Buy Devyani International; target of Rs 215: Emkay Global Financial

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Emkay Global Financial's research report on Devyani International

DIL’s Q3 EBITDA at Rs1.74bn was at the mid-point of street/our expectations of Rs1.7- 1.8bn. Among brands, KFC delivered better SSG at 3%, while PH saw a 6% decline. DIL attributed the growth variance to better demand trends and under-penetration of the chicken category vis-à-vis pizza. The near-term commentary was cautious for PH, but DIL retained its outlook of 7-8% SSG for PH, underpinned by a strong pipeline of new launches and entry into the value pizza segment. Store additions remained robust with net additions of 81/197 stores in Q3/9M and annual guidance of 250-300 additions was retained. Retention of store targets and peaking of consumer-level inflation suggest anticipation of demand recovery sooner than later. Factoring in of higher marketing and elevated cheese prices leads to 6-8% cut to our FY24/25 EBITDA estimates. DIL offers better risk-reward with a presence in the fast-growing chicken category and offers a multi-category play. We expect DIL to deliver a strong EBITDA CAGR of ~29% over FY22-25E, led by a 20% store count CAGR, 5% SSG, and gradual margin gains.

Outlook

We maintain our Buy rating with a TP of Rs215 (34x Mar-25E EBITDA Pre-Ind AS 116).

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Devyani International - 08 -03 - 2023 - emkay