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Hopeful of demand recovery in retail sector: IIFL Securities

16 Feb 2024 , 10:31 AM

Analysts of IIFL Securities hosted Devyani International (DIL) and Sapphire Foods at the IIFL’s 15th Global Investor Conference in Mumbai. While management of both the companies indicated that QSR space still suffers from weak demand, they were confident of delivering better Same store sales growth (SSSG) as the overall macro environment gets better and the consumer sentiment improves. While fried chicken category is the least affected driving the overall growth for both the companies, the pizza space remains the most impacted. Analysts of IIFL Securities believe, a gradual recovery should follow through as consumer sentiment improves, maintaining a BUY rating on both the stocks. 

Overall macro environment still tough: 

While the overall macro still not favoring the QSRs, DIL mgmt. was of the view that aggregators like Zomato and Swiggy’s growth is relatively better as they have a bigger universe in terms of restaurants, cuisines and higher coverage of cities which evens out the growth, while Sapphire mgmt. believed that such growth is mainly coming from cloud kitchens which may not be economically viable in medium to long term. 

KFC an outlier: 

KFC for both the brands have been the savior in the current macro context, while Sapphire has been an outlier with better margins. DIL mgmt. mentioned that despite weak demand sentiment, KFC performance is relatively better as there is no other better alternative available this space expect Popeyes which has only 25 odd stores. Sapphire would focus to grow the fried chicken relevance through menu innovation and advertising and don’t expect much margin improvement. 

Pizza Hut bulldozed by high competition: 

DIL mgmt. mentioned that Pizza continues to remain more impacted considering the increased competition as the post covid competition which got eliminated is creeping back, despite this they would continue to open new stores considering a longer term view in mind. While Sapphire mentioned that they lowered their guidance of doubling PH store count from CY21 levels by 1 year (earlier 3 years vs 4 now) and would continue to focus on 20 minutes delivery were they are witnessing a continuous improvement

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