Fund houses take a bite of Devyani Int, analysts say not a yummy buy yet

New stores lower profitability in the near term as it takes time for the stores to mature.

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26 Aug, 2025 12:21

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Yum Restaurants India, the brand owner of Pizza Hut and KFC, sold a 4.4 percent stake in Devyani International, the franchise owner of the brands, through a block deal on February 21. The shares were bought by Axis Mutual Fund, Sundaram Mutual Fund, the Government of Singapore, and others.

Does it make sense for retail investors to ride on the coattails of fund managers? Analysts are not sure.

Devyani International’s sales have been declining over the last five consecutive quarters. In addition, the company's same store sales growth has been weak. Its same store sales exclude the impact of newly opened stores on the company's performance. Analysts say this trend could continue for the next six to nine months until the company’s new stores become profitable.

Devyani International is aggressively adding stores, which is piling pressure on its margins. “New store additions are margin dilutive because more capital will be utilized in building new stores,” said Vishal Gutka, Research Analyst at Phillip Capital.

In the year to December 30, the company added 275 stores and has plans to add 250-300 stores in FY25.

New stores lower profitability in the near term as it takes time for the stores to mature.  The combination of immense store expansion for KFC and Pizza Hut and reduced spending on both fronts seen in 9MFY24, profitability has taken a massive hit, said Aayush Abraham, Research Analyst at Rupeeting. Furthermore, he said that Average Daily Sales (ADS) have also seen a consistent decline since those stores haven’t matured yet, and will take another 6-9 months to see improvement.

As a result, Devyani International’s net profit has declined 92 percent year-on-year (YoY) in Q3 FY24 and 36 percent YoY in Q2 FY24. The company recorded a loss of Rs 1.59 crore in Q1 FY24.

High inflation is not helping matters for the quick service restaurant (QSR) industry as consumers cut back on discretionary spending to make up for higher spending on necessities.

“Increased competitive intensity in the pizza category and overall slowdown in mass consumption will continue to impact performance for Devyani International for the next few quarters, and recovery will take time,” said Sharekhan in its Q3 FY24 result update.

Also read: Your typical restaurant meal now costs Rs 149. Wonder why? Here's the QSR strategy

In its Q3 earnings call, Devyani International’s management said that consumer sentiment is subdued and that the October-December quarter saw lower demand due to a pull-back in consumer spending.

Restaurants active with Zomato have increased to 48 times the total branded QSR stores in FY24. This number was 22 times in FY19. “With more restaurants partnering with food delivery platforms, we think consumers now have more options, leading to fragmented sales. This is likely playing a part in the weakness in ADS of the QSR industry besides the general weakness in demand due to elevated inflation,” said Kunal Vora, Head of India Equity Research at BNP Paribas in a report.

A ray of hope

Devyani International completed the acquisition of the Restaurants Development Company in January, through which it will operate 283 KFC stores in Thailand.

The local out-of-home consumption in Thailand is eight to nine times a week. This is way higher than in India, where out-of-home consumption is once every 35-40 days, said the company’s management in its Q3 FY24 conference call. KFC is the market leader in Thailand with 1,000 stores, it added.

The newly acquired 283 KFC stores in Thailand albeit have lower EBITDA margins now at around 15 percent and Devyani expects to turn it around to the 20-22 percent which is seen in India, said Abraham. Considering the average Thai citizen eats out once a day, while the average Indian eats out once a month, the overall fried chicken market seems larger in the former, thereby boosting Devyani’s overall performance, said the analyst.