Devyani International shares jump 5% despite fall in Q4 profit

The revenue of the QSR chain during Q4FY23 rose 27.8 per cent to ₹755 crore from ₹590.7 crore, YoY.

Earnings before interest, tax, depreciation and amortization (EBITDA) increased 10.7 per cent to ₹154.6 crore from ₹139.6 crore, while EBITDA margin contracted to 20.4 per cent from 23.6 per cent, YoY.

Read more: Devyani International Q4 results: Net profit falls 20% YoY to ₹60.7 crore, stock down 4%

Brokerage firm Kotak Institutional Equities has an ‘add’ call on Devyani International. The brokerage firm raised the target price on the stock to ₹180 from ₹160 while increasing its KFC store forecast and aligning it with management guidance, also tweaking margin assumptions and EBITDA estimates.

Kotak highlighted that for the KFC India segment, Devyani added 29 net new stores, taking the total count to 490.

“KFC India segment’s revenues were in line with our estimate at ₹440 crore, up 26 per cent YoY. ADS (average daily sales) of ₹1,06,000 was down 6.2 per cent YoY and 8.6 per cent QoQ. (4) SSSG (same-store sales growth) was up 2 per cent on a base of 3 per cent and brand contribution margin declined 435 bps YoY to 17.5 per cent despite resilient gross margin. The impact of adverse operating leverage is higher in the case of Devyani compared with Sapphire,” said Kotak.

For the Pizza Hut (PH) segment, Devyani added 23 net new stores, taking the total count to 506. As per the brokerage firm, revenues for the segment at ₹170 crore were up 16 per cent YoY. ADS at ₹39,000 declined 4.9 per cent YoY and 9.3 per cent QoQ. SSSG declined 3.2 per cent YoY on a base of 2.3 per cent and brand contribution margin stood at 9.3 per cent, down 830 bps YoY and 485 QoQ, led by 230 bps YoY and 40 bps QoQ drop in gross margin and adverse operating leverage.

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Brokerage Motilal Oswal Financial Services has a buy call on the stock with a target price of ₹200.

Motilal has broadly maintained its estimates for FY24/FY25 given the receding inflationary environment and falling raw material prices, expecting revenue and EBITDA CAGR of 27 per cent and 33 per cent, respectively, over FY23-FY25E.

“We continue to remain bullish on Devyani’s prospects led by (a) KFC’s strong brand equity and its growth opportunity, (b) a gradual turnaround in PH, driven by the management’s focus on delivery and improved store metrics, (c) the network expansion across the portfolio, and (d) healthy operating profitability in the midteens (on a pre-Ind AS basis),” said Motilal Oswal.

Brokerage firm Emkay Global Financial Services underscored Devyani’s Q4FY23 was weak on the expected lines as the KFC and PH formats saw weak SSG and brand margin contracted 400-800bps, on raw material inflation, growth investments and negative leverage.

Emkay believes weak macros, high base and marketing costs should result in modest EBITDA growth in the first half of the financial year, before a potential turnaround in the second half of the year.

The brokerage firm has a ‘hold’ call on the stock with a target price of ₹175.

Emakay underscored that despite subdued demand, Devyani expects the aggressive expansion to sustain, as it plans to add 300 stores in FY24, in line with the 305 additions in FY23.

“Build-in of KFC price hikes (3.5 per cent in Apr-23) and better gross margin drive a nearly 3 per cent increase in EBITDA estimates. We stay confident in QSR’s long-term growth prospects but have a ‘hold’ on Devyani, on near-term uncertainty. Our revised target price of ₹175 (28 times Jun25E EBITDA versus Mar-25 earlier) is up 6 per cent, on EBITDA revision and a three-month rollover,” said Emkay.

Disclaimer: The views and recommendations given in this article are those of the brokerage firms. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.