Devyani International Ltd. Q4FY23 Result Update

Devyani International Limited (DIL) is among the most trusted Chain Quick Service Restaurant (QSR) operators in the country and is the largest franchisee for Yum Brands (KFC & Pizza Hut) in India. Devyani International Limited is also the sole franchise for Costa Coffee Brand and stores in India. In addition, DIL caters to South Indian vegetarian food lovers with Vaango, a company that was launched almost a decade ago that is now a prominent brand in the Food Retail Business (FRB) category with its Food Courts. DIL has a strong presence across airports in India where it serves a variety of F&B offerings.

Quarterly Highlights

Devyani International Ltd. reported a revenue growth of 27.8% compared to the same period last year, reaching Rs. 755.0 crores in the fourth quarter of FY23. The growth was driven by the addition of new stores. However, the company fell short of market expectations of Rs. 740.8 crores.

In the same quarter, the EBITDA (earnings before interest, taxes, depreciation, and amortization) increased to Rs. 150.6 crores, showing a decrease of 13.4% compared to the previous quarter but an increase of 7.8% compared to the same period last year. The EBITDA margin, which indicates profitability, narrowed to 20.0% from 23.6% in the corresponding quarter. This was mainly due to higher employment expenses, slower growth in same-store sales, and the absence of price adjustments in the Pizza Hut category.

The company’s net profit after taxes (PAT) declined by 15.7% compared to the previous quarter and 21.2% compared to the same period last year, amounting to Rs. 59.9 crores in the fourth quarter of FY23. The PAT margin, representing net profit as a percentage of revenue, stood at 7.9% in Q4FY23, a decrease of 105 basis points compared to the previous quarter and 492 basis points compared to the same period last year.
Valuation and Outlook

Devyani International Ltd. achieved good revenue growth due to the addition of new stores.when? However, increased competition in the pizza category and higher dairy prices impacted their profit margins. The company’s overall brand contribution margin was also affected by one-time statutory bonus recognition and an unfavorable product mix. The expansion of stores in FY23, combined with lower average daily sales and slower same-store sales growth, suggests a slow recovery in consumer demand. In the long term, the company’s Costa Coffee and KFC portfolios show promise for growth. The performance of their Pizza Hut business remains a focus.
Key Concall Highlights

1. Devyani International added 66 net new stores in Q4 FY23 and 305 stores in FY23. They plan to add 300 more stores in FY24, focusing on non-metro cities and towns for growth.
2. Higher input costs led to a contraction in the company’s gross profit margin to 70% in FY23 from 71.2% in FY22.
3. Increased spending on local store promotions and statutory bonus recognition affected brand contribution, which declined to 16.4% in
   Q4FY23 from 18.3% in Q3FY23.
4. KFC experienced a contraction in gross profit and brand contribution margins due to sustained inflation in raw chicken prices. In Q4 FY23, lower average daily sales and higher operating costs resulted in a 17.5% brand contribution margin. The company raised prices in April 2023.
5. Pizza Hut faced challenges such as changes in product mix, high dairy prices, and no price adjustments in H2FY23, affecting gross profit and brand contribution margins. However, the introduction of a value layer is expected to drive volume growth in the medium to long term.
6. Costa Coffee saw lower gross margins due to increased milk and coffee prices, and brand contribution dilution due to higher investments.
7. The company plans to add 60-70 stores in FY24.

8. The company maintains its medium- to long-term outlook of 5-6% SSSG growth for KFC and 7-8% SSSG growth for Pizza Hut.

9. Other income increased to Rs. 33 crores in FY23 compared to Rs. 16 crores in FY22 due to accounting adjustments.

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