A significant drop in brand contribution margins was primarily due to same-store sales growth decline and incremental investment in brand building during the quarter. Going ahead, Dolat Capital believes that the increase in competition and Pizza Hut’s premium positioning would remain a hurdle for its profitability revamp. Nevertheless, in the long run, believes that KFC's brand contribution is likely to increase due to lower competition and strong brand positioning.
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Dolat Capital Report
Devyani International Ltd.’s result was below our estimate. The company reported 15.8% revenue growth including Thailand acquisition (ex-Thailand up 6.6% YoY) led by revenue growth of 3.4/8.2/16.0/23.9% across KFC/ Pizza Hut/ Costa Coffee/ Vaango.
The company added seven stores in Q4 FY25 taking the total count to 2,039 (including Thailand). Going ahead, the company will continue to expand KFC stores while remains cautious about store expansion in Pizza Hut.
Further, the company signed Master Franchise Agreements for three new brands in Q2 FY25 - Tealive, New York Fries and Sanook Kitchen and opened the first New York Fries store in Mumbai.
Devyani’s operating performance and profitability was below our estimate due to lower same-store sales growth across key brands. Though base for Pizza Hut and KFC would become favorable in the ensuing quarters, overall slowdown is expected to pressurize profitability.
We have downward revised our FY26/27E Ebitda to factor in Q4 performance.
We value the stock at 20x FY27E EV/Ebitda, arrived at a target price of Rs 157 (Rs 160 earlier). Reiterate ‘Sell’ rating
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