Shares of Devyani International Ltd. gained the most in nearly a month after Motilal Oswal initiated coverage on the operator of KFC, Pizza Hut stores in India with a ‘buy’.
That, according to the brokerage’s Dec. 8 report, was because of:
KFC’s strong brand equity and operating metrics.
Rising focus on delivery by Pizza Hut driving its turnaround.Ads
Robust growth in both these brands led by network expansion.
Motilal Oswal kept the target price on the largest franchisee of Yum! Brands in India at Rs 190 apiece, an implied return of 4.60%.
According to the brokerage, the unique offerings of KFC lend it a strong brand equity, driving robust average daily sales and profitability. The KFC business, it said, is pegged to deliver a 41% annualised growth rate over FY20-24E, with stores estimated to rise to 574 from 264 during the period.
The rapid addition of delivery-focused small format stores is expected to aid Pizza Hut’s business as well, Motilal Oswal said. The small-format stores are aimed at reducing the distance to consumers and cutting delivery time.
Devyani’s pan-India rights for small-format stores of Pizza Hut (except in Tamil Nadu) provides it with an advantage over Sapphire Foods India Ltd. (the other Indian partner of Yum! Brands). That’s because it gives access to Devyani in Sapphire’s territories and helps in faster addition of such stores due to lower capex required, the note said.
Besides KFC and Pizza Hut, Devyani and Sapphire operate Taco Bell stores in India. Devyani also runs Costa Coffee outlets in the country.
Motilal Oswal expects Devyani’s sales growth and margin expansion to be aggressive. It sees the company’s sales to grow at an annualised rate of 28% to Rs 4,080 crore, and Ebitda margin to expand 690 basis points to 23.8% over FY20-24E.
Shares of Devyani jumped 14.37% in intra-day trade on Wednesday.