QSR stocks near turning point as risk-reward turns favorable, says Motilal Oswal

The quick-service restaurant (QSR) sector in India has hit a sweet spot after facing significant market turbulence over the past few years, offering an attractive risk-reward profile for equity investors, according to domestic brokerage Motilal Oswal Financial Services.

Underperformance creates attractive entry points

Listed QSR stocks have gone through a bruising phase over the last four years, with their combined market value falling by roughly 20% between FY22 and FY26. Over the past twelve months alone, the sector saw a sharp 25% drop as elevated inflation, subdued same-store sales growth (SSSG), and cautious consumer spending took a toll on operating performance and stock valuations.

However, Motilal Oswal believes these structural drag factors are now reaching a bottom. With valuation multiples cooling off from their historical highs and quarterly business updates showing initial signs of operational recovery, the brokerage sees a favourable margin of safety for investors looking to buy into quality consumer names.

Long-term consumption tailwinds intact

India’s organised food ecosystem remains heavily underpenetrated compared with global markets like China or Western economies, leaving substantial room for long-term growth. The domestic QSR market is projected to reach Rs 80,000 crore by 2027, up from Rs 18,800 crore in 2020, representing a compound annual growth rate (CAGR) of around 23%.

The brokerage expects demand to pick up steadily through FY27, backed by stabilising urban consumption, softening input costs, and seasonal demand upticks. At the same time, shifting consumer habits toward digital ordering, delivery apps, and quick-bite options continue to help organised brands take market share from local, unorganised eateries.

Stock picks and investment rationale

Despite near-term margin pressures, major QSR players have pushed ahead with network expansion, opening new outlets across tier-two and tier-three cities to build scale. Operators are also tweaking store sizes, introducing value-oriented menus, and driving operational efficiency to protect store-level profitability.

Motilal Oswal remains selective, favouring companies with robust delivery footprints, lean balance sheets, and proven execution capabilities.

Key stock calls within the space

Jubilant FoodWorks: Motilal Oswal remains bullish on the Domino’s Pizza operator, rating it as a top pick in the QSR basket due to its dominant delivery infrastructure, deep supply chain, and steady store expansion pipeline.

Sapphire Foods India: The brokerage maintains a ‘Buy’ recommendation on Sapphire Foods with a target price of Rs 220. The call is supported by strong momentum in its KFC portfolio, improving store economics, and expectations of scale benefits from its proposed merger with Devyani International.

Westlife Foodworld & Devyani International: The brokerage also highlights Westlife Foodworld (McDonald’s operator in West and South India) and Devyani International for their focus on unit economics, cost optimisation, and footprint expansion in high-growth regional markets.

Motilal Oswal suggests that long-term investors should use current valuation levels to gradually accumulate quality QSR stocks as industry volume growth recovers.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)