About the company:
Issue Details:
Dates: August 4, 2021 to August 6, 2021
Price Band: Rs. 86 to Rs. 90 per share
Minimum Lot: 165 shares
Minimum Application Amount: Rs. 14,190 to Rs. 14,850
Total Issue Size: Up to Rs. 1,838 crores (Fresh issue Rs. 440 crores and OFS Rs. 1,398 crores)
Objects of the offer:
• Repayment of significant portion of borrowings
• General corporate purposes
Corporate Profile & Business overview:
Devyani International Limited is among the largest chain operators of quick service restaurants operating a network of brands under Yum, Costa Coffee and certain other operations in the F&B industry, including stores of own brands such as Vaango, Food Street. The company is the largest franchisee of Yum Brands in India and has presence outside India in Nepal and Nigeria.
Yum! Brands Inc. operates brands such as KFC, Pizza Hut and Taco Bell and has presence globally with more than 50,000 restaurants in over 150 countries. The company collaborates with Yum for KFC and Pizza Hut’s franchisor brand protection, management including product innovation and development, brand strategy and technology initiatives.
Within the agreement terms with Yum, the company is required to pay a continuing fee amounting to 6.3 percent of the revenues of each KFC/ Pizza Hut store to Yum as consideration for the right to use the restaurant formats and operating systems and as a part of marketing and advertising expense Devyani international pays 6 percent of gross revenue of each KFC and Pizza hut store to Yum. Further, they are required to pay Yum a non-refundable one-time fee upon the opening of each store.
The company operates with three business verticals – Core brands, International Brands and other brands.
• Core Brands include KFC, Pizza Hut and Costa Coffee stores in India
• International Brands include Stores operated outside India, primarily comprising KFC and Pizza Hut in Nepal and Nigeria.
• Other Brands include Operations in food and beverage industry, including own brands such as Vaango and Food Street
The company operates 645 stores of their Core Brands in India, comprising 284 KFC stores, 317 Pizza Hut stores and 44 Costa Coffee stores which account for 84 percent of its total revenue.
Financials:
| Particular (Rs. Crs) | FY21 | FY20 | FY19 |
| Revenue from Operations | 1134.8 | 1516.4 | 1310.6 |
| EBITDA | 226.9 | 255.5 | 279 |
| EBITDA Margin (%) | 20% | 16.80% | 21.30% |
| PAT (from continuing operations) | -81.3 | -78.7 | -52.9 |
| Net Worth | 113.8 | -189.1 | -70.2 |
| Net Cash Flows | 26.7 | -13.3 | -17.7 |
| Debt to Equity | 4 | - | - |
The company has witnessed a decline in revenue from operations in FY21 owing to complete closure of stores in March’20 and April’20.
The company has continued to extend its losses over the years from loss of Rs. 52.9 crores in FY19 widening it to Rs. 81.3 crores in FY21. Further, the EBITDA of the company has been on a downhill from Rs. 279 crores in FY19 to Rs. 226.9 crores in FY21.
Net cash flows have shown some sign of relief as they turned positive in FY21 at Rs. 26.7 crores, however continued high debt to equity standing at 4x in FY21 shows the company is highly leveraged.
Strength:
• The company is one of the largest operators of quick service restaurants in the country with a portfolio of well recognized QSR brands
• Network of large number of stores across the country and has strong presence in key metro regions
• Centralized warehousing and distribution system for particular regions across brands which enables company to minimize store operating costs
• With over two decades of experience the management would have gained deep insights into the business quintessence by now
Risks:
• Heavily reliance on arrangements with Yum for KFC and Pizza Hut stores, which comprise the majority of business
• Covid-19 pandemic still remains key concern, the company permanently closed 61 stores due to significant decline in footfalls
• Has reported losses for three consecutive years
• Had negative cash flows in the past and indicated that it may see negative cash flows in future as well
Valuations:
| Company | Market Cap (Rs. Crs) | Price/Sales |
| Devyani International | 10,823 | 9.03x |
| Jubilant FoodWorks | 49,820 | 14.72x |
| Westlife Development | 8,730 | 8.47x |
| Burger King India | 6,936 | 13.26x |
Devyani International has a comfortable P/S in comparison to peers. Valuation offers some room to grow when compared to Jubilant FoodWorks and Burger King India which are in the range of 13-14x P/S.
Conclusion:
Investors have been spoilt for choice with the ripe IPO season currently underway. Our top pick remains Devyani International given its portfolio of well-known worldwide brands and investor hype as seen by its grey market premium, which could possibly lead to a re-run of the Burger King saga. Next, we place our bets on Krsnaa Diagnostics which also looks attractive from a listing gains perspective given the need for diagnostic centers in our country owing to the pandemic. However, the competition risk here is higher and valuation is also as per the industry average, which could pose a threat if the sentiment reverses upto listing date. The above IPOs could overshadow Exxaro Tiles and Windlas Biotech which are smaller in terms of issue size. Nevertheless, both the companies also seem probable candidates for delivering listing gains considering the optimism around this IPO season. Thus, investors with a good risk appetite can subscribe to the latter two IPOs only after assessing the response to the issue in the first two days of issue period.
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