Macquarie initiates outperform rating on Devyani International; ups target price by 30%

Brokerage Macquarie Equity Research has initiated coverage on Devyani International Ltd with an "Outperform" rating, raising its target price by 30 percent to Rs 230 per share from the current market price.

The brokerage’s optimism is rooted in healthy EBITDA growth prospects for Devyani, the largest Yum India franchisee, particularly in its KFC operations, driven by favorable geographies and a strong competitive position in the chicken segment. While Pizza Hut’s turnaround may require more time, Macquarie sees significant potential in other brands like Costa Coffee, Vaango!, and others.

Macquarie acknowledges near-term risks to KFC's same-store sales growth (SSG) due to ongoing headwinds from the Middle East conflict. However, it anticipates a steady recovery supported by a focus on value offerings, a robust competitive edge in chicken, and a favorable base. Market checks indicate that in regions with minimal geopolitical impact, SSG is nearing positive territory. For Pizza Hut, the brokerage remains cautious about the pace of store expansion, given the longer timeline for margin recovery, it said.

Macquarie said Devyani’s acquisition of KFC’s Thailand operations further strengthens its portfolio, offering exposure to a high chicken consumption market where KFC maintains a dominant lead over competitors. This acquisition, combined with the potential for EBITDA margin expansion, underpins Macquarie’s confidence in achieving a mid-teen EBITDA profile for the company over FY24–40E. Additionally, Thailand's sharper economic growth and market consolidation present upside risks to these projections.