Quick-service restaurant operator Devyani International Ltd had a good March quarter (Q4FY22). True, the disruptions caused by the Omicron version of the coronavirus hit sales in the early months of Q4. Still, Devyani’s consolidated revenue grew 36% year-on-year 590.7 crores, more or less in line with expectations. In addition, earnings before interest, taxes, depreciation and amortization (Ebitda) margin were 24.3%, ahead of the consensus estimate of 22.1%, largely aided by stable cost controls and, to a lesser extent, price increases. Was.
The company is the largest franchisee of Yum Brands in India. Its three major brands include KFC, Pizza Hut (PH) and Costa Coffee.
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Average daily sales for KFC/PH fell 9-13% in the first half of Q4 due to Q3 seasonal and local restrictions (due to the Omicron version). However, the Q4 exit run rate fully recovered due to a faster recovery in malls versus high-street stores during the earlier waves,” analysts at Emkay Global Financial Services Ltd said in a report on May 3.
The company went through a tough March quarter, but a few factors will decide the stock’s fate.
“Investors need to closely monitor the trajectory of the company’s same-store sales growth and price hikes,” said an analyst at a domestic brokerage house requesting anonymity. So far, the management appears to be confident on both these aspects, but there can be a sense of disappointment here, he said.
In FY 2012, Devyani opened 246 net new stores, taking the total number to 938. For the next two-three years, the management has maintained its store expansion target of 200-250. Management expects to continue to benefit from fixed cost absorption as it opens more stores.
The management raised prices at KFC by 8-9% in April 2022 and will further increase prices, if necessary, to counter inflation of raw materials. This increased the prices by 2-3% in October 2021. In the case of PH, the price hike was comparatively less, but was sufficient to maintain margins as the input cost inflation for pizza was much lower than that of fried chicken, the management said.
According to analysts at Edelweiss Securities Ltd, inflation remains a concern for the company despite the recent price hike in KFC as the pass-through is partial.
“While the current performance trajectory has room to upgrade our expectations, we maintain our projections given the uncertainty on margins amid high inflation,” the domestic brokerage house said in a report on May 2.
The stock is up 3.5% so far in 2022. However, the stock is almost 90% above its issue price. 90 during the listing in August, indicating that investors are factoring in enough optimism.