Emkay Global Financial's research report on Devyani International
Devyani (DIL) has entered Thailand QSR market (KFC), with its subsidiary acquiring 93% stake in Restaurant Development Co. (RD) and remaining 7% stake being allocated to a local partner, as per regulation norms. The subsidiary will be meeting the acquisition’s funds (Rs6.7bn) with capital infusions from the India parent (Rs3.4bn) and Temasek (Rs3.3bn). Valuations are fair at 9- 10x its trailing EBITDA, given the potential of low-to-mid teens EBITDA CAGR for Thailand business. DIL expects doubling of store count in 10 years, and we see scope of low-to-mid-single-digit SSG profile and potential margin gains of 200-300bps over this period. While further acquisition of territories, stronger recovery in the tourism space, and better margin delivery remain potential upsides, we would like to remain conservative as of now.
Outlook
Given muted demand trends in KFC India, challenges in the pizza category, and macroeconomic issues in Nigeria, we maintain our Reduce rating on DIL with a TP of Rs165.
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