The quick service restaurant sector may see a slowdown in demand in the fourth quarter of fiscal 2025, but recovery is expected in the first half of fiscal 2026, Goldman Sachs said.
Sapphire Foods India Ltd. and Devyani International Ltd.— both KFC franchisees — are among the brokerage’s top picks. These hold their place as top picks due to the long-term growth potential for KFC in India and limited competition in the fried chicken segment.
Westlife FoodWorld Ltd., which operates McDonald’s restaurants in the south and west of India, also got a ‘buy’ rating from Goldman Sachs. The expectations of recovery are primarily led by the recent menu changes. Jubilant FoodWorks Ltd., the operator of Domino’s in India, got a ‘neutral’ rating.
Dull Demand, Recovery Expected In 2026
Goldman Sachs expects that most QSR companies will experience a slowdown in same-store sales growth in the fourth quarter of FY25.
Jubilant FoodWorks is expected to continue to perform well, with an estimated SSSG of 10% year-over-year. This is slightly lower than the 12.5% year-over-year growth in the previous quarter, but this is attributed to the company’s ongoing focus on innovation and providing value, like waiving delivery charges.
Both KFC franchisees are expected to show a marginal improvement compared to the previous quarter. The brokerage notes that the improvement is not significant when adjusted for the base.
Westlife is also likely to see a moderation of up to 1% year-over-year in the fourth quarter, according to the brokerage and is partly due to a significantly lower base.
Weak Urban Activity And Soft Demand
According to the India Monthly Activity Chartbook, most indicators of urban activity showed a decrease in February compared to January.
This suggests that QSRs, which are largely driven by urban demand, and may have experienced a weak quarter due to the broader slowdown.
Further, QSR companies are likely to have seen a negative impact on their sales growth. According to the brokerage, this is due to having one less day in the fourth quarter of FY25, compared to the fourth quarter of FY24.
Income Tax Cuts Could Catalyse Recovery
The recently announced income tax cuts will benefit QSR companies by increasing disposable incomes, according to Goldman Sachs.
The sector is already showing early signs of recovery, according to the brokerage, supported by improved affordability over the past two years.
This has been on the back of limited price increases after significant hikes in 2022. The increase in disposable incomes starting in April 2025 is expected to further accelerate this recovery.
Goldman Sachs Top Picks
Goldman Sachs has lowered its Ebitda estimates for some QSR companies. This adjustment is due to slightly weaker than expected results in the fourth quarter.
The brokerage maintains its ‘buy’ rating on Sapphire Foods and Devyani International, citing the strong long-term growth potential of KFC in India.
Westlife also retained a ‘buy’ rating, with the expectation that recent menu changes will drive recovery. Jubilant Foodworks has also been given a ‘neutral’ rating.
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