NRAI projects 13% CAGR growth for food services sector by FY28; here are key stocks to watch

The National Restaurant Association of India (NRAI) in its report has projected a 13.2% compounded annual growth rate (CAGR) by FY2027-28 for the organised food services sector.

The NRAI projects the market size of India’s food service sector, which has leading restaurant players like Jubilant Foodworks and Devyani International, and restaurant aggregators like Zomato, to rise to ₹7.76 lakh crore in FY 2027-28 from ₹5.69 lakh crore in the last financial year.

According to the apex industry body of restaurants, India is expected to become the third-largest food services market, surpassing Japan.

According to the report, the sector provides over 85 lakh jobs and contributes 2% of the GDP as well as 1.4% of the total GST collections in the country.

The food services sector has logged a strong recovery in recent years from the impact of the COVID-19 pandemic which shrunk the industry's size to ₹2 lakh crore in FY 2020-21 from ₹4.24 lakh crore in FY 2019-20, the 5th India Food Services Report commissioned by NRAI said. According to the NRAI report, the market size is expected to hit ₹6.13 lakh crore in the current financial year.

Amid the upbeat food services sector outlook, here are the key stocks from the quick-service (QSR) restaurant segment that should on your radar

Jubilant Foodworks

Jubilant Foodworks reported a multifold jump in net profit to ₹208.24 crore for the March quarter of FY24 compared to ₹28 crore in the year ago period. Revenue rose by 23.85% to ₹1,572.79 crore in the March quarter. The company management had sounded bullish on store expansion and projected higher growth in future.

Devyani International

Westlife Foodworld

Westlife Foodworld had reported a 96.22% decline in consolidated profit to ₹76 lakh in the last quarter of FY24 against ₹20.09 crore loss in the quarter ended in March 2023. Revenue increased by 1.64% ₹552.7 crore in the March quarter of FY 2023-24 against ₹543.8 crore in the year-ago quarter.

Sapphire Foods India

Sapphire Foods reported a 98% decline in net profit for the March quarter at ₹2.39 crore compared to ₹135.59 crore in the year-ago period. Its revenue rose by 12% year-on-year to ₹631.69 crore in the March quarter of FY24 compared to ₹560.41 crore in the year-ago quarter.

Restaurant Brands Asia

Restaurant Brands Asia Ltd, which runs Burger Nation food chain in India, dropped 3.3% to ₹110.2 per share on the NSE. However, the stock recovered some of the losses to trade at ₹113.7 apiece, down 0.15%, on the NSE around 2:30 pm. The stock is trading lower 2.65% in 2024 so far, while in the last one year it has gained 3.32%.

Restaurant Brands Asia has posted a widening of loss to ₹85.26 crore in the March quarter of FY2024 against a loss of ₹73.37 crore in the year-ago quarter. Its sales increased by 16.19% to ₹597.14 crore in the last quarter of FY2024 against ₹513.95 crore in the year-ago quarter.

Barbeque-Nation Hospitality

Restaurant chain Barbeque-Nation Hospitality Ltd shares dropped 2.77% to ₹550 apiece on the NSE. The stock is down around 16% in 2024 so far while in the past year shares declined 15%. Shares of the Barbeque Nation were trading at ₹557.25 apiece, down 1.49%, on the NSE around 2:15 pm.

Barbeque-Nation Hospitality posted a loss of ₹ 1.07 crore in the March quarter of 2024 against a loss of ₹11.82 crore in the year-ago quarter. Sales increased by 6.36% to ₹298.05 crore in the March quarter of FY24 compared to ₹280.23 crore in the year-ago quarter.

Zomato

Leading restaurant aggregator Zomato Ltd shares dropped over 3% to an intraday low of ₹205.74 apiece on the NSE. However, the stock recovered some of the losses to trade at ₹210.88 apiece, down 0.79%, at 2:15 p.m. Zomato shares have zoomed 67% in 2024 so far, while in the past year, the stock has rallied 179%.

Zomato reported a consolidated net profit of ₹175 crore for the March quarter of FY 2023-24 against a loss of ₹188 crore in the last quarter of FY23. The company also announced that its quick commerce platform Blinkit was profitable on an adjusted EBITDA basis as revenue doubled to ₹769 crore. The company also announced a rapid store expansion in the quick commerce business, targeting 1,000 stores by March 2025.

Key challenges for food services sector despite growth potential

The national body representing the organised food services businesses across India also highlighted the operational and regulatory challenges faced by the sector in its report. In its 5th India Food Services Report, NRAI urged the government for a dedicated ministry at the Centre. The industry body emphasised that currently the food services businesses face several issues as they have to deal with multiple ministries and departments.

NRAI has also demanded industry status from the government to ensure growth for the food services sector. The lack of industry status prevents the sector from many benefits. NRAI has also sought several initiatives from the government, like Input Tax Credit (ITC) under GST, simplification of licence rules, and permission for restaurants to operate for longer hours.

Apart from the regulatory challenges, restaurants and food service providers also face several operational issues, such as the high cost of food items due to rising inflation, rising real estate costs, supply chain disruptions, and a fragmented market. The shortage of skilled manpower, high taxes, and local permit issues also affect restaurants.