Buy Devyani International; target of Rs 190: Motilal Oswal

Motilal Oswal's research report on Devyani International

Weaker-than-expected SSSG in KFC (3% v/s our est. of 6%) and Pizza Hut (PH; -6% v/s our est. of -1%) businesses and lower-than-expected gross margin resulted in ~14% miss on EBITDA v/s our estimate. Demand environment has not been much better on a quarter to date basis, albeit, there is hope that moderating RM inflation – especially for KFC – and overall CPI inflation levels could lead to a demand revival. With an increasing focus on hygiene, convenience, and innovation, QSRs with their strong brands, present a great investment case given their low penetration levels in India. The company’s strong pricing power helps combat input cost inflation.

Outlook

Retain BUY with an SoTP-based TP of INR190 (based on 35x/25x for KFC/Pizza Hut on a pre-Ind AS EV/EBITDA basis on Mar’25 forecasts).

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Devyani International - 10 -02 - 2023 - moti