Equity Research INDIA June 05, 2022 BSE Sensex: 55769 ICICI Securities Limited Consumer Staples & Discretionary is the author and distributor of this report Menu comparison across top Quick Service Restaurants Why read this report: Sector update Our primary analysis of menu prices of international QSR brands (in India) to better understand the positioning (value vs premium). The findings are a mix of quantitative (actual prices) and qualitative (our interpretations): Pizza Hut / KFC are comparatively premium-positioned by ~5-10% / ~2-3% within their segments vs Domino’s / Popeye’s which are value-positioned. Within burger chains, we found that Burger King is cheaper by ~8-10% than McDonald’s in the affordable segment, while Burger King is priced higher by ~20% to McDonald’s in the premium segment. Domino’s / McDonald’s / KFC appear to have comparatively better Indianised their menu compared to Pizza Hut / Burger King / Popeye’s. We believe premium QSRs are better placed to implement price increases with relatively lower adverse effects of price elasticity. We reckon Pizza Hut and KFC have attempted to maintain their (slightly) premium market positioning. We like Sapphire (given its better demographic profile in terms of GDP/income levels vs the other Yum! franchisees). We also like JUBI at the current stock price as most of the concerns appear to be priced in. We stay long-term believers in Westlife. However, we have no investment opinion on Devyani; we reckon Restaurant Brands India (earlier: Burger King India) is a cyclical recovery play. (Link). We note that a few QSRs have tiered pricing model (based on channel and location). We have compared prices of Mumbai location for burger and pizza QSRs and of Bangalore for fried chicken. Domino’s vs Pizza Hut: Comparison between Domino’s and Pizza Hut suggests that the latter is premium in the range of ~5-10% depending on the toppings and continues to maintain its slightly premium positioning vs. Domino’s. This premium is maintained despite JUBI’s price recent 5% price hike (after a ~4-5% hike in Dec’21). Domino’s provides a wide range of toppings vs its peers with comparatively more indianised flavours. Pizza Hut on the other hand has fewer variations but unique flavour with simple toppings. We note that Pizza Hut does offer better (local) deals on its Pizzas which (in some cases) offsets the price differential. Burger King India vs McDonald’s: Burger King India appears to be cheaper with Research Analysts: its Stunner menu range vs McDonald’s by ~8-10% in the value segment. At the Manoj Menon premium-end, McDonald’s is cheaper by ~20% vs Burger King. McDonald’s also has manoj.menon@icicisecurities.com a better offering on Indian regional flavours (Tikki Burger, Spicy Paneer and +91 22 6807 7209 Maharaja, Spicy Chicken, Chicken Maharaja, Chicken Kebab etc.). Innovation of Aniket Sethi aniket.sethi@icicisecurities.com gourmet burgers by McDonald’s also appears to be well accepted by consumers. +91 22 6807 7632 Karan Bhuwania KFC vs Popeye’s: Popeye’s, launched with a few stores in Bengaluru, appears to karan.bhuwania@icicisecurities.com have a better pocket-friendly strategy, in our view. It is cheaper to KFC in the range +91 22 6807 7351 of ~2-3%, while its menu has limited options currently compared to KFC, which caters to a wider variety of products. Please refer to important disclosures at the end of this report Consumer Staples & Discretionary, June 05, 2022 ICICI Securities Domino’s vs Pizza Hut Pricing and menu comparison Domino’s is a market leader in the segment and caters to a wide range of topping vs its peers with indianised flavour. The pricing is competitive considering the impact of inflation. The comparison between regular and medium base of Domino’s vs Pizza Hut, suggests Domino’s is cheaper in the range of ~5-10% depending on the toppings. Innovation with Indianisation On the pizza spread, the competition is tough as experimentation of toppings is a continuous process where the generic veggie pizza is common between the two followed by the traditional chicken flavour. The uniqueness is visible - Domino’s with more Indian regional flavour, which attempts to reach consumers across all age groups (examples of Achari Do Pyaza, Kadhai Paneer etc.). The different base size offering by Domino’s over Pizza Hut has its competitive advantage with pocket-friendly pricing for millennials and their parents while hosting birthday parties and other events. While we compare Dominos (hand-tossed) with Pizza Hut (Pan) we note that, Dominos charges more for its Fresh Pan Pizza by INR30/INR40 on its Regular / Medium pizza. Table 1: Domino’s vs Pizza Hut (hand-tossed vs pan) (Rs) Regular Medium Regular Medium Comparison Dominos Price* Pizza Hut Price* Margherita 109 239 Margherita 129 279 18% 17% Cheese & Corn 209 379 Corn & Cheese 179 359 -14% -5% Cheese & Tomato 209 379 Tandoori Onion 179 359 -14% -5% Double Cheese Margherita 209 379 Double Cheese 219 439 5% 16% Fresh Veggie 209 379 Veggie Feast 219 439 5% 16% Farmhouse 259 459 Country Feat 269 519 4% 13% Mexican Green Wave 259 459 Farmers Pick 269 519 4% 13% Veggie Paradise 259 459 Veggie Lover 269 519 4% 13% Paneer Makhani 299 549 Double Paneer Supreme 329 589 10% 7% Deluxe Veggie 299 549 Veg Exotica 329 589 10% 7% Veg Extravaganza 299 549 Veggie Supreme 329 589 10% 7% Indi Tandoori Paneer 299 549 Tandoori Paneer 269 519 -10% -5% Chicken Sausage 199 369 Chicken Sausage 209 439 5% 19% Chicken Golden Delight 309 559 Chicken N Corn Delight 269 519 -13% -7% Chicken Fiesta 309 559 Chicken Pepper Crunch 329 589 6% 5% Chicken Pepperoni 359 599 Chicken Pepperoni 269 519 -25% -13% Chicken Dominator 359 599 Chicken Supreme 369 629 3% 5% Non-Veg Supreme 359 599 Triple Chicken Feast 369 629 3% 5% Indi Chicken Tikka 359 599 Chicken Tikka Supreme 369 629 3% 5% *Price as on May 02, 2022, Location – Mumbai #We have assumed hand-tossed pizza for Domino’s and pan pizza for Pizza Hut Source: Company data, I-Sec research 2 Consumer Staples & Discretionary, June 05, 2022 ICICI Securities Burger King vs McDonalds Table 2: McDonalds vs Burger King (price comparison) McDonald's Price* (Rs) Burger King Price* (Rs) Comparison McAloo Tikki 49 Crispy Veg Burger 45 -8% Mexican McAloo Tikki 56 Veg Makhani Burst 50 -11% McVeggie 134 BK Classic Burger - Veg 99 -26% BK Classic Burger - McChicken 129 Chicken 109 -16% Masala McEgg Burger 56 King Egg 50 -11% McSpicy Paneer 176 Paneer Royale Burger 209 19% McSpicy Chicken 176 Fiery Chicken Burger 209 19% Veg Maharaja Mac 205 Veg Whopper 169 -18% Chicken Maharaja Mac 214 Chicken Whopper 199 -7% Gourmet Burger Triple Cheese American Veg Burger 199 Hot N Cheesy Burger 209 5% McSpicy Premium Veg Burger 218 Indie Tikka Whopper 209 -4% McSpicy Premium Chicken Indie Tikka Chicken Burger 243 Whopper 239 -2% *Price as on May 02, 2022, Location - Mumbai Source: Company Data, I-Sec research Pricing and menu comparison In the value segment, Burger King appears cheaper vs McDonald’s. If we compare McAloo Tikki and McVeggie by McDonald’s with Crispy Veg Burger and BK Veg Classic Burger of Burger King, Burger King is cheaper by 8% and 26%. The preference of varied veggie combination and the first mover advantage of McDonald’s have likely placed itself as a preferred choice for consumers. At the premium end, McDonald’s is cheaper by ~19% vs Burger King (McSpicy paneer vs Paneer Royale Burger; McSpicy Chicken vs. Fiery Chicken Burger). Localisation is key With both the chains having their bestselling burgers, we believe local culture and religious beliefs prevail and influence food habits in India. McDonald’s has a touch on Indian regional flavours with the launch of its Tikki Burger, Spicy Paneer and Maharaja Burger on the veg and the Spicy Chicken, the Chicken Maharaja (a double patty) and its chicken kebab on the non-veg space with a tandoori twist. On the other end, Burger King, has its fully loaded whooper with some indianised offering (Indie Tikka under the whooper range and a spicy burger either with paneer or chicken). 3 Consumer Staples & Discretionary, June 05, 2022 ICICI Securities KFC vs Popeye’s Pricing and menu comparison On the pricing front, Popeye’s and KFC are closely priced with the former cheaper in the range of ~2-3%. As of now Popeye’s offers a limited menu as compared to KFC. While on the Rice Bowl comparison, Popeye’s is cheaper by 19% on chicken rice and 6% cheaper on veg rice. Table 3: KFC vs Popeye’s (price comparison) KFC Price* (Rs) Popeye’s Price* (Rs) Comparison Chicken Buckets 2pc Smoky Red Chicken 195 Lemon Chili Grilled Chicken (2 pc) 189 -3% 4 pc Hot & Crispy Chicken 399 Popeye’s Signature Chicken - Classic (4 pc) 389 -3% 2 Pc Hot & Crispy Chicken 195 Popeye’s Signature Chicken - Classic (2 pc) 199 2% Burger Classic Zinger Burger 179 Classic Chicken Sandwich 179 0% Veg Zinger Burger 169 Cajun Veg Burger 159 -6% Rice Buckets Grilled Chicken Biryani Bucket 209 Spicy Chicken Rice with Grilled Chicken 169 -19% Veg Biryani Bucket 169 Spicy Veg Rice with Cajun Veg Popcorn 159 -6% *Price as on May 02, 2022 (Excl: GST), Location - Bangalore Source: Company Data, I-Sec research 4 Consumer Staples & Discretionary, June 05, 2022 ICICI Securities Valuation and risks: We value stocks in our coverage universe on DCF (WACC and TG ranging from 10-13%, 3-6% respectively) except Godrej Consumer and Tata Consumer, which we value on SoTP basis. Key upside risk is: better-than- expected gross margins due to correction in input prices. Key downside risk is unexpected irrational competition due to deceleration in general consumption demand. Please refer table 4 for target prices and ratings. Table 4: Valuation summary (QSR) CMP TP PE (x) EV/EBITDA (x) ADTV Market cap. EV/ sales (x) Company (Rs) (Rs) Rating FY23E FY24E FY23E FY24E (US$ mn) (Rs bn) (US$ bn) FY23E FY24E Restaurant Brands Asia 105 125 ADD NM 129 36 23 3.8 52 0.7 2.7 2.1 (Burger King India) Jubilant Foodworks 543 720 BUY 61 44 38 29 47.4 359 4.6 6.7 5.4 Sapphire Foods 998 1,700 BUY 57 34 13 10 2.3 64 0.8 2.8 2.1 Westlife Development 461 600 BUY 77 50 36 26 1.2 72 0.9 3.6 3.0 P/B (x) P/CEPS (x) RoE (%) RoCE (%) CAGR (FY22-24E) (%) Company FY23E FY24E FY23E FY24E FY23E FY24E FY23E FY24E Revenues EBITDA PAT Restaurant Brands Asia 7 6 24 17 (0) 5 5 9 36 222 NM (Burger King India) Jubilant Foodworks 12 10 35 28 24 25 20 21 22 29 38 Sapphire Foods 6 5 16 12 10 15 16 23 32 46 99 Westlife Development 13 10 30 23 18 23 27 34 24 89 353 Source: Company Data, I-Sec Research Price charts Restaurant Brands Asia (Burger Jubilant Foodworks Sapphire Foods Westlife Development King India) 250 1,000 1,600 700 1,500 600 200 800 1,400 500 1,300 (Rs) (Rs) (Rs) 150 600 400 (Rs) 1,200 400 1,100 300 100 1,000 200 50 200 900 100 Jun-19 Jun-20 Jun-21 Jun-22 Jan-22 May-22 Jun-22 Mar-22 Feb-22 Dec-19 Dec-20 Dec-21 Apr-22 Nov-21 Dec-21 Jun-21 Jun-22 Jun-19 Jun-20 Jun-21 Jun-22 Mar-21 Mar-22 Dec-20 Dec-21 Sep-21 Dec-19 Dec-20 Dec-21 Source: Bloomberg 5 Consumer Staples & Discretionary, June 05, 2022 ICICI Securities In case of industry/sector reports or a report containing multiple stocks, the rating/recommendation for a particular stock may be based on the last released stock specific report for that company.” This report may be distributed in Singapore by ICICI Securities, Inc. 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New I-Sec investment ratings (all ratings based on absolute return; All ratings and target price refers to 12-month performance horizon, unless mentioned otherwise) BUY: >15% return; ADD: 5% to 15% return; HOLD: Negative 5% to Positive 5% return; REDUCE: Negative 5% to Negative 15% return; SELL: < negative 15% return ANALYST CERTIFICATION I/We, Manoj Menon, MBA, CMA; Aniket Sethi, MBA, B. Tech; Karan Bhuwania, MBA; authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. 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. Analysts are not registered as research analysts by FINRA and are not associated persons of the ICICI Securities Inc. 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