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Buy Devyani International Ltd For Target Rs.166

Growth through expansion

Devyani International Ltd (DIL) is among the largest QSR chains having franchises of KFC, Pizza Hut, Taco Bell and Costa Coffee. It also has its own brands including Vaango, The Food Street, Ile Bar, AMRELI and Ckrussh Juice Bar among others. The service offerings are through 759 stores across 177 Indian cities and 44 stores across Nigeria and Nepal.

DIL is in a rapid expansion mode of setting up ~200+ stores annually as it looks to scale up its India footprint. On the back of this rapid scale up, We expect DIL to grow its revenue at a CAGR of 41.7% to INR 842 cr over the period of FY21-24.

* Core brands revenue CAGR of 45.9% to INR 2,960 cr,

* International Business revenues CAGR of 25.2% to INR 226 cr, and

* Traction in Other Business revenues to INR 378 cr (CAGR of 84.8%)

We expect EBITDA and net earnings to grow to INR 948.7 cr (61.1% CAGR, +660bps to 26.6% margin) and INR 384.3 cr (net profit margin of 10.8%) respectively by FY24. Operating cash flow is expected to increase to INR 563.2 cr by FY24 (from INR 239.6 cr reported in FY21). Consequently, return ratios RoCE and RoE are set to expand to 15.8% and 29.3% respectively by FY24 from the negative levels as per FY21.

We initiate coverage on DIL with a price objective of INR 165.5 (51.8X FY24 EPS) representing a 22.1% upside from the CMP of INR 135.6 over the next 24 months.

Key Rationale

The company’s business can broadly be classified into three verticals that include: Core brands – This comprises KFC, Pizza Hut (PH) and Costa Coffee brands operated in India. As on 30th Sept 2021, there were 309 KFC stores, 351 PH stores and 45 CC stores which contributed ~86% to Q2FY22 revenue. Deeply affected by the pandemic, this vertical de-grew by 14.0% in FY21 to INR 954 cr after growing 13.4% in FY20. Key Financial Data (INR Cr, unless specified)

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