Home Business KFC, Pizza Hut Operator Devyani International Plunges 7%; What Should Investors Do?

KFC, Pizza Hut Operator Devyani International Plunges 7%; What Should Investors Do?

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KFC, Pizza Hut Operator Devyani International Plunges 7%; What Should Investors Do?

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Devyani International Share Price Today: Shares of Devyani International (DIL) tanked 7 per cent to Rs 182.50 on the BSE in Tuesday’s intra-day trade. This comes after it saw a huge block deal change hands. Around 26.4 million shares or 2.33 per cent stake of the company changed hands, according to a Bloomberg report. At 9.30am, the stock was trading at Rs 182.50 on the BSE, down 7 per cent from its previous close.

As of June 30, 2022, the promoters held a 62.80 per cent stake in DIL. Among the public shareholders, Dunearn Investments (Mauritius) Pte Ltd held 98 million shares or 8.13 per cent holding in the company, the shareholding pattern data shows.

CNBC TV-18 had reported that Dunearn Investments (Mauritius) Pte Ltd is likely to sell a nearly 3 per cent stake at Rs 182-196.25 per share. The base offer was expected at 2.6 crore shares (2.19 percent equity) with an upsize option of 87.76 lakh shares ( 0.73 per cent equity). The total deal size is expected at $80-86 million.

Dunearn Investments currently holds 16.26 per cent stake in Devyani International.

After today’s correction, the stock has fallen 15 per cent from its record high of Rs 215 touched on August 18, 2022. In the past one month, the stock has outperformed the market by gaining 12 per cent, against 4 per cent rise in the Sensex. In past one year, it rallied 57 per cent as compared to 6 per cent gain in the benchmark index.

DIL is the largest franchisee of Yum Brands in India and is among the largest operators of chain QSR in India on a non-exclusive basis. It operates 1,008 stores across more than 215 cities in India, Nigeria and Nepal, as of June 30, 2022. In addition, DIL is a franchisee for the Costa Coffee brand and stores in India. It made its stock market debut in August last year. The company issued shares at the price of Rs 90 per share.

Financials

Quick service restaurant (QSR) operator reported a net profit of Rs 74.76 crore for the first quarter ended June 30, 2022. Its revenue from operations during the quarter under review was up nearly two-fold to Rs 704.72 crore, as against Rs 352.75 crore in the year-ago period, it added.

DIL’s total expenses during the quarter were 69.08 per cent higher at Rs 636.58 crore, as compared to Rs 376.49 crore in the corresponding period a year ago.

During the quarter, DIL opened 25 new restaurants for KFC taking the total count to 391. While for Pizza Hut, it added 34 stores taking the total count to 436 stores.

Commenting on the results, Chairman Ravi Jaipuria said DIL’s pan-India reach has expanded further, and is now present in 215 cities. “The non-metro store contribution within our Core Brands has gone up to 52 per cent now. Our total system store count stood at 1,008 stores as of June 30, 2022,” it said.

Should you Invest?

Brokerage house Motilal Oswal, in its report, earlier this month said, “DEVYANI’s 1QFY23 result was in line at the operating level. Despite material cost inflation, overall gross margin fell only 10bp YoY and 20bp QoQ as a result of timely price increases. These hikes have been well absorbed, as highlighted in our Apr’22 channel check update. For KFC, average daily sales (ADS), at 127k, surpassed 3QFY22 levels, with healthy profitability metrics, given the sharp inflation in chicken costs. While Pizza Hut continues to report a sequential improvement in brand contribution margin, ADS is still lower than our estimate. 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. Strong pricing power helps combat input cost inflation. DEVYANI remains among our top picks in this space. We maintain our Buy rating.”

“We maintain our Buy rating with a SoTP-based TP of INR225 per share (Jun’24E EV/EBITDA of 45x/35x for KFC/Pizza Hut on a pre-Ind AS basis),” it added.

Ravi Singh-vice president and head of research-ShareIndia, said: “Devyani International share is in major downtrend amid the huge block deal and the sell off may continue to reach around 170 levels. Investors must avoid this stock at current scenario and wait for trend reversal. However, DIL has delivered encouraging performance in the past and is dedicated to maintain the growth numbers in future.”

“Devyani International dropped by 7% after it saw a huge block deal exchange hands. However, the details of the buyers and sellers of the deal were not known till 9.30 am. Stock was trading at Rs 182.50 on the BSE, down by 7 per cent from its previous close. It has lost around 14 per cent recently. Investors can wait for some price action as closing below Rs 181 can trigger further selling, the stock might consolidate in a range. In that case a target of Rs 163 can be expected. Investors are advised not to go for heavy buying positions with such deals taking place,” Manoj Dalmia Founder and Director-Proficient Equities Limited.

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