Sharekhan's research report on Devyani International
Devyani International Ltd (DIL) posted second consecutive quarter of weak SSSG with KFC’s and Pizza Hut’s SSSG standing at 1.9% and negative 3.2%, respectively. With inflation cooling, SSSG is expected to materially improve by H2FY24. Medium-term SSSG guidance of 5-6% for KFC & 7-8% for Pizza Hut remains intact. Higher input cost inflation and muted SSSG led to EBITDA margin contracting by 421 bps y-o-y to 20%. With inflation in key input materials declining, the management expects gross margin of KFC to get back to 69% while improvement in Pizza Hut’s margins will take some time. DIL added 305 net stores in FY2023. The management has maintained guidance of adding ~300 stores in FY2024 including 100+ KFC stores, ~100 Pizza Hut stores and 60-70 Costa stores.
Outlook
Stock trades at of 23.3x/17.5x its FY2024E/FY2025E EV/EBIDTA. In view of its strong business model and long-term growth prospects, we maintain a Buy with an unchanged PT of Rs. 215.
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