Devyani International Limited.: (Subscribe for listing gains)

Devyani International Limited is the largest franchisee of Yum Brands in India and are among the largest operators of chain quick services restaurants (QSR) in India (Source: Global Data Report), on a non-exclusive basis and operate 655 stores across 155 cities in India, as of March 31, 2021. Yum! Brands Inc. operates brands such as KFC, Pizza Hut and Taco Bell brands and has presence globally with more than 50,000 restaurants in over 150 countries, as of December 31, 2020. The company’s business is broadly classified into three verticals that includes stores of KFC, Pizza Hut and Costa Coffee operated in India (KFC, Pizza Hut and Costa Coffee referred to as ‘Core Brands’, and such business in India referred to as the ‘Core Brands Business’); stores operated outside India primarily comprising KFC and Pizza Hut stores operated in Nepal and Nigeria (‘International Business’); and certain other operations in the F&B industry, including stores of their own brands such as Vaango and Food Street (‘Other Business’).

Stores in the company’s Core Brands Business grew at a CAGR of 13.58% from 469 stores as of March 31, 2019 to 605 stores as of March 31, 2021. The company is among the single largest QSR companies in India that is listed on the Swiggy platform, and are among the largest QSR companies in India listed on the Zomato platform in the calendar years 2019 and 2020. The company has continued to expand their operations with both KFC and Pizza Hut franchises, and as of March 31, 2021, operated 264 KFC stores and 297 Pizza Hut stores across India. Despite the ongoing COVID-19 pandemic, the company has continued to expand their store network and in the six months ended March 31, 2021, they opened 109 stores in their Core Brands Business.

Investment Arguments

• DIL has a portfolio of highly recognized global brands catering to a range of customer preferences 
• The Company is the largest franchisee of Yum Brands in India.
• It has a strong store network; 264 KFC Stores, 297 Pizza Hut stores, and 44 Costa coffee stores.
• Presence across key consumption markets with a cluster-based approach 

Key Risks

• The impact of the pandemic on the company’s 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 their business prospects, strategies, business, operations, their future financial performance and the price of their Equity Shares.
• The company relies on the Costa IDA with Costa for their Costa Coffee stores and a termination of or material modification to the existing terms of the Costa IDA will materially and adversely affect their ability to continue their Costa business and operations and their future financial performance.
• The company has incurred losses in FY19-FY21, resulting in erosion of their net worth. 
• Negative cash flows could adversely affect their cash flow requirements, their ability to operate business and implement their growth plans, thereby affecting its financial performance.

Valuation

It is difficult to value a loss making company. DIL is incurring losses for the last three fiscal years, thus its PE is negative. Post attractive listing of Zomato, the current issue is expected to see good response. However, we recommend only high risk investors to apply to this issue with focus on listing gains.

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