StockAxis

Devyani International Ltd

Consumer Food

Devyani International Ltd

Consumer Food

Large Cap Focus

CMP
Rs. 194
Rating:
Buy
Target
Rs. 229
October 17, 2022

Stock Info

BSE
543330
NSE
DEVYANI
Bloomberg
DEVYANI:IN
Reuters
DEVY.NS
Sector
Consumer Food
Face Value (Rs)
1
Equity Capital (Rs cr)
120
Mkt Cap (Rs cr)
22,528.57
52w H/L (Rs)
215.00 - 111.85
Avg Daily Vol (BSE+NSE)
1,289,755

Shareholding Pattern

(as on 31-Mar)
%
Promoter
62.80
FIIs
6.90
DIIs
5.75
Public & Others
24.55
Source: Ace equity, StockAxis Research

Price performance

Return (%)
1m
3m
12m
Absolute
-2.50
14.97
66.07
Sensex
-4.02
8.43
-5.52
Source: Ace equity, StockAxis Research

Indexed Stock Performance

Devyani International Ltd Sensex
Devyani International Ltd
Source: Ace equity, StockAxis Research

Company Profile
Devyani International is the largest franchise of YUM brands in India. The company also operates franchise outlets of renowned brands Pizza Hut and KFC in India, Nigeria and Nepal. Company also has franchisee rights of Costa Coffee brand in India. They have in-house established brands Vaango and Food Street.

Investment Rationale

Robust Store expansion key to sales growth
Company has achieved an all time high store count of 1008 stores as of Q1 FY23. It has newly added 27 KFC stores, 23 Pizza Hut stores and 14 Costa Coffee stores, a total of 70 new stores added this quarter. The total brand-wise store count for KFC is now 391 stores, pizza Hut 436 stores and 69 Costa Coffee stores. The city reach is now 215. Company has achieved a strong traction in sales in Q1 FY23 (2x y-o-y) , supported by growth in Dine-in channels. KFC stores contributed Rs 425 Cr out of total Rs 703 Cr to the sales of Q1FY23 whereas, Pizza Hut contributed Rs165 Cr. The Pizza Hut revenues grew by 71% YOY basis, KFC revenue grew by 109% YOY basis.

Cooling input prices & rational overall cost management to help in maintaining margins
Company’s business was hit by pandemic in FY21, followed by global crisis in FY22, leading to pressure on margins ( steep surge in raw material prices). To maintain margins, the company increased the prices by 9% in Q1 FY23. However, prices of edible oil and chicken have now cooled off and stabilized. Strict overall cost management also helped the company in achieving an all-time high EBITDA margin of 23% in FY22.

Product innovation to grow customer reach
Company launched new products across its core brands. In KFC it launched popcorn, nachos and products giving flavour of tender chicken experience. While Pizza Hut launched fun pizza range. Over the years Pizza Hut has tried the strategy of domestication where the brand is trying to adapt a more closure Indian taste for its customers with launch of various toppings in Indian flavours such as Tandoori, paneer, momo pizza, etc.

Peer Comparison

Company Revenue EBITDA EBITDAM% PATM% ROCE% ROE% EPS
Jubilant Foodworks 4396 1108 25% 10% 35% 22% 31.9
Devyani International Ltd. 2084 300 14% 7.5% 44% 23% 1.3
Sapphire Foods India Ltd. 1722 305 19% 3% 15.7% 4.6% 7.3
Westlife Development Ltd. 1577 217 13% -0.1% 11.9% -0.4% -0.1

The peer comparison is based on FY22 financials, All figures in Rs Cr except EPS in Rs & PE multiple is x times.

Risks & Concerns

  • Competitive environment
    Company needs to be competitive in terms of innovation and quality of its products. Attractive deals play a key role in increasing the customer base.
  • Increased margin pressure
    Given the rise in raw material prices and strict competition in the Indian Pizza industry, it becomes challenging for the firm to maintain higher EBITDA margins. Company operates in a very competitive environment, where price differentiation plays a major role. Jubilant Foodworks is one of the established players of the market and a close peer competitor for Devyani International.

Outlook & valuation

We believe Devyani International has a strong potential in attracting higher customer base then its existing levels. The strong brand recall of KFC and Pizza Hut will aid company in attracting more customers. It is a dominant player for chicken-based food items. Over the years the demand for chicken products has increased & is growing at a fast pace. Costa Coffee prices are estimated to be near to Starbucks, therefore the popularity of this brand & sales pick up here may be slow & gradual. Overall pace of addition of new stores & ramp up in per store revenue would be key monitorable sin near to medium term.

At CMP of Rs194, based on our estimates, the stock is trading at 38x its FY 25 earnings we initiate a buy call at a target price of Rs229 based on our 45x PE multiple of FY25 earnings.

Rs in Crores Net Sales EBITDA PAT EPS
FY21 1135 188 -74 -0.5
FY22 2084 467 156 1.3
FY23E 3334 767 367 3.04
FY24E 4335 1019 477 3.96
FY25E 5852 1340 614 5.1