JM Financial Forecasts QSR Stocks to Benefit from GST 2.0 Reforms.

JM Financial Research expects QSR stocks like Jubilant FoodWorks, Restaurant Brands Asia, Devyani International, and Sapphire Foods to benefit from the new two-rate GST regime. Removal of the 12% and 28% slabs and shifting of items to the lower slab is expected to reduce raw material costs for QSR players. The proposed GST changes will also lessen the requirement for capex per store.

JM Financial Research has highlighted that the upcoming two-rate GST regime, set to be implemented by Diwali 2025, is expected to benefit Quick Service Restaurant (QSR) stocks, including Jubilant FoodWorks, Restaurant Brands Asia (RBA), Devyani International, and Sapphire Foods. The removal of the 12% and 28% GST slabs and the shift to lower rates will significantly reduce raw material costs for these companies.

According to JM Financial, QSR companies currently derive a substantial portion of their raw materials at higher rates. For instance, around 10-45% of raw materials fall under the 12% GST rate. This reduction in GST rates is expected to drive gross margin improvements for QSR companies, ranging from 20-90 basis points (bps). The proposed changes will also decrease the capital expenditure (capex) requirement per store, as the GST rate on air conditioners, for example, is likely to decline from 28% to 18%.

Despite the anticipated benefits, JM Financial has not yet revised its earnings estimates for the coverage QSR companies, pending the official implementation of the GST reforms. The GST Council is scheduled to consider the proposal in a two-day meeting in September.

In the first quarter of FY26, Jubilant FoodWorks reported a significant increase in revenue, surging 43% quarter-on-quarter (Q-o-Q) and 16.9% year-on-year (Y-o-Y) to ₹2,279.39 crore. However, net profit decreased by 54.7% Q-o-Q to ₹94.34 crore. RBA, on the other hand, saw a 19.6% Q-o-Q and 9% Y-o-Y increase in consolidated total income to ₹719.7 crore, but net profit decreased by 50.7% Q-o-Q and 13% Y-o-Y to ₹45.43 crore.

Analysts at Emkay Global and Dolat Capital upgraded Jubilant Food stock to 'Buy' after its Q1 results, with share price targets of ₹825 and ₹785, respectively. Mirae Asset Sharekhan maintained its 'Buy' rating with a slightly lower target of ₹750. JM Financial analysts, meanwhile, have 'Hold' ratings on RBA and Westlife Food (McDonald-owner) stocks, and 'Buy' ratings on Devyani International and Sapphire Foods.

References:
[1] https://www.thehindubusinessline.com/stocks/jubilant-foodworks-ltd/
[2] https://www.business-standard.com/markets/news/gst-2-0-to-benefit-qsr-stocks-like-jubilant-rba-devyani-jm-financial-125082500544_1.html