The share price of Devyani International surged more than 3 percent on September 16, after Edelweiss Securities said that growth levers for the KFC operator were in place.
The domestic brokerage firm upgraded its rating on the stock to “buy” from “hold” and assigned a target price of Rs 233.
At 14.44 pm, the shares of the largest franchisee of Yum Brands in India were trading a percent higher at Rs 192.1 on the BSE. The scrip touched an intraday high of Rs 196.7, up 3.4 percent from the previous close.
The brokerage attributed rating upgrade to comfort on demand, launch of Pizza Mania at Pizza Hut and better stock valuation.
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The stock is trading at 31 times one-year forward enterprise value to earnings before interest tax depreciation amortisation (EBITDA) as compared to 38 times earlier, the brokerage house said.
Also Read | Devyani International: On track to deliver strong earnings growth
The company’s multiples are the highest across quick service restaurants (QSRs), which reflects robust store addition and margin turnaround.
The same store sales growth across brands, Pizza Hut turnaround and margin surprise are levers for the stock’s re-rating, the brokerage note said.
Talking about KFC, Edelweiss Securities said that the recent price hike of 9 percent has been absorbed well and is holding up well against the competition.
“While gross margins could face slight pressure due to sustained inflation, improving store productivity should keep brand margins stable. Menu innovation remains a key focus area to drive further footfalls,” the research note said.
With the introduction of the Pizza Mania range, with pizzas starting at Rs 79, Pizza Hut has bridged a key menu gap. Prior to this launch, the cheapest offering was Rs 200, it added.
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