Core biz recovery, biryani bet boost Devyani International outlook

Analysts positive on planned acquisition, upgrade the stock

The stock of quick-service restaurant (QSR) major Devyani International was up 4 per cent on Monday after indicating that it was eyeing a controlling stake in Sky Gate Hospitality, which operates restaurants under the brand Biryani By Kilo (BBK) as well as other brands. The company will raise money through the issue of equity shares on a preferential basis to fund the acquisition.

 

Sky Gate has posted revenues of ₹300 crore, growing annually by 55 per cent over 2018-19 (FY19) through 2023-24 (FY24). In addition to the BBK chain, which has 100 outlets and has expanded to 45 cities, Sky Gate also operates other brands such as Goila Butter Chicken, The Bhojan, and Get-A-Way. While revenues have grown at a healthy pace, the company has posted operational losses given the accelerated store openings. Devyani will acquire Goila Butter Chicken, The Bhojan, and BBK, which had registered net sales of ₹260 crore in 2024-25 (FY25), with 80 per cent of this contributed by BBK.

 

Analysts Devanshu Bansal and Mohit Dodeja of Emkay Research believe the margin turnaround is plausible, as the comparable gross-margin profile (55-57 per cent versus 70 per cent for Kentucky Fried Chicken/KFC) is subdued, and marketing and customer acquisition costs are elevated. Though this is due to store openings (about 100 at FY24-end versus 17 at FY19-end), it has synergies with Devyani in terms of supply chain, finance, and human resource functions.

 

Devyani can also ramp up its portfolio brands (non-Yum! Brands) in its Cloud kitchens, and open BBK/Goila/The Bhojan outlets in food courts operated by Devyani.

 

While deal valuations are not known, Kotak Institutional Equities expects it to be at 2-5x enterprise value to sales. Analysts of the brokerage, led by Jaykumar Doshi, are positive on the acquisition as it is a large, delivery-friendly food and beverage category that offers an opportunity to scale a QSR biryani brand, notwithstanding local competition and regional taste preferences.

 

Emkay Research has upgraded the stock to ‘buy’ from ‘add’ and raised its target price by 18 per cent to ₹200, now valuing the company at 30x its 2026-27 operating profit compared to 26x earlier. The upgrade is due to potential value creation from the likely acquisition of BBK and the possible return of mid-teen growth for the India business in 2025-26 (FY26) compared to 7 per cent in FY25. The rationale for the mid-teen organic growth in the current financial year (FY26) is the government’s push to boost consumption with tax relief, a favourable average daily sales base, and continued growth investments.

 

In addition to the acquisition, the January-March quarter results will act as another key trigger for the stock. Elara Research expects a recovery in QSR, though its momentum is expected to be slow, with pizza chains likely to outperform burger and fried chicken categories.

 

Same-store sales growth (SSSG) for Devyani is expected to come in at 1.6 per cent year-on-year. Headwinds in the fried chicken category persist, with Devyani (KFC) posting a same-store sales decline of 2 per cent. Elara Research has a ‘buy’ rating on the stock with a target price of ₹215.

 

From the highs in January, the stock had lost 28 per cent to its lows in the first week of April before recovering slightly, given weak operational performance over the last couple of quarters compared to peers. Kotak Research expects FY26 to be a better year for the company, led by a pickup in SSSG, aided by a weak base and some improvement in underlying demand, along with better execution. It has a ‘buy’ rating with a target price of ₹190.