Promising Future For Indian Food Service Industry, Jubilant FoodWorks Preferred Stock, Motilal Oswal Projects

The Indian Food Service Industry (FSI) has been through a turbulent during the peak hours of the pandemic. However, after the second wave, the industry has started to recover and gained pace.

According to Motilal Oswal, "The US$ 58b Indian Food Service Industry (FSI) is expected to grow by ~9% CAGR over FY20-25E. Its drivers include: a) rising income levels, urbanization, and nuclearization, b) innovative offerings that appeal to the youth, and c) the changing dynamics of the space, with the growth of online food delivery and food tech."

In the industry, the organized players are experiencing a better momentum than the industry itself. Over FY20-25E, the organized industry is expected to deliver 15.4% CAGR, while the companies in this report are expected to deliver an aggregate sales CAGR of 18.5%, the research firm said. In India, the contribution of the organized players jumped to 38% in FY20, from 29% in FY15, and it is expected to see its share increase to 50% by FY25E.

The reasons behind the growth of the organized players are sustained high delivery levels compared to the past aided by increased technology adoption by consumers, incrementally strong gains from the unorganized peers, led by closures of 30-40% of the restaurants, customers' evident move towards more trusted brands, with better hygiene standards, accelerated store expansion by organized players, favorable cost outlook by variablizing them, and increased supply of real estate, due to closures of restaurants and other retail players, making it attractive for the organized FSI survivors to expand their store networks.

Motilal Oswal has especially mentioned the stocks of Jubilant FoodWorks and WLDL, as these stores have raised their potential number of stores and annual store addition targets.

Jubilant FoodWorks is the firm's preferred large-cap pick in this space. Their brands are Domino's, Dunkin, Ekdum, Chef Boss, and Popeyes. "JUBI has historically had the best business model for QSRs in India, with its emphasis on success in delivery (70% of sales prior to the COVID-19 outbreak). With the most efficient business model, JUBI has the best Balance Sheet, with a RoCE of over 20% for many years now (barring a blip in FY21 due to the COVID-19 outbreak). This helps fund its profitable store expansion as well. We maintain our Buy rating with a Target Price of Rs. 4,850/share", Motilal Oswal stated in a report.