About the Company
Devyani International is the largest Franchisee of Yum! Brands and operates the highest outlets of KFC, Pizza Hut, Costa Coffee in India, and the company is the largest operator of quick-service restaurants chain in India. It operates 655 stores across 155 cities in India, as of March 31, 2021.
Devyani International Ltd is part of RJ Corporation started by Ravi Kant Jaipuria in 1991. RJ Corp is a powerhouse multinational with thriving businesses in beverages(Varun Beverages) fast-food restaurants(KFC, Pizza Hut, Costa Coffee) retail, ice-cream, Livestock (Cream bell, Daima) healthcare (Medanta Afri care) and education with a presence across 26 Nations through its subsidiaries.
Q4 FY23 Updates
Financial Results & Highlights
Detailed Results:
- The company clocked highest ever revenue at ~Rs. 3,000 Cr ; 44% YoY growth in FY23
- FY23 Brand wise revenue-
- KFC – Rs. 1,990 Cr ; 42% YoY growth
- PH – Rs. 706 Cr ; 32% YoY growth
- Costa – Rs. 102 Cr ; 148% YoY growth
- The company reported highest ever consolidated EBITDA at Rs. 655 Cr ; 38% YoY growth in FY 23
- Consolidated Reported EBITDA margin at 21.9% vs 22.8% in FY22
- The company reported PBT at Rs. 242 Cr ; 96.5% YoY growth in FY23
- The company clocked sales at Rs. 755 Cr which is 28% growth on YoY basis for Q4.
- Steady performance from Core Brands in Q4-
- KFC – Rs. 444 Cr (26% YoY)
- PH – Rs. 170 Cr (16% YoY)
- Costa – Rs. 33 Cr (142% Y
- The company reported the Gross Margin – 69.6% vs 69.3% in Q3 FY23
- Consolidated Reported EBITDA at Rs. 151 Cr in Q4.
- The company reported EBITDA margin at 20.0% in Q4.
- PAT stood at Rs. 60 Cr in Q4.
Investor Conference Call Highlights
- Devyani International (D.I.L.) demonstrated strong growth momentum in its first full year post-listing.
- D.I.L. operates 1243 stores across various brands and countries, more than double the store count of three years ago.
- KFC and Pizza Hut crossed important store milestones of 500 stores each, while Costa Coffee reached 100 stores.
- D.I.L. India received the exclusive restaurant growth award at the International Financial Conference in Singapore.
- Innovative product development and execution rigor through partnerships have contributed to growth.
- Value offerings like KFC Lunch and Rolls have seen strong initial traction, and premium products have been well received.
- The company stated that inflation impacted consumer sentiment and demand in the second half of the financial year, but performance remained resilient.
- D.I.L. opened 305 net new stores in FY23, with 66 added in the fourth quarter alone.
- The company continues to actively pursue new trade areas in metro cities and upcoming locations.
- Confidence in D.I.L.’s brands and the Indian market remains strong, with signs of inflation stabilizing.
- Consumer spending is expected to rebound in the second half of the coming fiscal year.
- D.I.L. is committed to maintaining financial discipline and operational excellence to capture growth opportunities.
- The store distribution in India is shifting in favor of non-metro destinations, aligning with the potential growth in the QSR sector.
- The company stated that gross margins slightly decreased due to inflation and input costs, but brand contribution margins remained healthy.
- Cost controls limited the impact on operating EBITDA, which showed a year-on-year increase.
- KFC India’s revenue grew by 45% in FY23, with lower gross margins due to sustained inflation in raw materials.
- KFC India added 29 net new stores in the quarter, with higher revenue despite the impact of festival timings and fewer operating days
- ADF (Average Daily Footfall) for the quarter was 106,000 with a year-on-year growth of 1.9%.
- Gross margins for the quarter stood at 68.6%.
- Lower areas and higher store operating costs led to a brand contribution margin of 17.5% in the quarter.
- Pitha Bhatt in India added 93 net new stores this year, surpassing the 500 store mark and reaching a count of 506 stores.
- Gross margins came in slightly lower at 74.4% in FY23 compared to 75.6% the previous year.
- Brand contribution margin saw a small dip to 14.5% compared to 16.3% last year.
- The company stated that milk prices escalated during the year, but price increases were not passed on to the customers.
- During the quarter, Pitha Bhatt India added 23 net new stores, with revenue at 170 crores, a 60% year-on-year growth.
- The company stated that efforts are being made to improve the performance and margins of the value layer brand.
- Costa Coffee crossed the 100-store milestone in FI23, adding 57 stores during the year to reach a total of 112 stores. Revenue for Costa also crossed 100 crores per month, with ADS (Average Daily Sales) improving to 35%.
- Gross margin for Costa was lower at 79% in FY23 due to inflation in coffee and milk prices.
- KFC experienced a 100 basis point expansion in gross margins in Q4, primarily led by lower chicken prices.
- The company is optimistic about the coffee category and plans to expand Costa Coffee in metros and tier-one cities.
Analyst’s View
The company saw a decent quarter with revenue growing by 44% while PBT grew by 97% YoY margin. The company is moving towards a leaner business model with a shift toward a delivery model and smaller store formats for KFC and Pizza Hut & is seeing good tailwinds from a long-term perspective. It remains to be seen how the company will weather the inflationary climate coupled with subdued demand & ambitious store expansion plans.
However, due to its strong promoter pedigree & tailwinds, it remains an interesting stock to keep track of.
Q3 FY23 Updates
Financial Results & Highlights
Detailed Results:
- The company had a very good quarter with revenue rising by 27% and profits rising by 14% YoY on a consolidated basis.
- Opened 81 net new stores in the quarter.
- GPM & EBITDA margins stood at 69.3% & 22% respectively.
- KFC
- KFC had 38 new additions
- ADS was INR116,000 with a healthy SSSG of 13%.
- Revenues grew 27.9% on a year-on-year basis.
- The gross margins stood at 67.6%.
- The brand contribution margin stood at 19.7%
- On-premise consumption remains steady at 64% for the quarter
- Pizza Hut
- Pizza Hut added 17 new stores.
- ADS decreased by 6% YoY.
- Revenues grew by 18.9%.
- GPM & Brand contribution margins stood at 73.6% & 14.1%.
- On-premise consumption remained steady for Pizza Hut at 43%.
- Costa Coffee
- Costa Coffee added 15 new stores.
- Revenues grew by 106% with ADS at 37,000.
- Gross margins came in at 77.8% primarily due to higher input costs.
- Brand contribution at INR4 crore and brand contribution margins at 19.6%.
Investor Conference Call Highlights
- The Inflationary situation has somewhat moderated but costs for some of its key raw materials like milk and cheese continue to remain elevated and are still witnessing some inflationary trends.
- The management expects margins to stabilize in the coming two quarters.
- The company recently brought back “Chizza” at KFC, to strong consumer reception and uptick.
- A combination of mix change, deleverage because of lower ADS and investments made in business suppressed the brand contribution margins.
- The performance of KFC was decent due to the sheer under-penetration of chicken in India.
- Pizza hut saw a margin decrease owing to cost inflation coupled with a new product- Fun Flavor which is a margin-dilutive product leading to the downtrading of the product.
- The company is sticking to its guideline of 250-300 yearly store additions & share of KFC would be higher.
- The company has started opening flagship stores for KFC as a brand that will be of larger size & expanded menu, & it is targeting 10% of KFC’s new store additions to be of this type.
- The company sees margins stabilizing in KFC whereas PH will continue to have margin pressure for the coming quarter.
- The company doesn’t plan to take any price hike in the KFC segment.
- The management was hesitant in the past about expanding Costa due to its acquisition by Coke making the atmosphere uncertain, however, post signing a new contract during the IPO, the company has again started focusing on expanding this brand.
- The company’s strategy has shifted from larger to smaller size stores Costa Coffee in the past 4-5 years.
- The current 20% SSSG numbers for Costa were primarily due to higher volumes.
- The management expects larger store size will result in ADS number improving for KFC.
- The company targets at least four to five new cities every quarter for the opening of KFC stores.
- The majority of Costa stores are Metro city dominated & the targeted breakeven period for all its stores is 6-12 months.
Analyst’s View
The company saw a mediocre quarter with sales growing by 37% while PAT grew by only 14% due to margin dilution. The company is moving towards a leaner business model with a shift toward a delivery model and smaller store formats for KFC and Pizza Hut & is seeing good tailwinds from a long-term perspective. It remains to be seen how the company will weather the inflationary climate coupled with subdued demand & ambitious store expansion plans.
However, due to its strong promoter pedigree & tailwinds, it remains an interesting stock to keep track of.
Q2 FY23 Updates
Financial Results & Highlights
Standalone Financials (in Crs) | ||||||||
Q2FY23 | Q2FY22 | YoY % | Q1FY23 | QoQ % | FY22 | FY21 | YoY% | |
Sales | 675 | 465 | 45.14% | 641 | 5.24% | 1,853 | 999 | 85.49% |
PBT | 60 | 40 | 48.51% | 68 | -11.24% | 112 | -65 | 272.31% |
PAT | 60 | 40 | 48.51% | 68 | -11.24% | 153 | -65 | 335.38% |
Consolidated Financials (in Crs) | ||||||||
Q2FY23 | Q2FY22 | YoY % | Q1FY23 | QoQ % | FY22 | FY21 | YoY% | |
Sales | 752 | 521 | 44.26% | 714 | 5.35% | 2,084 | 1,198 | 73.96% |
PBT | 59 | 47 | 24.63% | 77 | -23.87% | 123 | -82 | 249.27% |
PAT | 57 | 47 | 22.15% | 75 | -23.96% | 155 | -81 | 290.65% |
Detailed Results:
- The company had a very good quarter with revenue rising by 44% and profits rising by 22% YoY on the consolidated basis.
- On the QoQ basis, Q2 was stable with revenue rising by 5% and profits falling by 24%.
- Opened 88 net new stores in the quarter, the highest ever
- At the end of Q2, the total store count stood at 1,096 stores across the portfolio, with a split of 52% in the non-metros and 48% in the metro cities.
- Gross Margins at 70.2% were 90 bps lower than the previous quarter.
- Consolidated brand contribution margin is at 19.6% versus 20.5% in the previous quarter.
- Pre-IndAS EBITDA at INR113 crore for the quarter, a growth of 42% on a y-o-y basis.
- The pre-IndAS EBITDA margin came in at 15.1% versus 16.1% in the previous quarter.
- Post-IndAS EBITDA was INR166 crore for the quarter, with margins at 22.1% versus INR123 crore a year ago, which again reflects a 34% y-on-y growth.
- CAPEX per store is 13.5 million, and about the same number will be there for coming stores according to the management.
- H1FY23
- Added 158 net new stores in H1
- Gross margins at 70.6% and brand contribution margins at 20%
- Reported EBITDA on a consolidated basis for the six months stood at INR330 crore, representing a 22.7% margin.
- Profit after tax for the half-year stood at INR132 crore.
- KFC
- KFC with 32 new additions reached a mark of 423 stores at the end of the quarter.
- ADS was INR121,000 with a healthy SSSG of 13%.
- Revenues at INR443 crore for KFC remained robust and have grown 4% sequentially and 47% on a year-on-year basis.
- The quarter saw the full impact of raw material pricing increases and this led to lower gross margins at 67.9% versus 69% in the previous quarter.
- Brand contribution margin was in line with the performance on the gross margins for KFC.
- On-premise consumption remains steady at 64% for the quarter
- Pizza Hut
- Pizza Hut added 30 new stores to reach a total of 466 stores.
- ADS improved marginally to INR45,000 with SSSG at 3%.
- Revenues came in at INR181 crore, growing 36% year-on-year basis.
- Higher input prices and the impact of changing product mix impacted the gross margins a little bit. Gross margins came in at 74.5% versus 76.2% in the previous quarter.
- Brand contribution margins were 17% versus 17.5% in the previous quarter.
- On-premise consumption remained steady for Pizza Hut at 45%.
- Costa Coffee
- Costa Coffee added 19 new stores to reach a total of 88.
- Revenues grew to INR22 crore.
- Gross margins came in at 79.6% primarily due to higher input costs.
- Brand contribution at INR4 crore and brand contribution margins at 19.6%, were lower due to the significant addition of new stores during the quarter.
- The ADS at the brand level was INR31,000, reflecting dilution due to new store additions.
Investor Conference Call Highlights
- The company continued to focus on consolidating its presence in metro cities, along with the expansion in non-metro towns.
- The management stated that continued retail inflation seems to have impacted consumer demand to some extent in the staples and discretionary categories.
- The management stated although the inflation in input cost is stabilizing, the overall pricing levels continue to remain higher on a year-on-year basis. The company has managed to take some judicious price corrections during early part of the financial year to protect the margins partially and is hoping that inflation will cool off, which may lead to enhanced consumer demand.
- The company launched peri-peri Chicken in KFC.
- The company is also investing in making business future-ready with the launch of all digital “KFC Smart Restaurants”.
- The management stated this slight impact in gross margins is the result of consistently high input inflation. While the company has taken price corrections over the course of the year for brands, the same has not been enough to offset the entire margin impact because of the increase in raw material and packing material prices.
- The PBT for the quarter was lower than the previous quarter because of the significant currency impact in Nigeria and higher IndAS adjustment as a result of the new store openings.
- The management is intact with their target of 250 stores, and hope to breach that by some amount.
- The management stated due to input cost inflation in H1, volume/demand was lower, but as the company increased prices, there is a trade-off between volume and pricing.
- The management stated basic input costs have already started coming down. Chicken prices are down. Oil prices are down, and even gas prices have been reduced. So they are expecting input costs to cool off.
- The management stated lower SSSG of 3% in Pizza Hut is due to a combination of pricing impact, plus some price dilution due to Fun Flavour Pizza.
- On the KFC Smart Store, the management stated the CAPEX will not significantly change. The company is trying to digitize the stores by minimizing the orders taken at the counter, whereby the consumers can actually go to the kiosk and order on their own. The company has seen that the APC tends to grow a little compared to the APCs in a non-digital store.
- The company has opened one KFC Smart Store in Gurgaon and another in Bangalore.
- The company is looking at adding about 40 to 50 stores of Costa Coffee. The near to medium-term objective for Costa is to reach an ADS close to INR40,000.
- The management stated that the profitability in the non-Metro markets is stronger than the Metro markets because obviously, rentals costs and staff costs are lower, and the utility costs are lower. The company is bullish on non-metro and the management believes non-metro is the future.
- The management stated Vaango is still not a destination brand, the big priority is KFC, Pizza Hut, and Costa as of now; the company remains bullish about the brand. There is no other Indian QSR brand that is available in the market, and therefore, Vaango, in the future can become a sizable category.
- The company doesn’t see employee costs rising as of now.
- The management stated all fryers are imported for KFC; All of the ovens are imported for Pizza Hut; INR depreciation impact is there but it is negligible.
- The company has seen about 9% to 10% inflation in the CAPEX level, because not just the imported equipment, there is some increase in the air conditioning plants also.
- For Costa Coffee, on the brand contribution level, the normal margin profile is about 28% to 30%.
- The management stated the breakeven of Costa Coffee stores happens in the first six months. But it takes almost about 15 to 18 months for a store to fully mature.
- After every five years, the company typically do minor refurbishment. Minor refurbishment basically is the customer area where we will change the upholstery, and do a new job on the paint and polish and look and feel and all of that. Major refurbishment is done once in 10 years, which will also include the kitchen area as well.
- The company has not taken any price increase in Q2, which could have a small 0.5% to 1%. The majority of the price increase was taken in Q1.
- The management stated whenever the company opens a new store, they typically try and work to make the store successful in about 18 to 24 months period. Beyond that, they would take the call around store closure.
Analyst’s View
The company intends to create a leaner and profitable business due to which they have moved out of most concession agreements at Airports. The company is moving towards a leaner business model with a shift toward a delivery model and smaller store formats for KFC and Pizza Hut. Existing urban centers and the upcoming ones are expected to be consumption hotspots, supported by the increasing urbanization of our population and the growth in disposable income. Changing lifestyles should also provide a strong tailwind for an increase in the frequency of non-home-cooked food consumed by families. Management believes that they are well positioned and capitalized to leverage this opportunity. The company is in an aggressive expansion mode of small format stores and with more consumption of fast food and a rising dine-in cult with a lot of young population in the country, the company seems to have the hunger to capitalize the most out of this growing trend.
Q1 FY23 Updates
Financial Results & Highlights
Standalone Financials (in Crs) | ||||||||
Q1FY23 | Q1FY22 | YoY % | Q4FY22 | QoQ % | FY21 | FY22 | YoY% | |
Sales | 634 | 311 | 104% | 530 | 20% | 999 | 1853 | 85% |
PBT | 68 | 40 | 70% | 38 | 79% | -65 | 112 | – |
PAT | 68 | 40 | 70% | 79 | -14% | -65 | 153 | – |
Consolidated Financials (in Crs) | ||||||||
Q1FY23 | Q1FY22 | YoY % | Q4FY22 | QoQ % | FY21 | FY22 | YoY% | |
Sales | 704.7 | 352.8 | 100% | 590.7 | 19% | 1198 | 2,084 | 74% |
PBT | 77.1 | 33.4 | 130% | 42.5 | 81% | -82.4 | 123 | – |
PAT | 74.8 | 75.9 | -1.45% | – | -81.3 | 155 | – |
Detailed Results:
- Company posted consolidated revenues of Rs. 705 Cr, nearly 2x the corresponding figure for the last year.
- KFC contributed Rs. 425 Cr and Pizza Hut contributed Rs. 165 Cr.
- PAT at Rs. 74.8 crores.
- In Q1 FY23, Gross Margin stood 71.1%.
- Company has reached an important milestone of 1,000 stores this quarter.
- In FY23, company added 70 net new stores in the quarter, led by 27 stores in KFC, 23 stores in Pizza Hut and 14 stores in Costa Coffee.
Investor Conference Call Highlights
- The non-metro store contribution within Core Brands has gone up to 52% now.
- With current run-rate of store openings, plan to double store count in 4-5 years.
- Tax charge expected from Q3’ FY23 on strong profitability.
- Net New Units at 70 in Q1. Margins maintained despite inflationary headwinds. Dine-in recovery in the business.
- Core Brands Stores in- Total Metros- 427 (48%) and Total Non-Metros- 469 (52%).
- In Q1FY23, ADS: Average Daily sales (Figures in ‘000)– KFC- 127, PH- 44 and Costa Coffee- 36.
- KFC launched the popcorn nachos an innovative blend of tender chicken popcorns served on a bed of crunchy nachos. Pizza Hut launched the flavor fun pizza range just last week.
- Notwithstanding the current economic situation, Company remains excited about the long-term potential of our brands and the food services sector in India.
- Management stated that One needs to understand that even with 100 stores for KFC and 100 for Pizza Hut, the business is gravitating more towards KFC. The capex per store for KFC is higher than the capex per store for Pizza Hut. The ADS for KFC is almost 2.5 to 3 times the ADS of Pizza Hut. The return on investment is also better for KFC versus Pizza Hut. So, while let say even when headline number the additions looks similar, KFC as a brand is kind of becoming stronger in the overall portfolio that they have.
- KFC margins looked more or less stable but in case of Pizza Hut (PH) margins are actually moving up, as in PH company took the price hike a little ahead of the input inflation.
- Management wanted Pizza Hut as a brand, was to restructure the brand and to turn it around and then to start growing the brand. At the IPO stage that company talked to close large format stores replacing it with smaller format which worked very well for them. With this renewed strategy, they have opened lot of stores, and they are doing well while response also seems to be encouraging.
- Management believes be competitively positioned as far as Starbucks is concerned and their coffee is loved by everybody in the country and the opportunity for coffee is very large – it is huge. Pricing would be done similar to Starbucks.
- For Vaango, the speed of opening will be much faster than what they have been doing and store would be coming in the right location. Vaango seems to work well where there is a captive consumption.
- Management stance on going forward, “QSR as a category is highly under penetrated in the country. And if you have to really cover the population and we have to grow the store count and we have to kind of, take the industry to a different level, then we have to be kind of reasonable in terms of our gross margin expectations, and yet ensure that it gives us a good ROI and return on equity for the investors.”
- Management take in Vaango’s expansion company’s bigger focus was on KFC and Pizza Hut as they were opening lot of stores. Vaango is giving them good margins, they will be focusing and opening all the new Vaangos in the territories and locations where it works for them.
- Management aspires PH to have same kind of margin as KFC, but that is a long haul.
- Company have managed to improve the delivery timelines, 70% to 80% of the orders are delivered within 30 minutes. Therefore, with higher penetration as they are opening the stores, delivery times automatically are becoming better.
- Non-metro continues to be favorable as far as the rent to revenue ratio is concerned.
Analyst’s View:
The company intends to create a leaner and profitable business due to which they have moved out of most concession agreements at Airports. The company is moving towards a leaner business model with a shift toward delivery model and smaller store formats for KFC and Pizza Hut. In line with its leaner business model strategy, the company has shut down airport concession stores and 61 non-performing stores to improve efficiencies in the business. Existing urban centers and the upcoming ones are expected to be the consumption hotspots, supported by increasing urbanization of our population and the growth in disposable income. Changing lifestyles should also provide strong tailwind for an increase in the frequency of non-home cooked food consumed by families. Management believes that they are well positioned and capitalized to leverage this opportunity. Company is in aggressive expansion mode of small format store and with more consumption of fast food and rising dine-in cult with lot of young population in the country, company seems to have the hunger to capitalize the most out of the this growing trend.
Q4 FY22 Updates
Financial Results & Highlights
Consolidated Financials (In Crs) | ||||||||
Q4FY22 | Q4FY21 | YoY % | Q3FY22 | QoQ % | FY22 | FY21 | YoY% | |
Sales | 532 | 373 | 42.6% | 556 | -4.3% | 1869 | 1047 | 78.5% |
PBT | 38 | 3 | 1166.7% | 54 | -29.6% | 112 | -70 | -260.0% |
PAT | 79 | 7 | 1028.6% | 54 | 46.3% | 153 | 65 | 135.4% |
Standalone financials (In Crs) | ||||||||
Q4FY22 | Q4FY21 | YoY % | Q3FY22 | QoQ % | FY22 | FY21 | YoY% | |
Sales | 593 | 419 | 41.5% | 628 | -5.6% | 2100 | 1199 | 75.1% |
PBT | 42 | 23 | 82.6% | 67 | -37.3% | 123 | -82 | -250.0% |
PAT | 76 | 62 | 22.6% | 66 | 15.2% | 155 | -63 | -346.0% |
Detailed Results
- The company saw revenue growing 41% YoY & de-growing by 5% QoQ.
- Pre-IND AS EBITDA grew by 44% YoY while margins stood at 14.4% Vs 8.1% YoY.
- Consolidated EBITDA margins (post IND-AS) stood at 24.3%.
- The Company added 54 new stores in Q4:-
- KFC India- 25
- Pizza Hut India- 22
- Costa Coffee- 5
- Others- 2
- KFC Nigeria and Nepal – 0
- It also added 246 stores in FY22.
- Quarterly Consolidated Gross margins stood at 71.3% while yearly levels stood at 71.2%.
- Brand contribution for the quarter stood at 21.2% while annual contribution stood at 19.9%.
- KFC’s quarterly revenue grew by 39.2% YoY, ADS decreased by 3% yearly to 113,000 meanwhile GPM stood at 69.3% and brand contribution margin stands at 21.8%.
- Off/On premise mix for KFC on quarterly basis stood at 41:59 while on an annual basis it stood at 44:56.
- Pizza Hut’s quarterly revenue increased by 41% YoY, ADS decreased by 2.3% YoY to 41,000 meanwhile GPM stood at 75.5% & brand contribution margin stands at 17.5%.
- Off/On premise mix for Pizza Hut on quarterly basis stands at 59:41 while on yearly basis it stands at 63:37.
- Costa Coffee’s quarterly revenue increased by 61% YoY, ADS increased by 24% YoY to 30,000 meanwhile GPM stood at 81.6% & brand contribution margin stood at 30.2%.
Investor Conference Call Highlights
- The company added 246 net new stores in FY22 taking the total store count to 938 stores.
- The Company was able to battle cost inflation through timely forward contracts.
- The company’s performance saw dip in Q4 as 4-6 weeks were affected by 3rd covid wave.
- The management states that KFC’s biryani bucket is gaining wide acceptance from customers.
- The employee costs were down temporarily due to perks received from omicron variant and expects this to stabilise in the coming quarters.
- The company received several cost benefits from its international business leading to lower cost in the current quarter despite more store additions.
- The management believes that all the benefits of transition from dine in to delivery based model in Pizza Hut biz has flown in & now expects the margins and profitability to grow in line with revenue growth & expects to sustain the current margins in this business.
- The management expects to incur capex of Rs.300 Cr in FY23 for the opening of 250 new stores.
- The company expects KFC to have delivery to dine in ratio of 35:65 in the coming quarters due to removal of Covid related restrictions.
- The company introduced hand tossed pizza in its Pizza hut portfolio which will complement its previous offering of pan based pizzas & introduced two new side items in the portfolio.
- The company has recognized only 2 years of deferred tax asset due to uncertainty concerning input cost inflation, possible covid 4th wave & geo political issues.
- The management expects to have 7-8% SSSG numbers in the coming years in its Pizza Hut division.
- The company hasn’t seen any fall in demand despite close to 10% price increase in KFC(% (1-2% in October & 8-9% in April) but the company hasn’t completely passed on the input price increase to the customers.
- The management is focused on clocking ADS of 40,000 in Costa Coffee in the next couple of years.
- The company’s app for KFC and Pizza Hut is shared between the company & Sapphire Ltd & this app is regulated by YUM brands.
- The rental cost for FY22 was at 11% of revenues.
- The company is more bullish in KFC business Vs Pizza Hut due to population demographics of India wherein 70% population in India is non-vegetarian whereas QSR industry constitutes of only 25% non-vegetarian offerings leading to long runway for growth & penetration in chicken category Vs Pizza category which is already highly penetrated.
- The company doesn’t expects to increase margins in KFC biz in FY23 due to high input cost inflation, but expects to maintain margins through operational efficiency & a possible price increase.
Analyst’s Views
Devyani International is one of the largest QSR operators in India and the largest franchisee operator for Yum Foods which has brands like KFC and Pizza Hut. It had a very good quarter with over 40% YoY revenue growth and 23% YoY PAT growth. The company is focused on converting the Pizza Hut franchise into a delivery focused model with the help of aggregators which have lower running costs than building its own app and delivery network. The company has also added 54 new stores in the quarter, maintaining its impressive expansion momentum which took the total for FY22 to 246 new stores opened. Devyani is also looking to enhance its Costa business and add 250 new stores in FY23 for an estimated capex of Rs 300 Cr. It remains to be seen how it will be able to grow the Pizza Hut franchise amidst the massive competition in the pizza delivery segment with Dominos as the market leader and several national pizza chains also expanding quickly, what issues will it face in its international expansion efforts, and how will the competition with Sapphire affect its future plans. Nonetheless, given the company’s market position, the brand strength of Yum Foods and the potential of the QSR segment in India, Devyani International is a pivotal QSR sector stock to watch out for.
Q3 FY22 Updates
Financial Results & Highlights
Consolidated Financials (In Crs) | ||||||||
Q3FY22 | Q3FY21 | YoY % | Q2FY22 | QoQ % | 9MFY22 | 9MFY21 | YoY% | |
Sales | 628 | 384 | 63.5% | 521 | 20.5% | 1507 | 780 | 93.2% |
PBT | 67 | 47 | 42.6% | 47 | 42.6% | 80 | -106 | 175% |
PAT | 66 | 39 | 69.2% | 46 | 43.5% | 79 | -125 | 63% |
Standalone financials (In Crs) | ||||||||
Q3FY22 | Q3FY21 | YoY % | Q2FY22 | QoQ % | 9MFY22 | 9MFY21 | YoY% | |
Sales | 555 | 340 | 63.2% | 475 | 16.8% | 1337 | 675 | 98.1% |
PBT | 54 | 66 | -18.2% | 40 | 35.0% | 74 | -73 | 201% |
PAT | 54 | 66 | -18.2% | 40 | 35.0% | 74 | -73 | 201% |
Detailed Results
- The company recorded its best ever quarter with revenue growing 20% QoQ & 63% YoY.
- Pre-IND AS EBITDA grew by 30% QoQ.
- Consolidated EBITDA margins stood at 23.9%.
- Company added 81 new stores :-
- KFC India- 30
- Pizza Hut iIndia- 40
- Costa Coffee- 5
- Others- 4
- KFC Nigeria and Nepal – 2
- Consolidated Gross margins stood at 71.4%
- KFC’s revenue grew by 20% QoQ, ADS increased by 23.8% to 124,000 meanwhile GPM stood at 69.4% and brand contribution margin stands at 23%.
- Off/ On premise mix for KFC stood at 36:64.
- Pizza Hut’s revenue increased by 17% QoQ, ADS increased by 24.7% QoQ to 47,000 meanwhile GPM stood at 75.6% & brand contribution margin stands at 16.8%.
- Off/On premise mix for Pizza Hut stands at 58:42.
- Costa Coffee’s revenue increased by 52% QoQ, ADS increased by 101% QoQ to 37,000 meanwhile GPM stood at 79.8% & brand contribution margin stood at 32.1%.
Investor Conference Call Highlights
- The company added 192 stores in 9M FY22 taking the total store count to 884.
- The management states that PH’s momo mia offering is gaining widespread adoption especially from youth & people from East India.
- The management believes after renewal of agreement with Costa Coffee, the store additions in the coming 2-3 quarters will be significant.
- The management expects Vaango to do much better post covid due to increased traffic in malls and airports.
- The company handles input cost inflation by taking price hikes ( recently seen in KFC) or by rehashing the product mix to ensure contribution from higher margin items leading to stale gross margins on a consolidated basis.
- The management states that it is more focused towards improving delivery sales through food aggregators instead of its own app as the costs in both the channels are similar, however food aggregators like Zomato & swiggy ensure that the company’s new stores get better visibility which might not be possible through its own app.
- The company has increased its past guideline of opening 200 stores in the current year to 250 stores.
- The management believes that there is a long runway for growth in the upcoming 5-10 years since it has only 400 PH stores whereas its competitor Jubilant (Dominos) has 1500 stores thus leaving a huge gap for the company to fill up.
- Seating capacity in the new KFC stores have been decreased from erstwhile 150 to 60 seats whereas that in PH stores has decreased from 120 to 46.
- The management states that all cash flows from the international business is being ploughed back to open more international outlets.
- The dine in business segment has higher margins vis-à-vis the delivery business due to delivery charge by aggregators.
- Per store capex on a consolidated basis stands at Rs. 1.2 Cr.
- Metro and non-metro store mix is 49:51.
- The management believes that aggregators are a better model than own app due to lower fixed costs in the form of delivery network coupled with the fact that margins from both the models are similar and it further states that its key competitor Dominos opened its own app as there were no options in the past unlike today.
Analyst’s Views
Devyani International is one of the largest QSR operators in India and the largest franchisee operator for Yum Foods which has brands like KFC and Pizza Hut. It has seen its best ever quarter in Q3 and the company has also shown good recovery with numbers back to pre-covid levels. The company is focused on converting teh Pizza Hut franchise into a delivery focused model with the help of aggregators which have lower running costs than building its own app and delivery network. The company has also added 81 new stores in the quarter, maintaining its impressive expansion momentum. It remains to be seen how it will be able to grow the Pizza Hut franchise amidst the massive competition in the pizza delivery segment with Dominos as the market leader and several national pizza chains also expanding quickly, and what issues will it face in its international expansion efforts. Nonetheless, given the company’s market position, the brand strength of Yum Foods and the potential of the QSR segment in India, Devyani International is a pivotal QSR sector stock to watch out for.
Disclaimer
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