Brokerage firm JM Financial has initiated coverage on Devyani International Ltd,the KFC and Pizza Hut franchise in India, with a buy rating with a target price of Rs 195 a share, 22 percent higher than the current market price.
The company's robust brand portfolio, expansive market potential, efficient execution abilities, and strong support from promoter RJ Corp, along with the potential of other brands such as Costa Coffee, give confidence in its growth prospects, the broking firm said in a report released on April 19.
, at 25 times the estimated EBITDA before IND AS for FY25, it said, referring to Indian Accounting Standard.
The correction presents an attractive entry point for potential investors because the inherent strengths of the business and market opportunity have not been compromised, analysts at JM Financials wrote.
Devyani is the leading franchisee of Yum Brands in India, with a significant share of around 64/59 percent of the store network and 57/55 percent of the sales of Pizza Hut (PH) and KFC, respectively, as of nine months of FY23.
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Chicken, pizza and a side of coffee
With a diverse brand portfolio encompassing prominent segments such as pizza, chicken, and cafe, Devyani is well-positioned to cater to a wide range of consumers through strong brands like PH, KFC, and Costa Coffee, it said.
KFC is a crucial source of earnings for Devyani, leveraging its pioneering status in the market, while Pizza Hut is showing a steady improvement in various operational metrics.
The recovery in other areas of Devyani's business, including Costa Coffee, international operations, and its own brands, has contributed to a remarkable turnaround in profitability and a significant increase in return on invested capital (RoIC), placing Devyani at the forefront of the quick-service restaurant (QSR) industry, the analysts said.
The company has identified a vast market opportunity and leveraged its appropriate store format and robust unit economics to embark on an accelerated store expansion plan, adding 246/228 stores in FY22/9MFY23, and targeting 250-300 store additions annually, JM Financial said.
Devyani has also focused on enhancing profitability through strategic initiatives such as restructuring store sizes, maintaining a balanced mix of store additions between metro and non-metro markets (representing 52 percent of the store network), optimising staff costs, and enhancing capital efficiency.
These initiatives demonstrate the company's commitment to sustainable growth and profitability, making it well-positioned to capitalize on the vast market opportunity in the QSR space, JM Financial said.
At 11.13 am, the stock was trading almost a percent at Rs159.45 on the National Stock Exchange from the previous close.
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