Devyani International Limited - IPO Note


Devyani International Limited - IPO Note


Price range
Rs. 86-90
Issue Period:
Aug 04, 2021
Aug 06, 2021
August 04, 2021

Stock Info

CNX Nifty
Face value (Rs.)
Market lot
Issue size
Rs. 1838 cr.
Public Issue
204222218 cr. shares
Market cap post IPO
10823 cr.
Equity Pre - IPO
115.36 cr.
Equity Post - IPO
120.25 cr.
Issue type
Fresh issue & offer for sale

Shareholding (Pre IPO)

Source: Ace equity, StockAxis Research

Shareholding (Post IPO)

Source: Ace equity, StockAxis Research

Largest franchise partner for Yum in India:
DIL operates franchises of several highly recognized global QSR brands and is the largest franchise partner for Yum in India. DIL operates 284 KFC stores (a global chicken restaurant brand with over 25,000 restaurants in over 140 countries), 317 Pizza Hut stores (the largest restaurant chain in the world with 17,639 restaurants) and 44 Costa Coffee stores (a global coffee shop chain with over 3,400 coffee shops in 31 countries) in India as of June 30, 2021.

Cluster-based expansion across India:
The company follows cluster-based expansion approach and therefore has been able to address demand in high-potential domestic markets. DIL has a strong presence in key metro regions of Delhi NCR (comprising Faridabad, Ghaziabad, Gurgaon, Delhi and Noida), Bengaluru, Kolkata, Mumbai and Hyderabad. DIL has established a standardized and scalable development model for their stores based on their know-how and experience that has led to faster and more cost-effective roll outs. Their expansion model is supported by streamlined store network planning, a robust supply chain network and an efficient staff recruitment and development program. The other factors considered as part of the cluster based approach includes retail presence at a particular location along with brand recognition and brand recall value. In assessing the expansion of their store network, they target an optimal mix across different formats, including dine-in, delivery, take-away and drive-through.

Focus on improving unit-level performance:
The company intends to continuously manage unit economics and achieve economies of scale. DIL has been able to rationalize certain stores that were loss-making to improve their overall store level profitability. They have shut down airport concession stores and non-performing stores to improve efficiencies. Store rationalization will help improve their margins going forward. They also intend to switch from frozen supplies to chilled supplies which will reduce transportation and storage costs. The large store network coupled with the supply chain infrastructure will allow them to improve their gross margins.

Delivery business to drive future growth:
Given the COVID-19 pandemic, DIL anticipates considerable growth in the delivery business. Revenue generated from delivery sales represented 51.15% of the revenue from operations in their Core Brands Business in FY20 and increased to 70.20% of the revenue from operations in their Core Brands Business in FY21. To facilitate growth, DIL intends to open additional stores for Pizza Hut and KFC that will be primarily focused on delivery. Their focus going forward will be to have limited dine-in capacity at their delivery focused stores and to work with third-party delivery aggregators to increase the number of dedicated riders for KFC and Pizza Hut.


Highly competitive market:
DIL competes within the food service industry & the QSR sector not only for customers, but also for personnel and suitable sites for their restaurants. Their biggest competitors include international QSR chains operating in India, such as McDonalds, Domino’s Pizza, Subway, Starbucks, and Burger King. DIL may or may not be able to identify and obtain suitable store locations, which could impact their ability to achieve growth.

Loss making business:
The company has been reporting losses for the last three years. Temporary as well as permanent store closures and reduced store-level operations, including reduced operating hours and dining-room closures as mandated by regional regulatory bodies due to pandemic will further add pressure on the financial performance of DIL.

Poor capital allocation in the past:
The company had invested in tea trading business (not related to the core business) under the brand name of TWG which had operations in India and UK. It reported loss of Rs 43 cr in FY20 and hence was sold off in FY21 by way of slump sale. Any un-related investments in future could be detrimental to the business.

Company Description

Incorporated in 1991, Devyani International Ltd (DIL) is the largest franchisee of Yum Brands and among the largest quick-service restaurant (QSR) chain operators in India on a non-exclusive basis. The company operates 696 stores across 166 cities in India. Company’s business is broadly classified into 3 verticals that include:

  • Stores of KFC, Pizza Hut and Costa Coffee operated in India (KFC, Pizza Hut and Costa Coffee referred to as “Core Brands”)
  • Stores outside India primarily comprising of KFC and Pizza Hut stores operated in Nepal and Nigeria (International Business)
  • Other operations in the F&B industry, including stores of their own brands such as Vaango and Food Street (Other Business)

DIL’s core brands business, together with their international business, represented 83.01%, 82.94% and 94.19% of the revenue from operations in fiscals 2019, 2020 and 2021, respectively.


The company is expanding its business but with a leaner cost structure by adding 100+ smaller stores for KFC & Pizza hut in FY21. They intend to continue with this strategy for next 2-3 years. Increasing internet and mobile penetration within India and the advent of food delivery apps are key factors to lead consumers away from traditional dine-in experiences and towards convenience-driven options. The prevalence of home delivery in the Indian QSR industry is expected to continue to grow due to changing lifestyles and changing consumer eating patterns in the post-COVID atmosphere. At the upper price band of Rs 90, the IPO is valued at 10x of FY21 sales, which looks reasonable considering its peers (Jubilant Foodworks & Burger King India) trade at a much higher multiple. Hence, we recommend SUBSCRIBE to the IPO for long term perspective.

Peer comparison (Rs crore) FY19 FY20 FY21  
Company Revenues EPS ROE (%) Revenues EPS ROE (%) Revenues EPS ROE (%) PS ratio
Devyani International 1311 0 - 1516 (1) - 1135 (1) - 10
Jubilant Foodworks 3563 24 29% 3927 21 24% 3312 18 18% 15
Westlife Developments 1402 2 4% 1548 0 - 986 (6) - 9
Burger King India 633 (1) - 841 (2) - 494 (5) - 14

Key Information

Use of Proceeds:
The offer comprises of a fresh issue and an offer for sale. The total issue size is of Rs 1838 cr. Out of the fresh Issue of Rs 440 crores, Rs 324 crores is proposed to be utilized for debt repayment/prepayment and Rs 116 crores is to be used for general corporate purposes. The balance ~Rs 1398 crores of the issue would be through offer for sale by the shareholders and proceeds would go to such selling shareholders.

Book running lead managers:
Kotak Mahindra Capital, CLSA India, Edelweiss Financial, Motilal Oswal

DIL is led by Virag Joshi, Whole-time Director (President and CEO). He has been a key strategist in expansion of Pizza Hut, KFC, Costa Coffee outlets from a small base of 5 restaurants in 2002 to 600 plus outlets in last 19 years. The management team has extensive experience in various sectors including FMCG, F&B and hospitality. The strength and quality of their management team and their understanding of the F&B industry enables them to identify and take advantage of strategic market opportunities. Each brand, whether owned or otherwise, has a dedicated team responsible for developing and delivering a superior brand experience.

Financial Statement

Profit & Loss Statement:- (Consolidated)

Yr End March (Rs Cr) FY19 FY20 FY21
Net Sales 1311.00 1516.00 1135.00
Material Cost 389.00 460.00 345.00
Employee Cost 192.00 226.00 154.00
Other Expenses 476.00 579.00 457.00
EBITDA 254.00 251.00 179.00
EBITDA Margin 19.00% 17.00% 16.00%
Depreciation & Amortization 203.00 224.00 229.00
EBIT 51.00 27.00 -50.00
Other Income 13.00 19.00 64.00
Interest & Finance Charges 135.00 158.00 153.00
Profit Before Tax - Before Exceptional (71) (112) (139)
Exceptional items (13) (35) (57)
Tax Expense 1.00 2.00 (1)
Net Profit from continuing operations (59) (79) (81)
Net Profit Margin - - -
Profit/(loss) before tax from discontinued operations (35) (43) 18.00
Tax expense of discontinued operations - - -
Net profit for the year (94) (122) (63)