Post Covid, it is advantage global QSRs: Karan Taurani

Global QSRs are gaining a lot of market share from the unorganised space which is losing because of the loyalty, hygiene factor and also many of them have shut down because of working capital and liquidity issues, says Karan Taurani, Senior V-P, Elara Securities.

How do you think the consumer sentiment is panning out? In my personal experience, all Mumbai restaurants seem booked over the weekends or there is a long waiting line. It seems like demand is back.
Yes. The second wave hit on the F&B industry was not as bad as it was during the first wave. Multiple factors here. One, from restaurants’ standpoint, in terms of revenue, delivery was allowed as an essential during the entire second wave of lockdown versus the first wave.

Secondly, after a year passed by, people realised that Covid does not spread through food and that also took away the fear factor from the consumer mindset. Also, customers are willing to go to restaurants which are clean and hygienic and have proper safety measures. These are the factors that are driving the growth in QSR. Most of the listed players today in the country are in the organised space and they are part of the global QSR chains. They have a huge advantage here and they are gaining a lot of market share from the unorganised space which is losing because of the loyalty, hygiene factor and also many of them have shut down because of working capital and liquidity issues.

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What do you think about the valuations of companies like Jubilant and

Westlife

in the context of this changing landscape and in the context of their own bullish projections on growth over the coming years?
The organised players are gaining a big amount of market share. During Covid, smaller chains and stand alone restaurants which were operating faced a lot of cash flow issues and were not able to infuse capital in business and they had to scale down or probably shut shop in many places. That has been a big advantage for large global QSRs because they have really ramped up their expansion plans.

Jubilant was adding close to 120-130 stores a year, their guidance for next year is about 170-180 stores. For these chains, it is a long term structural story. It is not a one or two year phenomenon. It is a trend which might be here to stay because we do not know when these chains which are scaling down or when the restaurants which have shut down will come back into the ecosystem.

Secondly most of these companies have seen a huge rerating — from Jubilant to Westlife. Their multiples are much ahead of what their average EV/EBITDA multiple used to be. Jubilant is probably at around 37-38 times EV/EBITDA while Westlife is around 33-34 times EV/EBITDA.

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