Devyani International Q1 Review - Deceleration In Pizza Category Continues; Maintain 'Sell': Dolat Capital

Dolat Capital Report

Devyani International Ltd.’s revenue, Ebitda and adjusted profit after tax came below our estimate. The company reported 20.1% revenue growth driven by 22/11/83% revenue growth across KFC/Pizza Hut/Costa Coffee.

KFC’s brand contribution contracted on YoY basis to 21.1% and Pizza Hut at 10.1%.

Devyani International added 47 stores during Q1 FY24 taking the total count to 1,290. We believe that the company would add ~275-300 stores in FY24 with cluster based approach and penetration strategy.

Due to high inflation, gross margin contracted by 170 basis points at 69.6% while Ebitda margin declined by 430 bps to 19.9%. High milk prices and lower operating leverage impacted the margin performance.

Though in the long run we remain optimistic on the domestic quick service restaurant industry in the near term, we believe that the industry would witness pressure due to economic slowdown.

To factor in Q1 performance and full tax rate, we have reduced our FY24/25E earnings per share estimates by 22/17% at Rs 2.2/3.3. Target price at Rs 158 (48 times FY25E EPS). Maintain 'Sell'.

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