893 1,087 1,141 1,198 1,258 1,321
Net Current Assets (438) (87) (251) (31) 616 1,887 4,372
Page | 87
Cash Flow
Reported PBT (90) (1,287) (21) 1,476 1,539 2,435 3,461
Non-operating & EO Items (28) (54) (55) (105) (201) (298) (412)
Interest Expenses (Net) 808 845 826 924 1,030 1,125 1,220
Depreciation 1,384 1,396 1,364 1,562 1,762 2,011 2,210
Working Capital Change 164 691 (145) 81 177 353 380
Tax Paid (163) 32 (66) (371) (387) (613) (871)
Capex (1,261) (500) (1,001) (1,720) (1,400) (1,750) (1,400)
Free Cash Flow (FCF) 812 1,123 903 1,846 2,519 3,263 4,587
Investments (869) (1,046) (1,067) - - - -
Non-operating Income 13 1 55 105 201 298 412
INVESTING CASH FLOW ( b ) (2,117) (1,545) (2,013) (1,615) (1,199) (1,452) (988)
Debt Issuance/(Repaid) (1,245) (311) (910) (110) (111) (111) (111)
Interest Expenses (152) (170) (133) (1,497) (1,667) (1,841) (2,000)
FCFE (584) 642 (139) 239 741 1,311 2,476
Share Capital Issuance 10 28 24 - - - -
Dividend - - - - - - -
Others - - - - - - -
FINANCING CASH FLOW ( c ) (1,387) (453) (1,019) (1,607) (1,777) (1,952) (2,111)
NET CASH FLOW (a+b+c) (1,430) (375) (1,127) 344 942 1,609 2,888
EO Items, Others (1,022) (1,197) (818) - - - -
Closing Cash & Equivalents 749 1,571 1,262 1,563 2,387 4,011 6,876
Ratios
PROFITABILITY (%)
GPM 65.2 64.7 65.4 65.5 65.0 65.5 66.0
EBITDA Margin 14.2 6.3 13.1 17.4 16.6 17.8 18.7
EBITDA Margin (Pre IND AS) 9.4 (0.2) 8.3 13.5 12.7 13.9 14.7
PBT Margin (0.6) (13.1) (0.1) 6.4 6.0 8.0 9.7
APAT Margin 2.7 (8.0) 1.8 6.3 6.0 7.5 8.8
RoE 1.6 (19.6) (0.4) 21.2 18.3 23.6 26.3
RoIC (or Core RoCE) 9.0 (4.6) 4.4 12.9 12.1 15.3 18.7
RoCE 9.0 (2.6) 4.5 11.5 11.0 13.4 15.2
EFFICIENCY
Tax Rate (%) (18.8) 22.1 19.4 25.2 25.2 25.2 25.2
Inventory (days) 9.7 17.2 13.0 13.0 13.0 13.0 13.0
Debtors (days) 1.1 3.3 3.1 3.1 3.1 3.1 3.1
Payables (days) 30.2 68.5 39.9 34.4 35.6 37.6 39.1
PER SHARE DATA (Rs)
EPS 0.6 (6.6) (0.1) 7.1 7.4 11.7 16.6
CEPS 9.5 2.4 8.6 17.1 18.7 24.6 30.8
Dividend - - - - - - -
Book Value 37.1 30.9 29.6 37.2 43.7 55.6 70.7
VALUATION
P/E (x) 1,169.6 (102.0) (6,357.0) 95.7 91.8 58.0 40.8
P/BV (x) 18.3 22.0 22.9 18.2 15.5 12.2 9.6
EV/EBITDA (x) 73.4 (4,451.1) 81.6 34.3 32.2 24.5 19.2
EV/Revenues (x) 6.9 10.8 6.8 4.6 4.1 3.4 2.8
OCF/EV (%) 1.9 1.5 1.8 3.4 3.7 4.8 6.0
FCF/EV (%) 0.8 1.1 0.8 1.7 2.4 3.2 4.6
FCFE/Mkt Cap (%) (0.6) 0.6 (0.1) 0.2 0.7 1.2 2.3
Page | 88
Sapphire Foods
Positive on growth outlook; concern on margin REDUCE
Sapphire Foods is a franchise partner of Yum and operates KFC and Pizza Hut
CMP (as on 24 Mar 2023) INR 1,178
(PH) stores in India and PH and Taco Bell in Sri Lanka. They have a store
network of +700 stores, with India having 325 KFC and 274 PH stores. Sri Lanka Target Price INR 1,000
has 114 stores and Maldives has two stores. With Yum’s sustained focus on NIFTY 16,945
expanding its store network in India since its entry, we believe healthy store
expansion (+10% growth rate) will continue over the next many years. Sapphire KEY STOCK DATA
shares the Indian market with Devyani (Yum’s other franchise partner); we
Bloomberg code SAPPHIRE IN
model an annual store addition for Sapphire of around ~125 stores (350 store
addition over FY23-26). Given India’s large population with a high share of No. of Shares (mn) 64
youngsters, we believe store penetration will be largely similar for most QSR MCap (INR bn) / ($ mn) 75/909
players. QSR, among the other consumer categories, has seen normalisation 6m avg traded value (INR mn) 275
relatively late post-Covid (particularly dine-in); mobility and pent-up have
52 Week high / low INR 1,574/909
boosted the growth metric (ADS, SSSG) over the last 15-18 months. It resulted
in a sharp improvement in operating metrics (restaurant operating margin
improved >500bps in 9MFY23 vs. 9MFY20). With the normalisation in demand STOCK PERFORMANCE (%)
and some impact of weak consumer sentiment, we believe the operating margin 3M 6M 12M
will see an impact in FY24. We value Sapphire on 50xP/E on Jun-25 EPS to arrive Absolute (%) (11.2) (18.8) (9.9)
at a TP of INR 1,000. We initiate coverage on Sapphire with a REDUCE rating.
Relative (%) (7.3) (17.8) (9.8)
 KFC—a long-term store expansion play: KFC is a long-term play as the
chicken category has strong potential in India. The ADS for KFC stands at
SHAREHOLDING PATTERN (%)
>INR 135,000/store as compared to McD’s >INR 1,85,000/store. Thereby, there
is headroom for ADS to improve in the medium term for KFC. We believe Sep-22 Dec-22
KFC will have a higher mix in Sapphire’s store expansion; of the total 120-125 Promoters 51.26 44.90
stores to be added per annum, we expect 60% to be KFC’s.
FIs & Local MFs 16.80 24.95
 PH still needs various measures: Sapphire has taken various measures to
FPIs 12.60 16.54
improve PH, but there are still gaps. Domino’s has introduced various
changes over the last 5-6 years in product quality, menu expansion, better Public & Others 19.34 16.54
order experience, and faster delivery (20 min delivery). Apart from this Pledged Shares 0.00 0.00
competition with Domino’s, PH faces challenges from various other players.
Source : BSE
Flavour Fun Pizza can improve transaction growth but whether it will help
Pledged shares as % of total shares
improve the overall ADS is still uncertain. PH has done an ADS of INR
61,000/store in 9MFY23 while Domino’s ADS was ~INR 84,000/store. We look
for more drivers that will improve ADS and model it at INR 62,000 for FY26.
 Concern on margin: With normalisation in demand, the impact of weak
sentiment and high RM inflation, we believe the margin will be under
pressure in FY24. High pent-up demand benefits have expanded the
operating margin, which will normalise over FY24 and FY25.
 Valuation: We model 19% revenue CAGR and EBITDA (pre-IND AS) CAGR
of 21% for Sapphire during FY23-25E. We value Sapphire on a 50x P/E Naveen Trivedi
multiple on Jun’25 EPS to arrive at a TP of INR 1,000. We initiate coverage on naveen.trivedi@hdfcsec.com
Sapphire with a REDUCE rating. +91-22-6171-7324
Financial summary
YE Mar (INR mn) FY21 FY22 FY23E FY24E FY25E FY26E Varun Lohchab
Net Sales 10,196 17,216 22,988 27,344 33,383 38,784 varun.lohchab@hdfcsec.com
EBITDA 1,244 3,050 4,366 5,029 6,241 7,310
+91-22-6171-7334
APAT (999) 460 1,088 890 1,155 1,542
Diluted EPS (INR) (18.9) 7.2 17.1 14.0 18.2 24.3
Paarth Gala
P/E (x) (62.3) 162.8 68.8 84.1 64.8 48.5
EV / EBITDA (x) 163.5 40.3 26.8 24.0 18.0 14.7
RoCE (%) -7.6 6.2 9.5 7.9 8.0 9.0
+91-22-6171-7336
Sapphire Foods: Initiating Coverage

Strong KFC; ramping up Pizza Hut
KFC was globally founded in 1939 and the first KFC store in India started in 1996
(re-entered in 2004). KFC has a strong global footprint and a presence in 145
countries. Globally, it has ~27,000 stores with the US and China having +4,000 and
+8,000 stores. In India, there are ~800 KFC stores, of which 325 are operated by
Sapphire.
Sapphire acquired 125 KFC stores from various franchises in FY16. KFC
contributes 45% of the store count for Sapphire but its contribution to revenue and
restaurant EBITDA is high at ~64% and ~70% respectively during 9MFY23. KFC’s
revenue/store metric is superior to Pizza Hut's at around 40mn/store as compared
to Pizza Hut's ~20mn/store.
Pizza Hut has globally founded in 1958 and the first Pizza Hut store in India
started in 1996 (close to the KFC period). Pizza Hut has a strong global footprint
and presence in 110 countries. Globally there are +18,000 Pizza Hut stores with
the US and China having +6,500 and +2,500 stores. In India, there are ~750 Pizza
Hut stores, out of which ~274 are operated by Sapphire. Pizza Hut is seeing
improvement in its unit economics but its contribution to store, revenue and
EBITDA still stands at 38/23/19% respectively.
Revenue break-up Store break-up Revenue/store

(INR mn) FY19 FY20 FY21 FY22 (No.) FY19 FY20 FY21 FY22 (INR mn) FY19 FY20 FY21 FY22
300 50
10,000
250 40
8,000
200 30
6,000
4,000 150 20
2,000 100 10
- 50 -
13% 10%
16%
45% 19%
23%
64%
38% 70%
Source: Company, HSIE Research Note: 9MFY23 Data
Page | 90
Product and service improvement

Sapphire is trying to fix the menu gaps, both in KFC and Pizza Hut. KFC’s Biryani
The unorganised Pizza market is around
Bucket was an important launch. KFC Popcorn and Nachos are also recent
25-30%; Flavour Fun Pizza aims to capture
that market.
launches. Besides, to increase the consumer base for PH, Sapphire has launched
Flavour Fun Pizza <INR 100 (similar to Pizza Mania of Domino’s) with five
different sauces and 12 different pizzas with different toppings. Despite a low
price point, the company is ensuring to offer superior quality products than the
competition. It is to tap the unorganised Pizza market, which hovers around 25-
New launches (particularly at entry level)
30%. At the top end, San Francisco Dough as well as Momo Mia Pizza have been
are helping in higher transactions for PH,
although AOV has done down to INR 450.
performing well. Sapphire has also launched a couple of pasta restaurants. The
company also launched Meal Box (My Box) with starting food range of INR 239,
which includes one personal pizza, two-piece plain garlic bread and one Pepsi pet
bottle. All new launches have started helping in ADS in 9MFY23 to INR 61,000 vs.
~INR 57,000 in 9MFY22 and INR 61,000 in FY19. New launches (particularly at the
entry level) are helping in higher transactions for PH, although AOV has done
down to INR 450.
KFC: PERI PERI launch KFC: Choco Lava launch New restaurant – Faridkot, Punjab
Pizza Hut: new launches Pizza Hut: new launches New restaurant- Pizza Hut+KFC
Page | 91
Improving underlying fundamentals

Sapphire in the last three years has started focusing on reducing store sizes. The
Restaurant EBITDA margin has improved
average store size in FY19 for KFC/Pizza Hut was around +2,700/2,400 sq. ft.
for KFC from 13% in FY19/20% in FY22 to
which has gone down to 1,500/1,300 sq. ft. in FY22. There was a consistent effort
19.5% in 9MFY23. While for Pizza Hut it
to improvise the unit economics of both franchises. Smaller store sizes along with
has improved from 7% in FY19 /13% in
FY22 to 14.7% in 9MFY23.
quicker store expansion led to better consumer reach. It helps the company in
improving its revenue and profitability throughput.
The restaurant-related expenses have come down for both KFC and Pizza Hut.
KFC’s restaurant-related expenses have come down to 47% in 9MFY23 vs. 49% in
FY22 vs. 52% in FY19, while Pizza Hut’s have come down to 60% in 9MFY23 vs.
62% in FY22 vs. 66% in FY19. It helps the company deliver superior restaurant-
level margins. The restaurant EBITDA margin has improved for KFC from 13% in
FY19/20% in FY22 to 19.5% in 9MFY23, while Pizza Hut’s has improved from 7%
in FY19 /13% in FY22 to 14.7% in 9MFY23.
Avg. size of restaurant Avg. daily sales per store Rest. related expenses (% of sales)
(Sq.ft) FY19 FY22 (INR) FY19 FY22 FY19 FY22
3,200 1,40,000 70%
1,20,000 60%
2,400 50%
1,00,000
40%
1,600 80,000
30%
60,000
800 20%
40,000 10%
- 20,000 0%
KFC Pizza Hut KFC Pizza Hut KFC Pizza Hut
Restaurant related expenses/store Restaurant EBITDA Margin (%) Capex per store
(INR mn/store) FY19 FY22 FY19 FY22 (INR mn/store) FY19 FY22
25 25% 25
21
20 20% 20 17
16
15 15% 15 13
10 10% 10
5 5% 5
- 0% -
KFC Pizza Hut KFC Pizza Hut KFC Pizza Hut
Page | 92
Market development initiatives

Since FY19, KFC has doubled the store
Chicken and pizza are amongst the largest categories within the QSR chain. As of
count to 325 stores in 9MFY23 with
FY21, KFC and Pizza Hut restaurants comprised ~7% and 6% respectively, of the
presence increased from 47 cities to 75 cities
total number of outlets of key QSR brands in India. Thereby, it is imperative for
in FY22.
Sapphire to keep expanding the store network to increase consumer penetration
Pizza Hut too saw sharp acceleration with and consumer frequency (led by better consumer experience).
store network has reached to 274 stores in
KFC and Pizza Hut are on a fast store opening spree along with store openings in
9MFY23 vs. 138 stores in FY19 with
new cities. Since FY19, KFC has doubled the store count to 325 stores in 9MFY23
presence increased from 29 cities in FY19 to
52 cities in FY22.
with presence increased from 47 cities to 75 cities in FY22. Pizza Hut too saw a
sharp acceleration with the store network reaching 274 stores in 9MFY23 vs. 138
stores in FY19 with presence increasing from 29 cities in FY19 to 52 cities in FY22.
Stores in top-10 cities contribute 65-67% for KFC and ~80% for Pizza Hut.
Store mix of high street to grow faster than
High streets, malls and drive-through contribute 50%, 40% and 10% for KFC while
malls/drive through.
Pizza Hut has a presence in high streets and malls with store contributions of 67%
and 33% respectively.
Cities presence Channel-wise stores Stores in top 10 cities and mix

(No.) FY19 FY20 FY21 FY22 (No.) High Streets Malls Drive throughs (No.) FY19 FY20 FY21
80 160 67% 150 67% 81%
50% 67% 83% 80%
60 120 70%
40%
100
33%
40 80
50%
50 59% 51%
20 40 10%
0%
0 0 0
KFC Pizza Hut Sri Lanka KFC Pizza Hut KFC Pizza Hut Sri Lanka

For KFC, the key markets are Tamil Nadu, Maharashtra, Delhi and Punjab, which
combined contribute ~80% of KFC’s store mix. The store openings during the last
KFC and PH for Sapphire are present in 10
and 11 states of India respectively. These 30 months were largely similar to the state mix, excluding Punjab and Gujarat,
states combined contribute 56% of India’s where store openings were slow. For Pizza Hut, the key markets are Maharashtra,
GDP. Karnataka, Tamil Nadu and Gujarat, which combined contribute 70% of the store
mix. The store openings during the last 30 months were largely similar to the state
mix, excluding Gujarat and Telangana, where store openings were fast.
KFC Stores (No) Stores Mix (%)
Chg vs.
KFC’s store mix has improved for State-wise stores FY21 FY22 9MFY23 FY21 FY22 9MFY23 Chg mix
FY21
Maharashtra, UP, and MP by 9-10%
Tamil Nadu 50 62 77 27 24% 24% 24% 23%
combined vs. FY21 while the mix has fallen Maharashtra 46 58 77 31 22% 22% 24% 26%
for Punjab and Gujarat by 7% combined. Delhi 34 45 53 19 16% 17% 16% 16%
Punjab 32 40 46 14 15% 15% 14% 12%
UP 11 15 19 8 5% 6% 6% 7%
Gujarat 13 14 15 2 6% 5% 5% 2%
MP 6 9 13 7 3% 3% 4% 6%
Uttarakhand 7 9 10 3 3% 3% 3% 3%
Haryana 6 5 9 3 3% 2% 3% 3%
Chhattisgarh 3 5 6 3 1% 2% 2% 3%
Total 208 262 325 117 100% 100% 100% 100%
Page | 93
Pizza Hut Stores (No) Stores Mix (%)

Chg vs.
PH’s store mix has improved for Gujarat, FY21 FY22 9MFY23 FY21 FY22 9MFY23 Chg mix
FY21
Telangana, and Kerala by 17% combined Maharashtra 44 55 63 19 26% 25% 23% 18%
vs. FY21 while mix has fallen for Karnataka 33 41 48 15 19% 19% 17% 14%
Maharashtra, Karnataka and TN by 15% Tamil Nadu 27 36 42 15 16% 16% 15% 14%
combined. Gujarat 17 23 36 19 10% 10% 13% 18%
Telangana 18 22 31 13 11% 10% 11% 13%
Kerala 11 17 24 13 6% 8% 9% 13%
AP 6 8 8 2 4% 4% 3% 2%
Haryana 7 7 8 1 4% 3% 3% 1%
MP 4 6 7 3 2% 3% 3% 3%
Goa 4 4 5 1 2% 2% 2% 1%
Chhattisgarh 0 1 3 3 0% 0% 1% 3%
Total 171 220 275 104 100% 100% 100% 100%
Ramp-up in delivery
Many QSR businesses that were predominately dine-in focused have changed
KFC’s delivery sales mix was at 17% in
their focus to ‘delivery’ during the COVID period. Sapphire too ramped up its
FY19, which was at 44% in FY22 and now
delivery businesses, which contributed ~20% in FY19 and +45% in FY22. KFC and
have stabilised at ~36% in 9MFY23.
Pizza Hut both have seen a pick-up in their delivery business. KFC’s delivery sales
Pizza Hut, the delivery mix was already mix was 17% in FY19 and 44% in FY22 and has stabilized at ~36% in 9MFY23.
healthy at 33% in FY19, which later Pizza Hut’s delivery mix was already healthy at 33% in FY19 and it increased to
increased to 57% in FY22 and is now 57% in FY22; it is now stabilizing at 48-50% in 9MFY23.
stabilising at 48-50% in 9MFY23.
Sapphire delivery sales ramp-up Break-up of delivery sales Channel mix

Delivery Sales (INR mn) (INR mn) KFC Pizza Hut Sri Lanka Dine-in Take-away
Delivery sales share (%) 4,800 Aggregator Own App
10,000 52%
4,000 6% 5% 4%
100%
8,000 5% 12% 16%
39% 3,200 80%
6,000 30% 22% 21%
26% 2,400 60%
4,000
1,600 40%
13% 59% 61% 60%
2,000
800 20%
- 0%
- 0%
FY19 FY20 FY21 FY22
FY19 FY20 FY21 FY22 FY18 FY19 FY20
KFC channel mix Pizza Hut channel mix

Dine-in Take-away Aggregator Own App Dine-in Take-away Aggregator Own App
6% 5% 4%
100% 100%
5% 22% 8%
12% 16% 24%
80% 80% 26%
30% 22% 3% 11%
21%
60% 60% 26%
25% 16%
40% 40%
59% 61% 60%
20% 46% 50%
20% 42%
0% 0%
FY18 FY19 FY20 FY18 FY19 FY20
Page | 94

Sapphire has been consistently focusing on improving its unit economics. The
company could control its store-level expenses wherein employee expenses per
store have come down from INR 5.5mn/store in FY19 to INR 4.7mn/store in FY22.
The other store-level overheads have also come down from INR 12.2mn/store to
INR 10.3mn/store. All these measures have improved the restaurant's EBITDA
margin to 18.7% in FY22 as compared to 12% in FY19.
Employee expenses Restaurant expenses Corporate overheads

Employee Cost % of Sales Rest. Exp (ex RM & Empl) Corp. overheads
3,000 22.0% Rest. Exp (ex RM & Empl)- % of sales Corp. overheads (% of sales)
10,000 72% 1,500 10.0%
2,500 20.0%
8.0%
2,000 52% 1,000
18.0% 6.0%
1,500 5,000
16.0% 4.0%
1,000 32% 500
500 14.0% 2.0%
- 12.0% - 12% - 0.0%

FY20
FY20
FY20
FY16
FY17
FY18
FY19
FY21
FY22
FY19
FY21
FY22
FY19
FY21
FY22
Commission on aggregators Marketing and advertising expenses Royalty expenses

Comm. on aggregators and meal coupons Marketing and adv. exp
Royalty % of sales
% of sales % of sales
1,500 16.0% 800 4.1% 1,000 8.0%
4.0%
600 800
14.0% 6.0%
1,000 3.9%
600
12.0% 400 3.8% 4.0%
400
500 3.7%
10.0% 200 2.0%
3.6% 200
- 8.0% - 3.5% - 0.0%

FY22
FY19
FY20
FY21
FY19
FY20
FY21
FY22
FY19
FY20
FY21
FY22
Page | 95

KFC is a long-term store expansion play
KFC is a long-term play as chicken is a strong story in India. KFC enjoys early
entry in India and thereby operates a better operating metric than PH. The ADS
for KFC stands at >INR 135,000/store as compared to McD at >INR 1,85,000/store.
Thereby, ADS has headroom to improve in the medium term for KFC. We believe
KFC will have a higher mix in the store expansion for Sapphire; of a total of 120-
125 stores per annum, we believe 60% expansion will be in KFC stores.
PH recovery still needs various measures

Despite Sapphire having taken various measures to revive PH, we believe there
are gaps that need to be addressed to improve its underlying metric. Its
competitor Domino’s has carried out various changes over the last 5-6 years in
product quality, menu expansion, better order experience and faster delivery (20
min delivery in many states now). Apart from this competition from Domino’s,
PH also faces challenges from multiple regional players. Flavour Fun Pizza can
improve transaction growth but whether it will help in improving the overall ADS
is uncertain. PH has done ADS of INR 61,000/store in 9MFY23 while Domino’s
ADS was ~INR 84,000/store. We still do not see enough evidence that PH will be
able to bridge the gap in ADS, and at best will maintain ADS at INR 63,000 for
FY26.
Exhibit 77: Sapphire revenue metric

Chg. vs.
COVID
Revenue (INR) 11,938 13,404 10,122 6,790 12,247 17,052 19% 22,988 27,344 33,383 38,784
Revenue – KFC 6,584 7,753 5,974 3,816 7,383 10,838 22% 14,690 17,965 22,397 26,451
Revenue – PH 3,071 3,344 2,603 1,441 2,678 3,993 15% 5,189 6,092 7,386 8,439
YoY Gr. (%) – KFC na 18% na -36% 93% 47% 42% 22% 25% 18%
YoY Gr. (%) – PH na 9% na -45% 86% 49% 40% 17% 21% 14%
SSSG (%) – KFC 14% 5% 9% -42% 70% 20% 16% 2% 9% 5%
SSSG (%) – PH 5% -5% -7% -48% 62% 18% 16% 1% 9% 6%
Stores (No.) 374 425 426 425 550 716 19% 740 862 987 1,097
Stores (No.) – KFC 158 187 183 196 250 325 21% 348 418 498 568
Stores (No.) – PH 153 174 173 161 209 274 17% 269 319 359 389
Page | 96
KFC to command 19-20% restaurant margin

KFC enjoys a gross margin of ~67-68% but due to higher throughput (ADS), its
restaurant operating margin is around 19-20%. Sapphire has reduced the store
size of KFC from >2,700 sq. ft. in FY19 to 1,500 sq. ft. in FY22. Despite a reduction
in the store size, the revenue pool was healthy and revenue/sq. ft. improved from
INR 15,000 in FY19 to INR 26,000 in FY22. The capex and opex have also come
down after a reduction in the store size. Restaurant EBITDA per sq. ft. has
improved from <INR 2,000 to +INR 5,000 in FY22. Restaurant operating margin
improved from 13% in FY19 to 19.5% in FY22. Industry benefits improved the
operating metric in FY22/9MFY23 which will normalise in FY24. Thus, foreseeing
pressure on ADS/SSSG in FY24, we model a margin of 18% in FY24 but we expect
it to return to +19% in FY26.
PH restaurant margin <14% in the medium term

PH too has enjoyed the reduction in the store size from 2400 sq. ft. stores to 1,300
sq. ft. stores by FY22. Despite a reduction in the store size, the revenue pool was
healthy and revenue/sq. ft. improved from INR 8,000 in FY19 to INR 13,000 in
FY22. The capex and opex have also come down along with the reduction in the
store size. Restaurant EBITDA per sq. ft. has improved from <INR 600 to +INR
1,700 in FY22. Restaurant operating margin improved from 7.5% in FY19 to 13.5%
in FY22 and 14.7% in 9MFY23. Industry benefits improved the operating metric
in FY22/9MFY23, which will normalise in FY24. Thus, foreseeing pressure on
ADS/SSSG in FY24, we model a margin of <13% for FY24 and gradually foresee
improvement to 13.3% for FY25.
Exhibit 78: Sapphire operating metric

Chg vs.
COVID
Gross Profit (INR) 7,992 9,087 6,903 4,697 8,524 11,442 18% 15,371 18,356 22,728 26,570
GM (%) 66.9% 67.8% 68.2% 69.2% 69.6% 67.1% -110bps 66.9% 67.1% 68.1% 68.5%
GM (%) - KFC 65.1% 65.4% 65.3% 67.5% 68.5% 66.5% 120bps 66.5% 67.0% 68.0% 68.5%
GM (%) - PH 73.9% 76.2% 76.3% 75.4% 75.8% 74.8% -150bps 74.6% 74.0% 74.5% 74.5%
EBITDA (INR) 1,460 1,856 1,383 1,165 2,052 3,303 34% 4,366 5,029 6,241 7,310
PBT (INR) (683) (666) (383) (854) 228 961 na 1,093 937 1,544 2,061
PBT margin (%) -5.7% -5.0% -3.8% -12.6% 1.9% 5.6% 942bps 4.8% 3.4% 4.6% 5.3%
Page | 97
Sri Lanka business has a strong competitive advantage

Sapphire is the top QSR player in Sri Lanka with a store network of 114 stores, of
which 105 are PH stores and nine are Taco Bell. Despite various geopolitical
challenges, Sapphire has almost doubled its store count over the last two years.
Currency adversely impacted the overall financials of the Sri Lanka business.
During 9MFY23, revenue in cc is up by 65% YoY but revenue is down 2% in INR.
Near-term inflation and weak sentiment are expected to impact the near-term
growth metric for the Sri Lanka business. Restaurant margin dropped by 700bps
YoY to 15% in 9MFY23. We model single-digit revenue CAGR for the Sri Lanka
business with a restaurant margin of 14.5-15.5% during FY23-26E.
Exhibit 79: Sri Lanka operations
Sapphire (INR mn) FY19 FY20 9MFY20 9MFY21 9MFY22 9MFY23 FY23E FY24E FY25E FY26E
Revenue (INR) 1,984 2,038 1,443 1,464 2,066 2,019 2,983 2,834 2,976 3,243
YoY Gr. (%) 0% 3% 1% 41% -2% 52% -5% 5% 9%
Revenue (LKR) - - na na 5,630 9,299 8,229 14,401 15,121 16,482
YoY Gr. (%) 0% 0% na na na 65% 60% 75% 5% 9%
Stores 63 64 68 65 89 114 95 123 125 130
ADS per store (LKR) na na na na 2,90,000 3,36,000 2,40,614 3,25,220 3,36,018 3,52,172
SSSG (INR) na na -1.0% -3.0% 39.0% na na na na na
SSSG (LKR) 8.0% -2.0% na na 40.0% 33.0% 31.0% 45.0% 2.0% 8.0%
Gross Profit 1,308 1,359 952 997 1,380 1,153 1,975 1,644 1,711 1,881
Gross Margin (%) 65.9% 66.7% 66.0% 68.1% 66.8% 57.1% 66.2% 58.0% 57.5% 58.0%
Restaurant related expenses 991 1,029 745 744 913 850 1,283 1,233 1,279 1,378
% of sales 49.9% 50.5% 51.6% 50.8% 44.2% 42.1% 43.0% 43.5% 43.0% 42.5%
Restaurant EBITDA 317 330 208 253 467 303 692 411 431 503
Restaurant EBITDA Margin (%) 16.0% 16.2% 14.4% 17.3% 22.6% 15.0% 23.2% 14.5% 14.5% 15.5%
Page | 98
Company background
KFC: Channel sales contribution Sapphire Foods was set up in Sep 2015 through the acquisition of 270 KFC and
Pizza Hut stores in India and Sri Lanka by a group of leading private equity firms.
Sapphire Foods is a leading YUM franchise operator in the Indian subcontinent
with a presence in India, Sri Lanka and Maldives and a +650 store network. The
company is the largest international QSR chain in Sri Lanka in terms of revenue
and the number of restaurants operating in FY21. As of 9MFY23, India has 325
KFC and 274 Pizza Hut stores, Sri Lanka has 114 stores and Maldives has two
stores (1 KFC and 1 Pizza Hut). Sapphire Foods India Ltd was initially
incorporated with the name 'Samarjit Advisors Private Ltd' on 10 November 2009.
Subsequently, pursuant to a special resolution passed on 26 December 2014, the
company changed its name to Sapphire Foods India Private Ltd on 7 January 2015.
PH: Channel sales contribution
Store count Store network
Page | 99

QSR is a multi-year growth opportunity and Yum is very positive for store
growth potential in India. The restaurant has seen business success in multiple
countries over the last many years and is aware of globally tested models for
each geography. Penetration and consumer upgradation will remain key
catalysts for the category. QSR will remain attractive within the consumer
universe owing to potential store expansion with rapidly changing consumer
preferences. The profitability profile is still in the improving trajectory with
some phases of weaker margin metrics and some superior ones. However, a
large part of the earnings growth depends on store growth.
Sapphire during FY23-26E. Longevity will also play a key role in Sapphire’s
valuation despite seeing near-term growth challenges. We value Sapphire on a
50x P/E multiple on Jun’25 EPS to arrive at a TP of INR 1,000. We initiate
coverage on Sapphire with a REDUCE rating.
Exhibit 80: Consolidated per store metric

Per Store Metrics (INR/store) FY19 FY20 FY21 FY22 FY23E FY24E FY25E FY26E
Revenue 31.6 31.3 23.4 29.6 30.9 31.6 33.7 35.2
Gross Profit 21.4 21.4 16.3 20.6 20.8 21.3 23.0 24.2
Employee Expenses 5.5 5.4 4.5 4.7 4.1 4.3 4.4 4.5
Other Overheads - Store level 12.2 12.2 8.8 10.3 11.3 11.8 12.9 13.6
Restaurant EBITDA 3.7 3.8 3.0 5.5 5.4 5.2 5.7 6.1
EBITDA (Pre-IND AS) 1.2 1.6 0.9 3.1 3.7 3.5 4.1 4.4
IND AS Adjustment 2.7 2.8 2.0 2.1 2.2 2.3 2.3 2.3
EBITDA 3.9 4.4 2.9 5.3 5.9 5.8 6.3 6.7
% of Sales
Gross Profit 67.7% 68.4% 69.9% 69.6% 67.1% 67.4% 68.3% 68.7%
Employee Expenses 17.5% 17.2% 19.3% 16.0% 13.3% 13.6% 13.1% 12.9%
Other Overheads - Store level 38.5% 39.2% 37.6% 34.9% 36.4% 37.4% 38.3% 38.6%
Restaurant EBITDA 11.7% 12.0% 13.0% 18.7% 17.5% 16.4% 16.9% 17.2%
EBITDA (Pre-IND AS) 3.7% 5.0% 3.8% 10.5% 12.0% 11.2% 12.1% 12.5%
EBITDA 12.4% 14.0% 12.2% 17.8% 19.1% 18.5% 18.8% 18.9%
Page | 100
Financials
Profit & Loss
Net Revenues 13,404 10,196 17,216 22,988 27,344 33,383 38,784
Growth (%) 12.3% -23.9% 68.8% 33.5% 18.9% 22.1% 16.2%
A&P Expense 519 389 689 805 1,012 1,235 1,435
Other Expenses 4,424 3,508 5,458 7,165 8,622 10,896 12,839
EBITDA 1,856 1,244 3,050 4,366 5,029 6,241 7,310
EBITDA Growth (%) 27.1% -33.0% 145.2% 43.1% 15.2% 24.1% 17.1%
EBITDA Margin (%) 13.8% 12.2% 17.7% 19.0% 18.4% 18.7% 18.8%
EBITDA (Pre IND AS) 662 382 1,808 2,738 3,046 4,020 4,841
EBITDA Growth (%) - Pre IND AS 52.3% -42.3% 373.5% 51.5% 11.2% 32.0% 20.4%
EBITDA Margin (%) - Pre IND AS 4.9% 3.7% 10.5% 11.9% 11.1% 12.0% 12.5%
Depreciation 1,913 2,091 2,135 2,690 3,324 3,854 4,372
EBIT (57) (847) 915 1,677 1,705 2,387 2,937
Other Income (Including EO Items) 113 616 380 278 329 420 542
Interest 722 756 781 862 1,097 1,263 1,419
PBT (666) (987) 514 1,093 937 1,544 2,061
PBT Growth (%) -2.5% 48.2% -152.1% 112.7% -14.3% 64.8% 33.5%
PBT margin (%) -5.0% -9.7% 3.0% 4.8% 3.4% 4.6% 5.3%
Total Tax (17) 12 54 4 47 389 519
PAT (1,592) (999) 460 1,088 890 1,155 1,542
Adjustment 944 - - - - - -
Adjusted PAT (2,536) (999) 460 1,088 890 1,155 1,542
APAT Growth (%) na na na 136.7% -18.2% 29.8% 33.5%
Adjusted EPS (Rs) (50.5) (18.9) 7.2 17.1 14.0 18.2 24.3
EPS Growth (%) na na na 136.7% -18.2% 29.8% 33.5%
Balance sheet
SOURCES OF FUNDS
Share Capital - Equity 502 528 635 635 635 635 635
Reserves 4,742 4,271 9,436 10,524 11,415 12,570 14,112
Minority Interest 3 (12) (17) (17) (17) (17) (17)
Long Term Debt 540 490 420 370 320 270 170
Short Term Debt 172 267 192 142 92 75 100
Total Debt 712 757 612 512 412 345 270
Net Deferred Taxes 117 107 87 87 87 87 87
Lease Liability 5,744 5,692 7,280 9,472 11,034 12,634 14,042
Other Non-current Liabilities & Provns 88 99 110 121 133 146 161
Net Block 4,346 3,932 5,462 7,118 7,546 7,788 7,731
CWIP 184 213 320 300 300 300 300
Right-of-use assets 4,953 4,739 6,251 8,443 10,004 11,604 13,012
Other Non Current Assets 816 906 1,509 2,014 2,396 2,925 3,399
Intangible Assets 2,340 2,264 2,195 2,232 2,254 2,257 2,241
Non Current Investments 155 267 1,525 1,525 1,525 1,525 1,525
Inventories 444 474 652 939 1,108 1,314 1,506
Debtors 46 78 141 189 225 274 319
Other Current Assets 130 116 1,043 1,260 1,498 1,921 2,338
Cash & Equivalents 392 500 2,546 1,907 2,260 2,913 4,114
Creditors 1,307 1,440 1,991 2,922 3,448 4,087 4,685
Other Current Liabilities & Provns 592 608 1,504 1,670 1,970 2,335 2,510
Net Current Assets (887) (879) 886 (297) (327) 0 1,081
Page | 101
Cash flow
Reported PBT (1,610) (987) 514 1,093 937 1,544 2,061
Non-operating & EO Items 950 (409) (10) (278) (329) (420) (542)
Interest Expenses (Net) 722 756 781 862 1,097 1,263 1,419
Depreciation 1,913 2,091 2,135 2,690 3,324 3,854 4,372
Working Capital Change 155 118 592 543 383 327 119
Tax Paid - (28) (63) (4) (47) (389) (519)
Capex (1,430) (740) (2,853) (2,872) (1,952) (2,000) (1,936)
Free Cash Flow (FCF) 701 801 1,096 2,034 3,413 4,179 4,975
Investments 1,409 (39) (4,063) (544) (403) (533) (457)
Non-operating Income - - - - - - -
INVESTING CASH FLOW ( b ) (20) (779) (6,916) (3,415) (2,355) (2,533) (2,393)
Debt Issuance/(Repaid) (822) (180) (780) (89) (88) (54) (60)
Interest Expenses (699) (758) (780) (2,153) (2,719) (3,162) (3,583)
FCFE (819) (137) (464) (209) 606 963 1,332
Share Capital Issuance - 444 4,690 - - - -
Dividend - - - - - - -
Others - - - - - - -
FINANCING CASH FLOW ( c ) (1,520) (494) 3,130 (2,242) (2,807) (3,216) (3,643)
NET CASH FLOW (a+b+c) 590 268 162 (752) 203 430 874
EO Items, Others 2,063 159 (1,884) - - - -
Closing Cash & Equivalents 392 500 2,546 1,907 2,260 2,913 4,114
Ratios
PROFITABILITY (%)
GPM 67.8 69.6 69.3 66.9 67.1 68.1 68.5
EBITDA Margin 13.8 12.2 17.7 19.0 18.4 18.7 18.8
EBITDA Margin (Pre IND AS) 4.9 3.7 10.5 11.9 11.1 12.0 12.5
PBT Margin (5.0) (9.7) 3.0 4.8 3.4 4.6 5.3
APAT Margin (18.9) (9.8) 2.7 4.7 3.3 3.5 4.0
RoE (54.8) (19.9) 6.2 10.3 7.7 9.2 11.0
RoIC (or Core RoCE) (0.5) (7.6) 6.2 9.5 7.9 8.0 9.0
RoCE (16.2) (2.0) 7.8 9.9 8.6 8.4 9.4
EFFICIENCY
Tax Rate (%) 2.6 (1.2) 10.5 0.4 5.0 25.2 25.2
Inventory (days) 12.1 17.0 13.8 14.9 14.8 14.4 14.2
Debtors (days) 1.3 2.8 3.0 3.0 3.0 3.0 3.0
Payables (days) 35.6 51.5 42.2 46.4 46.0 44.7 44.1
PER SHARE DATA (Rs)
EPS (50.5) (18.9) 7.2 17.1 14.0 18.2 24.3
CEPS (12.4) 20.7 40.8 59.5 66.3 78.8 93.1
Dividend - - - - - - -
Book Value 104.4 90.9 158.5 175.6 189.6 207.8 232.1
VALUATION
P/E (x) (23.3) (62.3) 162.8 68.8 84.1 64.8 48.5
P/BV (x) 11.3 13.0 7.4 6.7 6.2 5.7 5.1
EV/EBITDA (x) 89.9 163.5 40.3 26.8 24.0 18.0 14.7
EV/Revenues (x) 4.4 6.1 4.2 3.2 2.7 2.2 1.8
OCF/EV (%) 3.6 2.5 5.4 6.7 7.3 8.5 9.7
FCF/EV (%) 1.2 1.3 1.5 2.8 4.7 5.8 7.0
FCFE/Mkt Cap (%) (1.4) (0.2) (0.6) (0.3) 0.8 1.3 1.8
Page | 102
500
0
1000
2000
1500
BUY:
200
400
600
800
0
ADD:
SELL:
Mar-22 Mar-22
Apr-22 Apr-22
May-22 May-22
Rating Criteria
Jun-22 Jun-22
Jul-22 Jul-22
1 Yr Price history
Aug-22 Aug-22
Sep-22 Sep-22
Sapphire
Oct-22
Oct-22
Nov-22
Nov-22
Dec-22
Dec-22
Jubilant Foodworks
>+15% return potential
Jan-23
Jan-23
Feb-23
Feb-23
REDUCE: -10% to +5% return potential
Mar-23
+5% to +15% return potential
Mar-23
> 10% Downside return potential
100
200
300
0
Mar-22
Apr-22
May-22
Jun-22
Jul-22
Aug-22
Sep-22
Oct-22
Nov-22
Devyani Intl.
Dec-22
Jan-23
Feb-23
Mar-23
500
0
1000
Mar-22
Apr-22
May-22
Jun-22
Jul-22
Aug-22
Sep-22
Westlife
Oct-22
Nov-22
Dec-22
Jan-23
Feb-23
Mar-23
Page | 103
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Disclosure:
We, Naveen Trivedi, MBA, Varun Lohchab, PGDM & Paarth Gala, BCom. authors and the names subscribed to this report, hereby certify that all of the views
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have issued advise/warning. The said observations have been complied with. We also certify that no part of our compensation was, is, or will be directly or indirectly
related to the specific recommendation(s) or view(s) in this report.
Research Analyst or his/her relative or HDFC Securities Ltd. does have/ does not have any financial interest in the subject company. Also Research Analyst or his
relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding
the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does have/does not have any material
conflict of interest.
Any holding in stock – No
HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475.
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QSR Thematic

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SECTOR THEMATIC

Naveen Trivedi Varun Lohchab Paarth Gala

1,500 1,500 1,500

1,000 1,000 1,000

Source: Global filling, Companies, Industry, HSIE Research

Source: Global filling, Companies, Industry, HSIE Research

India QSR: Fast changing store share

S apphire Domino's , S apphire Domino's , S apphire

Source: Companies, HSIE Research

Source: Companies, HSIE Research

India QSR penetration: More cities to participate for unit growth

Exhibit 2: India’s top-30 cities store per mn at 15 stores

Source: Companies, HSIE Research

Source: Companies, RHP, HSIE Research

FMCG companies’ margins; CD companies’ margin trajectory

Source: Companies, HSIE Research

Source: Global fillings, HSIE Research

Key Thesis: Jubilant FoodWorks

Key Thesis: Westlife Foodworld

Exhibit 7: Westlife Foodworld: Operating performance and expectation

Key Thesis: Devyani International

Key Thesis: Sapphire Foods

Companies EBITDA EBITDA Margin (%) PBT PBT Margin (%)

Global QSR: ‘Roots and Rise’

Global QSR: background

Source: Companies, Industry, HSIE Research

Global retail revenue and store addition

Global QSR: Business insights

Top markets: India is very important for Domino’s

Business mix: Domino’s margin profile is healthy

Top markets: India was never a top priority market

Business mix: McD’s margin profile is healthy

Exhibit 23: Stock performance

Exhibit 24: Global QSR CEO history

India QSR: ‘Roots and Rise’

1996 2012 1990 1999 2008

1995 2001 2014 1987 1995 2005

Source: HSIE Research Source: HSIE Research

Exhibit 27: India store network by top brands

Appetite for more brands

Different formats for QSR franchise

Source: HSIE Research Source: HSIE Research

Exhibit 31: Brands and its formats

Source: Companies, HSIE Research

Global QSR Parent: Commentary for India

Commentary Trend: 1990-2010

2006 1997 1996

we're looking at balanced approach in India.

Commentary Trend: 2010-2020

2011 2011 2010

Our KFC business model is getting stronger,

As you've recently heard from Jubilant

Commentary Trend: 2020-2022

2021 2021 2020

Meaning, they were achieved without any of

Exhibit 33: Phase-wise QSR store opening

Source: DPZ, HSIE Research Source: DPZ, HSIE Research

Exhibit 36: Domino’s store guidance

Exhibit 37: Domino’s SSSG in US vs. International

Source: DPZ, HSIE Research

YUM!: KFC, PH Parent

MCD: McD Global

Exhibit 44: McD projected store opening in 2023

Source: McD, HSIE Research