Indian quick-service restaurant (QSR) industry to witness strong growth in the near to medium term with an expected ramp-up in store additions, said the rating agency Icra.
The rating agency estimated that the top five players in the domestic QSR industry are likely to add 2,300 stores between FY2023-FY2025 with an estimated capex at around Rs 5,800 crore (excluding refurbishment) for this period, twice that of the levels seen during the pre-Covid era.
Given the favourable demand outlook, the domestic QSR industry is looking at aggressive store capex over the medium term.
The majority of the capex is expected to be funded through internal accruals and cash on the books, having raised money through the pre-IPO /IPO route in the last two fiscals to support the planned capex in the near to medium term, it added.
Suprio Banerjee, Vice President and Sector Head, Corporate Ratings, Icra said, “The capex spree in the QSR industry is likely to be driven by favourable demographics, steady urbanisation in India, growing per-capita GDP and significant headroom available in terms of QSR penetration, compared to a developed economy like the US.”
He mentioned that increasing the formalisation of the sector is expected to improve the penetration levels considerably. Also, higher technological absorption amidst the changing consumer behaviour post-Covid, wherein delivery as a medium is much more accepted, shall support the increasing penetration.
“The CAPEX over FY2023-FY2025 is estimated at around ~Rs. 1,800 crore to Rs. 2,000 crore (excluding refurbishment) per annum, which would be around ~2.5 times that of the levels seen in FY2020 (pre-Covid),” Banerjee stated.
With the waning effect of the pandemic and increased vaccination coverage, the industry witnessed a strong growth momentum with notable recovery seen in the ADS levels to Rs 85,789 in FY2022 compared to Rs 67,479 in FY2021.
The ADS further rose to Rs 97,696 in 9M FY2023 compared to Rs 85,355 in 9M FY2022, according to the rating agency.
