DEVYANI - Devyani International Limited Share Price

Devyani International Limited (DIL) provided a positive outlook despite facing several challenges in the past year. In FY25, the company reported a consolidated revenue of Rs.4,951 crore, reflecting a robust growth of 39.2% year-on-year, aided by strategic acquisitions such as KFC stores in Thailand. The company's EBITDA margin was 17%, and absolute EBITDA increased by 29.1% compared to FY24.

Management emphasized the importance of ongoing store expansion as a key driver of growth, with a total of 2,039 stores as of March 31, 2025, including 1,060 KFC, 637 Pizza Hut, and 220 Costa Coffee outlets. DIL aims to continue expanding its footprint, planning to add between 110 to 120 new KFC stores in the current fiscal year.

A major forward-looking point was the acquisition of Sky Gate Hospitality, valued at Rs.519 crore, which includes popular brands like Biryani By Kilo, enhancing DIL's presence in the Indian food category. The management projected that the brand could turn around within a year and will infuse up to Rs.90 crore in capital for growth and operational efficiency.

Management expressed optimism about recovering market conditions driven by the Union Budget 2025's focus on consumption, particularly in the agricultural and rural sectors. They noted that despite the current subdued demand environment, their focus on disciplined growth and innovative consumer engagement positions DIL well for future growth opportunities.

Overall, DIL remains committed to scaling profitability and strengthening both its core and emerging brands, believing that the anticipated improvement in market conditions will uphold their growth trajectory.

Major Q&A from Devyani International's Earnings Conference Call

Question 1: Vivek Maheshwari from Jefferies asked, "What is the key reason for KFC's low average daily sales (ADS) of 83k, which is the lowest seen in the last 18 quarters?"

Answer: I explained that the decline was mainly due to bird flu impacts in Andhra Pradesh and Telangana, affecting sales for about 72 to 75 days. We see recovery beginning in those states, and with stability in Kerala and West Bengal, we expect improvement in Y-o-Y same-store sales growth (SSSG) soon. Notably, Karnataka has performed steadily.

Question 2: Vivek Maheshwari then inquired if the 4th quarter marked the trough and if improvements would come or take time.

Answer: I affirmed that we're optimistic about sequential improvements. While we've faced challenges in specific states, overall recovery trends are encouraging, especially as positive signals emerge from key markets.

Question 3: Maheshwari also questioned if the goal of reaching the previous ADS levels of around 120,000 was realistic.

Answer: I noted that with increased store count, cannibalization affects ADS figures. We're aligning our expectations, with a new normal anticipated around 100,000 - 105,000 ADS while maintaining profit margins.

Question 4: Gaurav Jogani from JM Financial asked about international overheads rising unexpectedly.

Answer: I clarified that what seemed like a rise is due to reclassifying management fees for accounting consistency with Thailand. Our corporate overheads remain under control without major changes.

Question 5: Jogani also asked about future margin expectations given KFC's current performance.

Answer: I projected that we could stabilize at a margin of around 20% if we reach 100,000 - 105,000 ADS. The business remains profitable, and costs are being managed effectively to maintain margins.

Question 6: Jignanshu Gor from Bernstein asked about the plans for reviving Pizza Hut.

Answer: I confirmed discussions are ongoing with Yum! to innovate offerings and adjust pricing. We aim to communicate a concrete plan in the next quarter, focusing on adjustments that can drive growth.

Question 7: Gor inquired about the state of the Thailand business and its potential.

Answer: I stated that Thailand is stable, with improved margins since acquisition. We're optimistic about growth through new brand introductions in alignment with existing infrastructure.

Question 8: Sanjeev Raj from Anand Rathi asked about entering the Biryani space and how we plan to differentiate.

Answer: I articulated that while the Biryani market is fragmented, we see consolidation opportunities as consumer interest grows. We're enhancing material sourcing and operational cost efficiencies to turn this loss-making brand profitable in a year.

Question 9: Percy Panthaki from IIFL questioned how we plan to achieve margins with lower sales and potential changes to store sizes.

Answer: I explained that resizing existing stores and controlling overheads would help maintain margins. We're also negotiating better terms with landlords to manage rental costs.

Question 10: Panthaki asked about the timeline for the Sky Gate brands to reach EBITDA breakeven.

Answer: I responded confidently, stating that we expect to turn around these brands to break even within a year following operational efficiencies and strategic integrations.

These questions and answers highlight key concerns and management's direction towards growth and operational efficiency amidst challenges.