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Devyani International shares double IPO price, CLSA begins reporting and sees further upside

Devyani International, the operator of quick service restaurants (QSR) such as KFC, Pizza, Hut and Costa Coffee, has more than doubled its share price from the IPO price in 5 months.

Devyani International, the operator of quick service restaurants (QSR) such as KFC, Pizza, Hut and Costa Coffee, has more than doubled its share price from the IPO price in 5 months. Opening coverage of Devyani International, analysts at CLSA had forecast another 8% upside potential with a target price of Rs.207 per share. The company is Yum! Brands largest franchise in India, operates 56% of all Yum Brands stores in India and is the largest operator of KFC and Pizza Hut stores in India. As of Tuesday morning, Devyani International was up 3% at Rs.192 per share.

Strong portfolio of QSR brands

Devyani International (DIL) is considered a multidimensional diversified QSR player. CLSA noted that Devyani International has three businesses, including the core brands of KFC, Pizza Hut and Costa Coffee stores in India, the international business of KFC, Pizza Hut and other brands operating in Nepal and Nigeria, and other businesses with their own brands and other food and beverage establishments. “DIL is positioned to capitalize on the momentum of its core branded business with an aggressive expansion of its store network over the medium term,” said CLSA.

After a successful IPO, DIL is now set to expand into the underpenetrated Indian market. “India ranks 12th in the world in terms of the number of KFC stores, far behind China, which has a network of more than 7,900 KFC stores. Compared to other comparable emerging markets, India also ranks behind South Africa, Thailand, Malaysia and Indonesia,” said CLSA. DIL is expected to push ahead with its branch expansion in the medium term.

Improvement of the unit economy

DIL’s shift to smaller, delivery-oriented stores has resulted in a per-store investment savings of about 25% for KFC and 40% for Pizza Hut, without impacting average daily sales for either brand. “Lower capital expenditure with improved profitability at store level should pay for itself more quickly for new stores. This, along with cost-saving initiatives, has increased the profitability of all formats,” said CLSA.

reviews

CLSA has initiated coverage of KFC with an Outperform rating and a target price of Rs 207 based on 26x FY24CL EV/Ebitda. Analysts rate DIL at a 10% discount to their target multiples for Jubilant despite superior earnings growth given Jubilant’s stronger economics, pan-India presence and superior technological capabilities. “We expect 4x EBITDA growth in FY21-24, supported by aggressive network expansion, operational leverage benefits and improved store unit economics for Pizza Hut,” the brokerage firm said. DIL is expected to generate cumulative FCF of Rs. 5.8 crore between FY2022-2024, which would give the company ample headroom to pursue inorganic growth opportunities.

Devyani International, the operator of quick service restaurants (QSR) such as KFC, Pizza, Hut and Costa Coffee, has more than doubled its share price from the IPO price in 5 months. Opening coverage of Devyani International, analysts at CLSA had forecast another 8% upside potential with a target price of Rs.207 per share. The company is Yum! Brands largest franchise in India, operates 56% of all Yum Brands stores in India and is the largest operator of KFC and Pizza Hut stores in India. As of Tuesday morning, Devyani International was up 3% at Rs.192 per share.

Strong portfolio of QSR brands

Devyani International (DIL) is considered a multidimensional diversified QSR player. CLSA noted that Devyani International has three businesses, including the core brands of KFC, Pizza Hut and Costa Coffee stores in India, the international business of KFC, Pizza Hut and other brands operating in Nepal and Nigeria, and other businesses with their own brands and other food and beverage establishments. “DIL is positioned to capitalize on the momentum of its core branded business with an aggressive expansion of its store network over the medium term,” said CLSA.

After a successful IPO, DIL is now set to expand into the underpenetrated Indian market. “India ranks 12th in the world in terms of the number of KFC stores, far behind China, which has a network of more than 7,900 KFC stores. Also when compared to other comparable emerging markets, India ranks behind South Africa, Thailand, Malaysia and Indonesia,” said CLSA. DIL is expected to ramp up its market expansion in the medium term.

Improvement of the unit economy

DIL’s shift to smaller, delivery-oriented stores has resulted in a per-store investment savings of about 25% for KFC and 40% for Pizza Hut, without impacting average daily sales for either brand. “Lower capital expenditure with improved profitability at store level should pay for itself more quickly for new stores. This, along with cost-saving initiatives, has increased the profitability of all formats,” said CLSA.

evaluation and target price

CLSA has initiated coverage of KFC with an Outperform rating and a target price of Rs 207 based on 26x FY24CL EV/Ebitda. Analysts rate DIL at a 10% discount to their target multiples for Jubilant despite superior earnings growth given Jubilant’s stronger economics, pan-India presence and superior technological capabilities. “We expect 4x EBITDA growth in FY21-24, supported by aggressive network expansion, operational leverage benefits and improved store unit economics for Pizza Hut,” the brokerage firm said. DIL is expected to generate cumulative FCF of Rs. 5.8 crore between FY2022-2024, which would give the company ample headroom to pursue inorganic growth opportunities.

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