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Devyani International Ltd (DIL) is the largest franchisee of Yum Brands in India and is among the largest chain operators of quick service restaurants (“QSR”) in India on a non-exclusive basis, and operates 696 stores across 166 cities in India, as of June 30, 2021.Yum! Brands Inc. operates brands such as KFC, Pizza Hut and Taco Bell and has a presence globally with more than 50,000 restaurants in over 150 countries, as of December 31, 2020. In addition, Devyani International is a franchisee for the Costa Coffee brand and stores in India. DIL operated 284 KFC stores and 317 Pizza Hut stores and 44 Costa Coffee stores in India as of June 30, 2021. In their Core Brands Business, they had an extensive presence in 26 states and 3 union territories in India as of June 30, 2021

Positives: (a) Portfolio of well recognized global brands across spectrum (b) Presence across key consumption markets with a cluster-based approach (c) Experienced Board and senior management team.

Investment concerns: (a) DIL is making continuous losses on bottom-line front, hence profit concerns remain; (b) Slowdown in the economy could impact the overall revenue of the company (discretionary in nature).

Outlook & Valuation: In terms of valuations, the post-issue FY2021 EV/Sales works out -9.9x to (at the upper end of the issue price band), which is low compared to peers (Jubilant Foodworks-15.4x, Burger King India -14.8x, Westlife Development – 10x). Further, Devyani International has a better operating margin compared to Westlife Development & Burger king. We believe this valuation is at reasonable levels.Thus, we recommend a subscribe rating on the issue.

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SEBI Registration number is INH000000164

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