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Improving operational print

* Devyani International (DEVYANI)’s consolidated revenue grew 17% YoY in 1QFY27. The India revenue rose 15% YoY, driven by KFC and own brands. KFC continued to deliver positive SSSG (below), while Pizza Hut's SSSG remained negative, though it improved sequentially (below). Management indicated that the SSSG recovery momentum since 2HFY26 has continued into 1QFY27. The Jul’26 trends were encouraging despite a volatile demand environment.

* KFC sales grew 12% YoY with SSSG of 3.3% (base -0.7%; 4.9% in 4QFY26). KFC ADS remained flat YoY at INR98k. Management reiterated its aspiration to achieve 5-6% SSSG and indicated that KFC can deliver 20%+ brand contribution margins once ADS reaches INR105-110k. PH revenue declined 2% YoY, with SSSG at -2.2%. Franchisees' brand revenue (CC, NYF, and SK) grew 6% YoY while own brand revenue (Vaango and BBK) stood at INR978m (INR911m in 4QFY26).

* India ROM was up 24% YoY to INR1.4b, while margin improved 90bp YoY to 13%. KFC’s ROM improved 140bp YoY to 16.9%, backed by strong GM expansion (+220bp), while PH’s ROM stood at -2% vs. -1.1% in the base.

* International revenue grew 21% YoY to INR5.2b with RoM at INR949m (vs. INR724m in 1QFY26), and margin expanded 140bp YoY to 18.1%.

* KFC’s performance remained encouraging, with healthy SSSG and sustained margin improvement, reflecting benefits of key initiatives and an improving channel mix. We expect unit economics to keep improving and operating leverage to support earnings growth. The proposed Devyani–Sapphire merger, likely to be completed by end-FY27, is expected to unlock scale efficiencies and enhance execution capabilities across brands and geographies. We reiterate our BUY rating and value the entity at 25x Mar’28E EV/EBITDA (pre-Ind AS), implying a TP of INR160.

Highlights from the management commentary

* DEVYANI has taken slight price hikes in KFC and PH to mitigate the cost impact.

* KFC has taken three initiatives globally. One initiative is on beverages, with its sub-brand called KWENCH; DEVYANI is planning to launch the same in India. The second initiative is around sauces, and the third one is around the boneless piece. All these initiatives will also be launched in India gradually.

* Management indicated Pizza Hut’s revival strategy is currently focused on “back-to-basics” execution. Under this, the company is working on the product and ingredients, as well as on some innovative ideas.

* Management retains its earlier guidance of 200-225 net new store additions in FY27.

* The DEVYANI SAPPHIRE merger is expected to be completed by the end of FY27.

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