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We maintain BUY on DIL and TP of Rs160 (26x Mar-28E EBITDA). The Q4 operating performance was ~12% above expectations, driven by strong SSG turnaround in KFC (+5% after 11 quarters of decline), growth improvement in international businesses, and better margin performance in BBK. The new CEO has attributed the improved growth, along with stable margins, to renewed channel-specific strategy: DIL has improved its value proposition for the onpremise channel, while the off-premise channel continues to address the convenience need. Encouragingly, the momentum for KFC has sustained in Q1TD as well, though potential inflation-led demand volatility remains a key monitorable. In light of additional functions acquired under the revised agreement with YUM and impending merger with Sapphire, DIL has already plugged the key skillset gaps (Technology – CTO; Marketing – CMO). It has also hired a COO to deliver growth at scale.

Topline growth accelerates; strategic recalibration aids KFC SSG

Consolidated revenue saw healthy growth of 18% YoY in Q4 (~4% ahead of our estimate) to Rs14.4bn, led by positive SSG across all brands (ex-PH) and ~20% growth in the international business. KFC saw robust revenue growth of 14.6% YoY, driven by ~5% SSG and the rest via store additions (87 net additions YoY). Encouragingly, the SSG trend sustained in Q1TD, led by the strategic recalibration of promotional offers in favor of the dine-in channel. This shift in promotional offerings, along with stable raw material prices, led to gross margin (GM) expansion by ~120bps YoY to 69.5% in Q4. KFC brand margin rose by ~80bps YoY due to GM expansion, partly offset by higher other expenses. Pizza Hut (PH) revenue declined ~4% YoY, driven by a ~4% drop in SSG. No net stores were added for PH in Q4. International revenue reached Rs5bn (up ~20% YoY), led by 46%/20% growth in Nepal/Thailand, respectively. Brand margin expanded by ~160bps YoY, aided by GM expansion (up ~120bps) and operating leverage. BBK reported midsingle digit SSG and achieved positive brand contribution which lends confidence on DIL’s execution capabilities. It also initiated offline expansion via express outlets in food courts, with initial stores being profitable. Consolidated GM improved marginally to ~69%, leading to improvement in brand margin by ~30bps YoY to 14.1%. Pre-IndAS EBITDAM declined marginally by ~30bps YoY to 8.6%, due to higher HO cost (up ~60bps).

KFC to lead store addition in FY27; PH expansion to remain curtailed

To improve the quality of its network, DIL closed a few loss-making stores in Q4 (217 net store addition in FY26). However, store adds are expected to pick up, with 200-225 new stores targeted in FY27 (on a base of 2,256 stores); of these, KFC is expected to add 110-120 stores, PH expansion is expected to remain curtailed, while the rest are expected to be added in other formats. The management highlighted that PH’s turnaround strategy is now being approached ‘from the basics’ under the newly appointed leader Sandeep Anand, having experience across FMCG, QSR, and tech. The strategy will focus on identifying portfolio gaps/pricing layers and strengthening product quality.

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