Shares of Devyani International jumped by about 7.6% on Tuesday to reach a high of Rs 197. At the close of trading, the stock closed up 5.33%. The reason for this strong rise in the shares is the company’s entry in Thailand.
Devyani International DMCC Dubai, a subsidiary of Devyani International, the company that runs the outlets of big food brands KFC and Pizza Hut in the country, has purchased a controlling stake in the restaurant development company.
This deal will be completed by 31 March 2024. The company gave this information through exchange filing. Shares of Devyani International went into a storm amid the news of the company buying a major stake in the Restaurants Development Company.
The company’s business is big
Restaurants Development has 274 KFC outlets in Thailand. The company has more than 4,500 employees in Thailand.
Jefferies believes that Devyani International has a big opportunity in the Thai market and KFC is the market leader here, with more than 1,000 stores. KFC has 4 times the number of stores as compared to its second-biggest competitor (McDonald’s).
Jefferies said in a note, ‘The way the company has grown in India is quite impressive, but we are hopeful that the company will expand abroad thoughtfully, after this deal. The phase of merger and acquisition will not start.’ The brokerage said, ‘The deal still requires approval from investors in India.’
Jefferies
‘HOLD’ at target price of Rs 190 with a 3% upside The rating has been maintained.
In terms of unit economics, the presence of KFC is positive for Devyani International. Due to weak macro, demand may remain stable in the short term. In such a situation, keeping the prices of pizza and other products affordable can lead to growth.
According to Jefferies, even if we see decent growth, the forward growth multiple could be 5-6x EBITDA. Brand contribution margin will be in the range of 14-16%, with FY23 EV/Sales expected to be 0.9x and FY24 EV/EBITDA at 8x.
Dolat Capital
‘REDUCE’ with a target price of Rs 195 Rating is kept. According to Daulat Capital, opening a store in India can be a bigger opportunity than in Thailand.
As other franchisees establish themselves in the market, Daulat Capital believes that this will be a big challenge for Devyani International in Thailand. The acquisition of Restaurants Development will help Devyani International in revenue growth, but making profits will still be a big challenge for the company.
Emkay Global
‘REDUCE’ with a target price of Rs 165 Rating is given. Potential upside is expected due to acquisitions in new places, strong recovery in tourism sector, better margin delivery.
Stagnant demand trends in KFC India, increasing challenges in the pizza category and macroeconomic issues in Nigeria are a matter of concern.
There are 1,009 KFC stores in Thailand, which is four times that of its second largest competitor McDonald’s, which has only 245 stores. There is less scope for growth in this market.
The company’s shares have risen 7.5% on year-to-date basis. Shares traded today are 33 times the 30-day average.
Out of 21 analysts tracking the company, 15 have advised to buy the company shares, 2 have advised to hold and 4 have advised to sell.
