The initial public offering (IPO) public issue of Devyani International, the operator of quick-service restaurants chain KFC and Pizza Hut, continued to receive a strong response from investors as the issue has subscribed 116.71 times on August 6, the last day of bidding.
The offer has garnered bids for 1,313.77 crore equity shares against an IPO size of 11.25 crore equity shares, generating bids of Rs 1,18,239.3 crore, the subscription data available on exchanges showed.
Retail investors have gone big on the IPO subscribed their portion 39.51 times. The portion set aside for employees was subscribed 4.70 times.
The portion set aside for qualified institutional buyers was subscribed 95.27 times and non-institutional investors put in bids 213.06 times their reserved portion.
Devyani International, the largest franchisee of Yum Brands in India, is planning to raise Rs 1,838 crore through its public issue that comprises a fresh issue of Rs 440 crore and an offer for sale of Rs 1,398 crore by selling shareholders.
The fresh issue proceeds are going to be used for repaying of debts (Rs 324 crore) besides general corporate purposes. The company already mopped up Rs 825 crore from anchor investors at upper price band of Rs 90 per share.
Devyani operates 696 stores (of KFC, Pizza Hut and Costa Coffee) across 166 cities in India, as of June 30, 2021. Yum! Brands Inc operates brands such as KFC, Pizza Hut and Taco Bell and has presence globally with more than 50,000 restaurants in over 150 countries, as of December 31, 2020.
In addition, Devyani is a franchisee for the Costa Coffee brand and stores in India.
"Devyani International's strong portfolio of globally recognised brands, business and geographical diversification, strong presence across key consumption areas and increasing digital adoption provides a strong growth runway for the company. Although the company has been loss-making, it is on an expansion mode with strong industry triggers," said Ashika Stock Broking.
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Considering the expected improvement in financial performance and future growth drivers, the brokerage recommends subscribing the issue.
In terms of the valuations, on the higher price band, Devyani International demands a market caps/ales multiple of 9.54x based on FY21 post-issue fully diluted equity and enterprise value/sales multiple of 9.55x, which is reasonably priced when compared to its listed industry peers, said the brokerage.
In 2021, quick-service restaurants are expected to witness a better recovery compared to other channels, owing to the better suitability for takeaways, Ashika Stock Broking said. "Investments of operators in expansion and technology will also drive the growth," it said.
The company intends to increase the store network by implementing the defined new-store rollout process and the cluster approach and penetration strategy with respect to store location, while aiming to achieve an optimal mix across the different types of restaurant formats in order to drive footfalls and compete effectively.
Grey market premium
Devyani International shares traded at a healthy Rs 60-65 premium in the grey market, which resulted in a trading price of Rs 150-155 with a gain of 66.7-72.2 percent over the issue price of Rs 90 per share, the IPO Watch and IPO Central data showed.
The premium has been increasing gradually from Rs 15-20 in the last week, to Rs 60-65 now, attributing to its expected stores expansion, growth potential in QSR industry, economic recovery, increasing urbanisation, rising disposable incomes etc.
"The quick-service restaurant channel has been rapidly growing in popularity in India owing to factors such as a rise in literacy, exposure to media, increase in disposable incomes and easier and greater availability of QSRs," said Ashika Stock Broking.
The value sales of quick-service restaurants are expected to grow at an even higher pace of 12.4 percent. Economic recovery and greater investments from western fast-food chains are expected to drive the growth, the brokerage said.
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