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We maintain BUY on DIL and TP of Rs160 (26x Jun-28E EBITDA). DIL outperformed expectations (38% EBITDA growth vs our estimate of ~26%), with high double-digit EBITDA growth across most formats. While macros remain volatile, momentum is being driven by the right strategy finally in place for the on-premise channel. KFC is now offering everyday value (Rs99 meal) for new recruitments and abundant value (BOGO on buckets) on select days, for driving repeat consumption. Interestingly, DIL is also piloting KFC’s global initiatives around snacking (boneless), indulgent sauces, and beverages (KWENCH) which should aid a better connect with youth and drive incremental occasions. International momentum (includes Thailand) remains strong, with ~30% EBITDA growth in 1Q, and offers scope for further territory acquisition (Media Report Link). DIL saw muted store additions in 1Q, but reiterated its guidance of opening 110-120 KFC stores and 200-225 overall stores in FY27. Prolonged slowdown and lengthy merger timeline with SAPPHIRE have been a drag on DIL’s stock performance, but improving growth profile and potential merger synergies are likely to drive significant rerating.

Topline growth healthy; strategic recalibration in KFC drive dine-in sales

Consol revenue growth was healthy at 16% yoy in 1Q (in-line), led by ~14%/21% growth in the India/international businesses. KFC India saw revenue growth of ~12% yoy, driven by sustained positive SSG (~3%). Encouragingly, momentum has continued in July, with the shift in Shravan month being favorable. Strategic recalibration of promotional offers in favor of the dine-in channel in KFC has led to increase in dine-in mix to 57% (vs 54% yoy; ~18% growth). KFC gross margin (GM) at 69.4% was up by ~230bps yoy, led by better channel mix, price hikes, and lower promotion spend. KFC brand margin rose by ~140bps yoy, as the GM gain was partly offset by higher utility cost (LPG shortage) and wage hikes. International business maintained strong momentum, with revenue up ~21% yoy and brand margin up by ~150bps yoy. Pizza Hut (PH) saw a sluggish growth trend (~2% yoy dip); focus remains on building a sustainable foundation for PH before ramp-up. Consol GM improved by ~90bps to ~69%, leading to ~110bps yoy gain in brand margin to 14.2%. Pre-IndAS EBITDAM expanded by ~150bps yoy to 9.6%, led by flow-through of brand margin and operating leverage on HO cost (down by ~40bps).

BBK turnaround on track; Dine-in and Express format pilots underway

BBK has seen a successful turnaround post-acquisition, reporting ~7% SSG in 1Q and positive brand contribution. DIL’s opening 23 BBK Express stores (smaller format and low-capex model) has seen encouraging initial traction, particularly in food courts. DIL is also testing the brand as a dine-in format, which could emerge as a meaningful longterm growth lever as the Indian biryani market is estimated to be huge, at Rs300-400bn. DIL sees significant headroom for standardization and consolidation, and targets scaling up BBK to a Rs10bn brand (vs ~Rs2.5bn at the time of acquisition).

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