Published on 4/08/2021 12:51:19 PM | Source: LKP Securities Ltd

IPO Note - Devyani International Ltd By LKP Securities

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Devyani International Ltd (DIL) is the largest Franchisee of Yum Brand operating in more than 26 states and 3 union territories in India. The company is also amongst the largest operators of chain Quick Service Restaurants (QSR) on a non-exclusive basis in India. DIL operates brands such as KFC, Pizza Hut and Costa Coffee in India as well as in the International markets. DIL also owns and operates its own franchisees such as Vaango, Food Street, Masala Twist, Ile Bar, Amreli, and Ckrussh Juice Bar in India.

DIL has over two decades of experience in this industry starting with only one store in 1997; it has now around 735 stores across India and international locations as on June’21. DIL was the single largest QSR company in India that listed on the Swiggy platform, and was among the largest QSR companies in India to be listed on the Zomato platform in the calendar years 2019 and 2020. Yum Brands Inc. operates brands such as KFC, Pizza Hut and Taco Bell globally with more than 50,000 restaurants in over 150 countries, as of December 31, 2020.

DIL classifies its business broadly into three verticals which are Core Brands Business, International Business and Other business. Brands like KFC, Pizza Hut and Costa Coffee is considered as core brands which come under the Core Brand Business operated only in India. The International Business hosts operations of KFC and Pizza Hut franchisee in certain international locations such as Nepal and Nigeria. The last vertical is the Other Business which have operations in F&B industry comprising of own brands such as Vaango and Food Street.

Following the onset of COVID-19, DIL has increased focus on safety by introduction of contactless delivery and takeaway, ensuring greater cleanliness of stores, additional safety measures such as frequent sanitization and temperature checks. Among measures, it adopted to counter the effects of COVID-19 include re-developing menus to focus on delivery and takeaway options. DIL also introduced measures to reduce fixed and variable costs and sought rental waivers from store landlords and lessors. The company has also rationalized certain loss-making stores to ensure that it continues to maintain a profitability position and strong financial performance. Amidst the pandemic, DIL has continued to expand their store network and in the 6 months ended March 31, 2021, they opened 109 stores in their Core Brands Business. The QSR companies have grown the fastest among the Food Service industry at 5.5% CAGR during FY2015-20 and it is expected to grow at a much faster rate of 12.4% over FY2020-25. DIL has posted revenue of ₹1,323.68 crs, ₹1,535.04 crs. and ₹1,198.90 crs. in FY19, FY20 and FY21 respectively.


Strong Global Brands Portfolio

DIL operates franchises of several highly recognized global QSR brands and is the largest franchise partner for Yum in India. The Core Brands business of the company includes

* KFC, a global chicken restaurant brand with over 25,000 restaurants in over 140 countries, as of December 31, 2020.

* Pizza Hut, the largest restaurant chain in the world specializing in the sale of ready-to-eat pizza products. Pizza Hut operates in the delivery, carryout and casual dining segments around the world with 17,639 restaurants, as of December 31, 2020.

* Costa Coffee, a global coffee shop chain with over 3,400 coffee shops in 31 countries.

The company also owns and operates stores of certain other brands that include Vaango, Food Street, Masala Twist, Ile Bar, Amreli, and Ckrussh Juice Bar. The company offers its customers a range of full and limited-service dining experiences not only in terms of cuisine, that includes a variety of offerings such as burgers, pizza, south-Indian food and street food, but also in terms of the format of offerings including dine-in, cafés, take-away, delivery, and drive-thrus.

DIL has a varied customer base across multiple price points. The company constantly works on improving the quality, offerings and value for the customers. For instance, for KFC the company worked with Yum to introduce innovative product offerings as well as a distinct value proposition, including ‘KFC Happy New Wednesdays’, ‘4 Value Burgers starting at ₹ 69’, ‘Chicken Buckets starting at ₹ 199’, ‘Zinger Tandoori Burger’, ‘Chicken Lollipops’ and ‘KFC Chizza’. The Pizza Hut customers span all age groups and include children, young adults and families. For Costa Coffee, DIL offers various service formats including stores and kiosks. We believe that the longevity and global recognition of these Core Brands and related quality and value offerings resonate with customers.


Presence across key consumption markets with a cluster-based approach

DIL has over the years increased its store count across locations focusing on cluster based expansion model. The company operated 696 stores across all brands having presence in 26 states and three union territories across 166 cities in India, as of June 30, 2021. The company has a strong presence in key metro regions of Delhi NCR (comprising Faridabad, Ghaziabad, Gurgaon, Delhi and Noida), Bengaluru, Kolkata, Mumbai and Hyderabad. As of March 31, 2021 and June 30, 2021, DIL had 304 stores and 323 stores, respectively, of the Core Brands located in these five major metros in India.


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