DEVYANI - Devyani International Limited Share Price

In the earnings conference call held on August 13, 2025, management of Devyani International Limited provided a cautiously optimistic outlook amid a challenging consumer demand environment. The company reported Q1 FY26 revenues of INR 1,357 crore, reflecting an 11.1% year-on-year growth, driven by strong performance across brands like KFC, Costa Coffee, and the Food Court business. The EBITDA for the quarter was INR 205 crore, with a margin of 15.1%.

Key forward-looking points discussed include:

1. Acquisition: Management completed the acquisition of Sky Gate Hospitality, increasing its stake to 86.13%. This acquisition gives access to brands like "Biryani by Kilo" and "Goila Butter Chicken," which are expected to enhance the company's presence in the Indian cuisine segment with a total of 105 outlets.

2. Store Expansion: The total store count stood at 2,145, including 1,067 KFC stores and 627 Pizza Hut outlets. Management plans to add approximately 100-110 net new KFC stores during the year.

3. New Brand Launches: Three international brands "” New York Fries, Tealive, and Sanook Kitchen "” are slated for launch in the upcoming quarter, indicating a focus on diversification.

4. Consumer Trends and Promotions: There is a strong emphasis on adapting to consumer trends. The "Epic Savers Offer" at KFC, priced at "˜9 for INR 299,' has shown a positive response. Similarly, the "Juicylicious" range at Pizza Hut has also gained traction.

5. Marketing and Investments: Management plans to continue investing in marketing to support consumer engagement amidst fluctuating demand. This includes targeting promotions that cater to both dine-in and online channels.

6. SSSG Improvement Strategy: Management acknowledged the current phase of soft consumer demand but is hopeful for a recovery, with KFC showing signs of stabilizing after several quarters of negative same-store sales growth (SSSG).

7. Long-Term Growth Focus: The company remains committed to a multi-cuisine and multi-format strategy, aiming to capture diverse consumer segments. Continued investment and refinement of operational strategies are key to achieving sustainable growth.

Overall, while the near-term outlook reflects challenges, management is confident in the long-term potential of the QSR sector and the company's strategic initiatives to navigate the current environment.

Question 1:

Aditya Soman: Firstly, what key factors need to happen for KFC to see a meaningful improvement in flattish like-for-like growth, and was there any significant trend difference in SSSG between the first half of the quarter versus July?

Answer: We've seen negative SSSG for about 8 to 9 quarters, but we've managed to stabilize it this time. The online category is showing positive growth, driven by initiatives on platforms like Zomato and Swiggy. We're focusing on addressing dine-in challenges over the next couple of quarters, aiming to improve overall numbers. In July, trends remained optimistic, especially online, and we expect a positive shift in dine-in as we adapt our strategies.

Question 2:

Aditya Soman: Regarding new brands like Biryani by Kilo and New York Fries, what timeline do you have for these to become significant contributors?

Answer: For new brands, we're in a testing phase to gauge consumer response before scaling them up. With Biryani by Kilo and Goila Butter Chicken, our focus is first on brand turnaround, aiming for positive contribution and EBITDA within 12 months. After achieving a steady model, we will begin scaling up in our channels, including exploring new formats and testing at locations like airports and food courts.

Question 3:

Gaurav Jogani: How long are you expecting promotional spending to impact gross margins, and when will this start to contribute positively at the EBITDA level?

Answer: We initiated various campaigns to understand consumer reactions better, and through this, gross margins have been affected. We plan to continue for another 1-2 months, then refine our models based on learnings. By Q3, we anticipate seeing improvements in gross margins and subsequently brand contribution margins as we fine-tune the initiatives.

Question 4:

Gaurav Jogani: Can you quantify the drag from Sky Gate Hospitality brands on your own brands' margins for this quarter?

Answer: The negative brand contribution from the Sky Gate portfolio for the initial 20 days of consolidation was approximately INR 1.2 crore. Excluding this portfolio, our own brands remained virtually flat in contribution. Moving forward, we'll express results across different segments to provide clearer insights.

Question 5:

Sujit Jain: Given that QSR categories are urban-centric, how are you strategizing to enhance store economics and address potential threats from competitors engaging in rapid delivery?

Answer: We recognize the need to adapt our strategies to include delivery-focused channels. We're optimizing our store formats for better economics without compromising on dine-in experiences. We're also observing successful competitors like Jubilant closely and adapting our own delivery models to align with consumer preferences while managing dine-in sensibly.

Question 6:

Niharika Karnani: Do you believe the QSR sector has bottomed out, and how long do you expect it will take for SSSG to ramp up?

Answer: We feel strongly that the QSR sector is one of high opportunity despite current challenges. Our SSSGs have been affected by rapid store openings. Over the upcoming quarters, as we limit expansion for certain brands, we hope to see SSSG recovery. The structural demand is still there, and we anticipate growth will regain strength soon.

Question 7:

Jignanshu Gor: What transaction growth have you tracked for KFC and Pizza Hut influenced by marketing investments, and what is your target ADS for normalization?

Answer: We're seeing over 10% transaction growth overall due to our initiatives. For KFC, our target is to maintain an average daily sales (ADS) of INR 100,000 consistently. Achieving this will allow us to start tapering promotional investments while ensuring sustainable growth in our performance metrics.

Question 8:

Percy Panthaki: With KFC dine-in sales declining despite promos like Epic Savers, do you think this indicates a need for further interventions beyond just continuing existing promotions?

Answer: While Epic Savers exceeded target menu mix objectives, online offers proved more compelling for consumers. We'll continue with Epic Savers and consider new promotions specifically focused on dine-in to help rejuvenate that segment while working on balancing our overall sales channels to minimize cannibalization.

Question 9:

Percy Panthaki: Can we see a recovery in double-digit growth for KFC considering its recent underperformance?

Answer: Historically, when consumer demand rebounds after weak performance, we can expect strong growth trends. Our current strategies are focused on optimizing both dine-in and delivery experiences to capture consumer interest effectively. With recent positive movements, we are hopeful for double-digit growth in the near future.