Devyani International Ltd-Q1FY24 Results Update

Positive ADS growth reaffirms business prospects

Devyani International Ltd. registered a 12.1% QoQ / 20.1% YoY revenue growth to Rs. 846.6 crores in Q1FY24, aided by positive ADS and healthy store additions during the quarter. The GP margins expanded to 71.1% in Q1FY24 compared to 69.8% in Q4FY23 on the benefit of price increases taken earlier which also resulted in the company’s brand contribution margin improving to 18.2% in Q1FY24 compared to 16.4% in Q4FY23. The EBITDA stood at Rs. 173.4 crores (15.2% QoQ growth / 5.3% YoY growth), unable to cross market expectations of Rs. 177.7 crores in Q1FY24. The EBITDA margin stood at 20.5% in Q1FY24 compared to 23.4% in Q1FY23. Meanwhile, the company swung to a net loss of Rs. 1.6 crores in Q1FY24 compared to profit of Rs. 74.8 crores crores in Q1FY23 on account of the devaluation of the Nigerian currency.

  Key Concall Highlights

• The company added 47 net new stores in Q1FY24, taking its total count to 1,290 stores across multiple geographies. This includes 564 stores for KFC, 525 stores for Pizza Hut, and 123 stores for Costa Coffee in operation. 
• This is on track with the company’s aim to open about 275-300 stores in FY24 and its long-term target of reaching the 2,000 stores milestone by 2026. • Vango store headcount remained unchanged at 52 stores in Q1FY24. The company aims to make this a Rs. 100 crore brand by the end of FY24. • Store additions during the quarter (in India) – 20 KFC stores, 15 Pizza Hut Stores, 11 Costa Coffee Stores, 0 Vaango stores. 
• KFC and Pizza Hut both reported an improvement in their ADS (Average Daily Sales) to Rs. 117,000 and Rs. 40,000 in Q1FY24 compared to Rs. 106,000 and Rs. 39,000 in Q4FY23, respectively. Meanwhile, Costa Coffee’s ADS declined to Rs. 33,000 in Q1FY24 as against Rs. 36,000 in Q4FY23.
• Overall, brand contribution improved by 70bps to 20.9% in Q1FY24. • Staff expenses were on the steeper side due to an uptick in minimum wage increases in key markets like Karnataka and increments that took place in April.
• On the way ahead, the company expects elevated milk and cheese prices to stabilize and premiumization in pizza ranges to enhance the brand contribution margins.
• Price hike taken – in Pizza Hut (<1%) and KFC (<3%). 
• KFC value meals are to be made widely available going forward. This is to reduce the segment’s dependency on dinner.

Valuation and Outlook

In line with the weakness displayed in the QSR pizza segment, Pizza Hut reported a negative SSSG growth of 5.3% but the marginal price actions taken by the company along with sequential improvement in the ADS aided in improvement in the segment’s business performance. With the company now focusing more on its premium pizza range, we remain optimistic about the margin story of the business but continue to track the management’s commentary on how it tackles increasing vegetable prices. On the KFC side, the business aims to accelerate its value offering which bodes well with the strategy of making the brand not restrictive to dinner. KFC India, too, reported a negative SSSG growth but it is to be noted that this was on the back of the high base of last year. Going ahead, we remain optimistic as the overall business prospects of the company remain intact and inflation has started cooling off as evidenced by an uptick in ADS numbers. However, we will continue to track the operational developments in the Costa segment (milk and coffee prices remain elevated),Vaango’s growth trajectory and monitor the macro factors in Nigeria