Devyani International Ltd. will sell shares at Rs 86-90 apiece in its three-day initial public offering starting Aug. 4 as the franchisee owner of KFC, Pizza Hut and Costa Coffee in India joins quick-service restaurant chain peers in a record year for maiden offers.
Related Coverage: Other IPOs
Objective
The company proposes to utilise the issue's proceeds to repay or make advance payments for long-term borrowings to the extent of Rs 324 crore. Outstanding borrowings as on June 30 stood at Rs 541.58 crore.
Business
Devyani International's business is broadly classified into three verticals:
Core Brands: Including stores of KFC, Pizza Hut and Costa Coffee operated in India.
International Brands: Stores operated outside India, primarily KFC and Pizza Hut stores in Nepal and Nigeria.
Other Brands: Operations in the food and beverages segment, including brands like Vaango and Food Street.
The company has non-exclusive franchise rights to set up KFC and Pizza Hut stores in India except in captive markets where Yum India has these stores. Over the last three years, it has acquired 73 KFC stores from Yum India—the India arm of the global QSR chain.
There aren't many captive stores left. "Yum has 20 stores in Hyderabad, which test product innovations," Ravi Kant Jaipuria, non-executive director of Devyani International, told BloombergQuint in an interview.
The company has changed its policy on store sizes, especially those of KFC and Pizza Hut, after the pandemic impacted in-dining services. It has opted for smaller-sized outlets for both the chains as delivery-based services contribute nearly 70% of revenue, Jaipuria said. It has also moved away from fixed lease rentals for its properties to revenue sharing model, he said, with lease rents being renegotiated on favourable terms. Lease rents, he said, account for 10-12% of net store revenue.
The Delhi-based QSR chain, which has large concentration of stores in northern India, had 284 KFC stores, 317 Pizza Hut outlets and 44 Costa Coffee shops as on June 30.
Financials
The company recorded an operating profit in each of the last three years, although it incurred a net loss during this period.
Its net worth was negative in two of the preceding three financial years. And fresh fund infusions in the last two years by Yum India, RJ Corp. and other investors has pulled up the metric to Rs 113.8 crore in the year ended March.
Peers
The company competes with listed peers like Jubilant Foodworks Ltd., which operates Dominos Pizza stores in India; Westlife Development Ltd., that operates McDonald's outlets; and Burger King India Ltd.
Risk Factors
The current and continuing impact of the ongoing Covid-19 pandemic on business and operations has been significant. Impact of the pandemic on its operations in the future, including its effect on the ability or desire of customers to dine-in stores, is uncertain and may be significant and continue to have an adverse effect on its business prospects, strategies, business, operations, or future financial performance, and the price of its equity shares.
It's dependent on arrangements with Yum for its KFC and Pizza Hut stores that comprise a significant chunk of its business, and a termination or inability to renew these arrangements will have a material adverse effect on its business, results of operations and financial condition.
It depends on Costa IDA for its Costa Coffee stores and a termination or material modification to existing terms of the Costa IDA will materially and adversely affect ability to continue the Costa business and operations and our future financial performance.
The operation of stores under its core brands—KFC, Pizza Hut and Costa Coffee—depends on their respective material agreements, which impose certain restrictions, limitations and other obligations on its operations that could adversely affect our ability to grow the business.
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