Devyani surges 29% in 3-days, stock up 111% from issue price in 4 months

On Wednesday, December 8, 2021, the brokerage firm Motilal Oswal Financial Services initiated coverage on Devyani with a Buy rating and target price of Rs 190.

Shares of Devyani International continued their northward journey for the third straight trading day, and were up 8 per cent at Rs 190.20 on the BSE in Thursday’s intra-day trade.

The stock of the quick service restaurant (QSR) firm was trading at its new high, and has rallied 29 per cent in the last three trading days. With the current surge in market price of the company, the stock has zoomed 111 per cent from its issue price of Rs 90 per share.

Devyani International had made a stock market debut on August 16, 2021. The Global Index provider, MSCI, had Devyani International in MSCI India Domestic Small Cap Index from November 30, 2021.

On Wednesday, December 8, 2021, the brokerage firm Motilal Oswal Financial Services initiates coverage on Devyani with a Buy rating and target price of Rs 190, driven by KFC’s strong brand equity and operating metrics, increasing focus on delivery by Pizza Hut driving its turnaround, and robust growth in both these brands led by rapid network expansion.

Devyani International is the largest franchisee of Yum Brands in India and one of the top operators of chain QSRs. It collaborates with Yum across various aspects of its operations for KFC and Pizza Hut for the franchisor’s brand protection and management including product innovation and development, brand strategy and technology initiatives. In addition, Devyani also has a franchisee for the Costa Coffee brand and stores in India.

For July-September quarter (Q2FY22), the company had posted robust set of numbers with a consolidated profit after tax (PAT) of Rs 46.6 crore, as compared to a net loss of Rs 65.5 crore in Q2FY21. The company's revenue from operations more-than-doubled or was up 124 per cent year- on-year (YoY) to Rs 516 crore, on strong business recovery post Covid second wave. Earnings before interest, tax, depreciation and amortization (ebitda) grew 175 per cent YoY at Rs 123 crore, and margins improved to 23.9 per cent from 19.49 per cent in Q2FY21.

The company’s management said that the foodservice industry is expected to grow at a CAGR of 12 per cent to 15 per cent in future. QSRs being the largest constituent of this segment will be a key beneficiary and will lead this growth. Devyani International with its multiple strong and well recognized western and Indian QSR brands stand to gain the most as the company continued to expand its footprint in India, the management said.

“Devyani’s KFC business enjoys strong brand equity due to its unique offerings. This has led to robust Average Daily Sales (ADS) and profitability. The business is expected to deliver 41 per cent sales CAGR over FY20-24E, led by rapid store network expansion from 264 to 574 over the same period,” Motilal Oswal Financial Services said in a report.

“The company’s Pizza Hut business is focusing on its underperforming delivery channel through the rapid addition of delivery-focused small format stores. These will reduce the distance to the consumer and consequently, lower delivery time,” the brokerage firm said.

Devyani’s pan-India rights (except in Tamil Nadu) for small format stores of Pizza Hut lends it an advantage over SAPPHIRE (Yum’s other franchise) due to its access to SAPPHIRE’s territories, and faster addition due to lower capex and higher profitability of small format stores, it added.

At 09:38 am; the stock was trading 8 per cent higher at Rs 189.30 on the BSE, as compared to 0.06 per cent rise in the S&P BSE Sensex. The counter has seen huge trading activities, with a combined 11.26 million equity shares were changed hands on the NSE and BSE.