'Buy' Devyani International Reiterates Motilal Oswal, Sees 26% Upside, Here's Why

Motilal Oswal Report

We reiterate our Buy rating on Devyani International Ltd. with a target price of Rs 215 (premised on 35 times Dec’26E pre-Ind-AS enterprise value/Ebitda).

We met with Mr. Manish Dawar, CFO of Devyani International, to discuss the current demand trends, the company’s growth outlook across business verticals, and its long-term strategy. Near-term consumer sentiment remains subdued due to high food inflation, intense competition, and geopolitical challenges.

The underlying performance in H2 FY25 will largely be similar to that in H1 FY25. KFC and Pizza Hut are expected to post relatively better same store sales growth versus H1 FY25, but it will largely be driven by the base benefit.

Operating profitability will remain weak until underlying growth (average daily sale or average daily sales) improves. The company is focusing on cost optimization (mainly staff efficiency for dine-in) to improve restaurant operating margin even if ADS recovery takes time. KFC offers a long-term play in India with enough potential for an increase in customer eat-out frequency.

Rapid urbanization, a fast-changing income pyramid, a higher youth population, and women work force will continue to boost the food service market. Burger and Chicken are big QSR categories globally, and the company can keep capitalizing on the trends in India.

Devyani International is also seeing stability in PH and aims to boost its transaction growth. Amid rising overall acceptance of delivery, the company focuses on improving its delivery mix. Devyani International has been investing in its digital platform and better delivery experience. Despite demand weakness, the company wants to sustain its store addition trajectory, as it plans to strengthen its store network in order to capitalize on a demand uptrend.

We have been cautious on the QSR universe owing to weakness in growth metrics and contractions in operating profitability. After showing weakness in the last two years, it appears that ADS levels for both KFC and PH are near the bottom.

Any recovery in ADS will quickly improve the operating print. The stock price has been flat for the last three years owing to growth challenges.

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