McDonald’s Lovin' It in India

McDonald’s Corp. (MCD - Analyst Report) is a leading fast food chain operating more than 32,000 restaurants in over 118 countries. The company mainly operates and franchises quick-service restaurants (QSRs) under the McDonald’s brand. Even in the midst of an economic crisis, the company has remained largely unruffled by the slowdown and is planning to accelerate its expansion in India.

McDonald’s India, a wholly owned subsidiary of McDonald’s Corporation is operated as a joint-venture managed by two Indians, Amit Jatia and Vikram Bakshi. They are the local partners responsible for running McDonald's in India. While Amit Jatia's company, Hardcastle Restaurants manages McDonald’s operations in western and southern India, Vikram Bakshi’s Connaught Plaza Restaurants manages restaurants’ operations in northern and eastern India.

McDonald's plans to open 40 outlets in India during the current financial year of 2009-10, bringing the total to almost 200 restaurants. Currently, McDonald’s operates over 160 restaurants in India. The Indian market has been recession-proof to some extent and provides ample growth opportunities. Moreover with the change in tastes and dining habits of people in India, restaurant traffic has been increasing in the range of 10% to 15% per month compared to the corresponding month last year.

By 2015, the company targets to open 180-190 company-owned restaurants with an estimated investment of up to $120.8 million (INR 570 crore). The proposed investment will be a blend of internal funds and debt. Amit Jatia, the managing director of Hardcastle Restaurants expects sales to increase by 35% in 2009.

McDonald's in the fast food segment competes with Yum Brands (YUM - Analyst Report), Wendy’s/Arby’s Group (WEN - Analyst Report), Jamba Inc. (JMBA - Snapshot Report) and Einstein Noah Restaurant Group (BAGL - Snapshot Report). McDonald's continues to report strong same-store sales, driven by the consumer trade down from casual dining and menu variety. Global comparable sales rose 4.3% in 1Q09 (U.S. +4.7%, Europe +3.2%, APMEA +5.5%). We maintain a Buy rating on the stock with a six-month target price of $59.00. Yesterday, MCD closed at $57.23, trading at P/E ratio of 14.95x based on TTM (trailing twelve months) EPS.