Target: ₹195

CMP: ₹160.90

Devyani is the largest franchisee of Yum brands in India (accounts for 64/59 per cent of store network and 57/55% of sales of Pizza Hut (PH)/KFC as of 9MFY23). It has a presence across many large segments (Pizza, chicken, Café) through a portfolio of strong brands (PH, KFC, Costa Coffee). KFC, which is a key earnings driver for Devyani, remains on a strong footing, leveraging its first mover advantage while PH is seeing gradual improvement across metrics.

This, along with recovery in other business (Costa Coffee, international business, own brands) has led to an impressive turnaround in profitability and uptick in RoIC for Devyani within the overall QSR space.

A combination of strong brands, large addressable opportunity, execution capabilities, strong promoter backing of RJ Corp and optionality in other brands (Costa Coffee) provides assurance on the growth runway. The recent correction (25 per cent + decline from August ) owing to near term demand challenges makes its valuation palatable (25x FY25 Pre-IND AS EBITDA) and provides a good entry point as we believe intrinsic strengths of the business and market opportunity remain intact.

With estimated Sales/EBITDA (pre-IND AS) CAGR of 26/29 per cent over FY23-25, we expect Devyani to emerge as the fastest-growing player in our QSR coverage universe.