Devyani International Limited (DIL) is the largest franchisee of Yum Brands in India and is amongst the largest operators of chain quick service restaurants in India.
The IPO comprises fresh issue of Rs 440 crore and offer for sale (OFS) of 15.5 crore shares.
IPO opens: The three-day initial public offering (IPO) will open for subscription on August 4, and conclude on August 6.
It is the largest franchisee of Pizza Hut, KFC and Costa Coffee in India.
Price band: Rs 86-90 a share for its Rs 1,838-crore initial share-sale.
Food Services sector
India’s large market size presents a robust growth opportunity for food services sector. Younger population (median age of 28.7 years in 2020), increasing disposal income and rising urbanization bodes well for the food services players. Within the sector, quick service restaurant (QSR) sales share is increasing at brisk pace (34 percent in 2020) compared to full services restaurants (15 percent) and pub, club and bar (27.1 percent).
Food services sector revenue is expected to grow at a CAGR of 15.5 percent to Rs 17,220 billion during 2020 to 2025. QSR channel is expected to lead the food services sector in terms of sales value and transactions. With the strong demand drivers for food services sector, there would remain ample growth opportunities for DIL to expand business.
DIL, incorporated in 1991, is the largest franchisee of Yum Brands in India and is amongst the largest operators of chain quick service restaurants (QSR) in India. The company operates 696 stores on a ‘non-exclusive basis’ across 166 cities in India as of Jun 30’ 2021.
DIL’s business is broadly classified into three verticals that includes stores of KFC, Pizza Hut and Costa Coffee (referred to as Core Brands Business). Total number of stores in Core brands increased from 469 as of Mar 31’2019 to 645 in India as of Jun 30’ 2021.
As of June 30 2021, the company operates 284 stores of KFC, 317 stores of Pizza Hut and 44 of Costa Coffee. Core brands business in India accounted for 85 percent of total sales in FY21, while it reached to 95 percent including international business. The company also generated 5 percent of business from other brands such as Vaango, Food Street, Masala Twist among others.
DIL reported operating revenue of Rs 1,135 crore which has declined around (-) 25 percent YoY as the business impacted severely by the breakout of pandemic. However, QSR recovered robustly compared to other channels due to high food deliveries amidst lockdown situations. The company is listed on Zomato and Swiggy platform which substantially is adding to increase in transactions through food home deliveries amidst pandemic fear.
Sequentially, core brands business revenue increased to Rs 366 crore in Q4 FY21 from Rs 324 crore in Q3 FY21. Margins also improved to 21 percent in Q4 (KFC at 22.6 percent, Pizza Hut at 15.1 percent and Costa coffee at 30.3 percent in Q4FY21) from 18.7 percent in Q3.
Strategies have been implemented to boost margin and profitability. The company has divestment in tea business and is rationalizing non-performing airport stores, has shifted from rental agreement to revenue sharing instead of fixed rental and menu re-engineering.
DIL will utilize Rs 324 crore from the fresh proceeds towards repayment of debt which in turn will aid the company to improve net profit marginaa. OCF margin also remained at healthy level at 20 percent during FY19-FY21. With the strong boost in revenue, cash flow generation is expected to remain healthy also driven by likely improvement in margin and favourable WC cycle, said Choice Broking.
DIL is expecting strong business expansion going ahead. To leverage growth opportunities, the company is expanding its store network.
Should you subscribe to IPO?
Choice Broking has assigned "Subscribe'. It reasons, "At the higher price band of Rs90, the issue is valued at EV/sales of 9.8x as compared to peer average of 11.7x. Thus, considering the discounted valuation and likelihood of strong business growth going forward, we assign ‘Subscribe’ rating to the issue."
Marwadi Shares and Finance Limited says, considering the FY-21 adjusted EBITDA of Rs.1789.23 on post issue basis, the company is going to list at EV/EBITDA of 62.39 with a market cap of Rs.1,08,227 mn, while its peers namely Jubilant Food and Westlife Development is trading at EV/EBITDA of 66.02 and 206.11 respectively.
"We assign “Subscribe” rating to this IPO as the company is a multidimensional comprehensive QSR player with a portfolio of highly recognized global brands and is available at reasonable valuation as compared to its peers."
On offer: The IPO consists of fresh issue of equity shares worth Rs 440 crore and an offer-for-sale of up to 155,333,330 equity shares by promoter and existing shareholder.
Under the offer-for-sale, Dunearn Investments (Mauritius) Pte Ltd, a wholly-owned subsidiary of Temasek Holdings, will offload 6,53,33,330 shares and promoter RJ Corp will sell 9 crore shares.
The offer includes a reservation of up to 5.50 lakh equity shares for the company's employees.
Also, 75 per cent of the issue size has been reserved for qualified institutional buyers (QIBs), 15 per cent for non-institutional buyers and the remaining 10 per cent for retail investors.
Investors can bid for minimum 165 equity shares and in multiples of 165 equity shares thereafter.
At the upper end of the price band, the IPO is expected to fetch Rs 1,838 crore.
The company will utilize Rs 324 crore from fresh issue for repayment/payment of debt. Proceeds from the fresh issue will be used to retire debt and general corporate purposes.
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