Devyani International IPO of Rs.1,838 crore comprises of Rs.440 crore by way of new issue and Rs.1,398 crore by way of offer for sale (up to 155.33 million shares). Devyani International is the largest franchisee of quick-service restaurants Pizza Hut, KFC, and Costa Coffee. Devyani International IPO has fixed a price band at ₹86-90 per share. The OFS is by Investor Selling Shareholder, Dunearn Investments (Mauritius) Pte. Ltd, a wholly owned subsidiary of Temasek Holdings and Promoter Selling Shareholders and RJ Corp Ltd. The issue constitutes 17% of the post-IPO equity capital.

Devyani International IPO Details:

Bid OpensWed, 4th August, 2021
Bid Closes Fri,6th August, 2021
Issue DetailsFresh Issue of Equity Shares  upto ₹ 440 Cr + OFS  of 155,333,330 Equity Shares
  
Face Value (₹)1
Issue Size (₹ Cr)₹ 1,776 – 1,838 Cr
Bid Lot165 Shares 
Price Band₹ 86 – 90
Issue Structure : 
QIB75% of the net offer
NIB15% of the net offer ( 274.96 Cr)
Retail10% of the net offer( ~20,367,221 Shares- ₹ 183.30 Cr)
Applications for 1x Retail1.23 Lacs
GCBRLMsKotak Mahindra Capital, CLSA India, Edelweiss Financial
BRLMsMotilal Oswal
RegistrarLink Intime India Pvt. Ltd.

ANCHOR ISSUE:

About Devyani International Limited:

  • Devyani International Limited (DIL) is the largest franchisee of Yum Brands in India and are among the largest operators of chain quick service restaurants (“QSR”) in India on a non‐exclusive basis.
  • Yum! Brands Inc. operates brands such as KFC, Pizza Hut and Taco Bell brands and has presence globally with more than 50,000 restaurants in over 150 countries, as of December 31, 2020.
  • DIL operates 655 stores across 155 cities in India, as of March 31, 2021, and 696 stores across 166 cities in India, as of June 30, 2021.
  • Devyani International Limited business is broadly classified into three verticals that includes :
    • stores of KFC, Pizza Hut and Costa Coffee operated in India (KFC, Pizza Hut and Costa Coffee referred to as “Core Brands”, and such business in India referred to as the “Core Brands Business”);
    • stores operated outside India primarily comprising KFC and Pizza Hut stores operated in Nepal and Nigeria (“International Business”);
    • Certain other operations in the F&B industry, including stores of our own brands such as Vaango and Food Street (“Other Business”).
  • Promoters are Ravi Kant Jaipuria, Varun Jaipuria and RJ Corp.
  • As of March 31, 2021, company had an employee base of 9,356 employees, of which 8,833 employees were in India, and 523 were outside India.
  • Out of 8,833 employees in India, 1,506 employees were engaged on a full-time basis, while 7,327 were engaged on a part-time basis.
Devyani International Limited

Devyani International IPO: Financials

Particulars / (₹ In Cr)202120202019
Revenue from Operations1,134.841,516.391,310.60
Revenue Growth (%)-25.16%15.70%
EBITDA 226.93255.48278.96
EBITDA (%) 20.00%16.85%21.29%
Loss Before Tax-82.39-76.91-57.99
Net Loss -62.99-121.42-94.14
NAV(₹ )1.03-1.78-0.66
Equity Share Capital115.36106.17106.17
Reserves -1.59-295.27-176.41
Net worth 113.77-189.1-70.24
Equity Post IPO120.25
FV1.00
IPO Price90
Market Cap10823
Market Cap  /  Sales9.5

Pros

  • The product portfolio of highly visible and well-recognized QSR brands.
  • Largest franchisee of Yum Brands in India.
  • Cross brand synergies provide operating leverage benefits.
  • Disciplined financial approach with a strong focus on cash flow management.
  • Strong store network; 264 KFC Stores, 297 Pizza Hut stores, and 44 Costa coffee stores.

Cons

  • Risks from any possible re-emergence of Covid.
  • No strong online presence like Jubilant Foods (Dominos). Heavy dependence on 3rd party aggregators.
  • Loss making company till date from start.
  • Total dependence on Yum brands.
  • Increasing competition in the sector with Jubiliant , Westlife & Burger King in the same space.

Devyani International IPO: Assessment

  • The Indian food services sector generated a total revenue of ₹8,366.6 billion (US$117.5 billion) in 202 and has been growing at a CAGR of 1.9% from ₹7,601.4 billion (US$118.5 billion) in 2015. Growth was mainly driven by the rise in the number of transactions.
  • Quick Services Restaurants (QSR) are a fast growing segment with a large young population in the country, chanaging urban lifestyle of dining out, and improved affordability due to income growth coupled with wide offerings. Market for the QSR iis expected to expand at ~13% CAGR from FY20 – FY25 to Rs. 2,00,000 Cr.
  • Yum! Brands, Inc. (or Yum!), formerly Tricon Global Restaurants, Inc., is an American fast food corporation listed on the Fortune 1000. Yum! operates the brands KFC, Pizza Hut, Taco Bell, The Habit Burger Grill, and WingStreet worldwide,
  • Yum! operates via three franchise partners namely RJ Corp-owned Devyani International, Sapphire Foods and more recently Burman Hospitality that was appointed as its master franchise for Taco Bell brand in India.
  • Sapphire Foods is one of the largest franchisees of Yum! Brands Inc. in the subcontinent, with a track record of successfully operating more than 400 KFC, Pizza Hut and Taco Bell restaurants across India, Sri Lanka and the Maldives.
  • DIL has consistently expanding their store network over the years. Stores in their Core Brands Business grew at a CAGR of 13.58% from 469 stores as of March 31, 2019 to 645 stores as of June 30, 2021.
  • The company has changed its policy on store sizes, especially KFC and Pizza Hut, after the Covid-19 pandemic impacted in-dining services and has opted for smaller-sized outlets for KFC and Pizza Hut as delivery-based services rose to nearly 70% of the revenue. Devyani has moved away from fixed lease rentals for its properties to revenue sharing. These are likely to shore up margins.
  • The Devyani International is an arm of diversified conglomerate RJ Corp. Varun Beverages owned by them is one of the largest bottler for Pepsi Co in India. and has a good track record post listing on bourses. Varun beverages has consistently reported good numbers including Q1FY22 numbers.
  • It may be recalled that Burger King listed at 92% premium over its issue price. Thus investors can be hopeful of a decent listing in Devyani International IPO as well though it may not be a bumper listing at such high premium.
  • With favorable tailwinds for QSR segment, Devyani International can churn out better revenes and profit growth whoch will also be aided as the sahhre of higher as share of mature and profitable stores increases in its portfolio.
  • DIL borrowings stood at Rs 463.3 crore as of March 2021. It plans to use IPO proceeds to repay debt of Rs 324 crore. After the share sale, promoter and promoter group will own ~59.8% in the company.
  • The company saw its revenue from operations fall 25% over the year earlier to Rs 1,134.83 crore in the fiscal ended March 2021. Its Ebitda stood at Rs 179 crore, while operating margin was at 15.8%. Devyani recorded a loss of Rs 57.7 crore in FY21. Revenue from core brands stood at Rs 953.5 crore and constituted 85% of the total revenue.
  • On the flip side, DIL had entered into an agreement in 2019 with Yum India and RJ Corp. to infuse capital into the company at Rs 43.33 per share. Yum has invested Rs 230 crore to get a 4.7% stake in the pre-IPO shareholding of the company. The shares were allotted to the investors, including promoters, in March 2021 at Rs 43.33 per share which is at much lower price than the IPO price.
  • Despite the COVID-19 pandemic, the company continued thestore network and in 6 months ended March 31, 2021, opened 109 stores in their Core Brands business.
  • Devyani International IPO was last reported to be commanding a GMP of about Rs. 60 as on 03-08-21.
  • Post issue DIL’s current paid-up equity capital will be Rs. 120.25 cr and it will have a a market cap of Rs. 10822 cr.. Its P/E is negative due to losses.
  • Listed industry peers of the company have been stated as Jubilant Foodworks, Westlife Development and Burger King and on a EV/Sales basis the issue pricing is not high.
  • I intend to apply in Devyani International IPO due to favorable tailwinds for QSR and a proven management.

Standard disclaimer:  I am not a SEBI registered analyst and above analysis is for educational purpose only. Iam a postgraduate in engineering & Management . Also Certified in some exams like NISM-Series-V-A: Mutual Fund Distributors Certification, NISM-Series-X-A: Investment Adviser (Level 1) Certification and NISM-Series-X-B: Investment Adviser (Level 2)  Examination. This post is my view on the subject matter and is only academic and exploratory in nature. It is not meant to influence investment decisions of investors.  I may have bias/vested interest in covered Stock/Mutual Funds/NCD etc. due to my own investment or  leaning. Further my understanding of the areas on which I write may be imperfect or incomplete and data could be wrong due to limited time and resources at my disposal. Please do your own due diligence as stock market/MF investments have high degree of inherent risk. Devyani International IPO is of Rs.1,838 crore consisting of Rs.440 crore by way of new issue and Rs.1,398 crore by way of offer for sale (OFS).

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