Should you bid for Devyani International’s loss-making IPO at 1,800 crore?

Yum Brands’ largest franchisee in India and a leading operator of quick service restaurant chains (QSRs) Devyani International is set to hit primary markets with its Initial Public Offering (IPO) on Wednesday, August 4.

The company, which operates brands such as KFC, Pizza Hut and Costa Coffee, has priced its IPO in the range of Rs 86-90 per share and is looking to raise Rs 1,838 crore at the high end of the price range. The IPO is primarily an offer to sell, with a new issue worth just Rs 440 crore, which she plans to use to pay off debt worth Rs 324 crore.

At the higher end of the price bracket, Devyani is offered at a market cap / sales of 9.5x according to the year 21 financials, compared to peers like Jubilant Foodworks (15x), Westlife Development (8 , 8x), Burger King India (14x). The script already commands a premium of Rs 62 per share or 68-72 percent on the gray market.

Analysts largely gave the issue a “Subscribe” rating because they find the company’s valuations compelling and believe the company is poised for long-term growth.

We believe the company remains well positioned for long-term growth given its portfolio of recognized global brands catering to a range of customer preferences, synergies between brands, store network expansion and EBITDA. positive, said Ronak Kotecha, analyst at Anand Rathi Shares. and securities brokers.

The company’s association with Yum, as well as its marketing and operational expertise, have enabled Devyani International to establish itself as a global player in the fast food industry. Analysts note that the fast food culture under QSR is expected to flourish in India due to increasing working class population and continued urbanization.

QSR’s sales value grew by a CAGR of 5.5% between 2015 and 2020 and is expected to grow at an even higher rate of 12.4%, observed Religare Broking. In addition, to take advantage of growth opportunities, the company is expanding its store network. At S2FY21, he opened 109 core business brand stores.

“We note that QSR’s business model is quite impressive, as each restaurant franchise begins to generate significant RoE (Return on Equity) at the restaurant level once it reaches a utilization level above 90%,” which bodes well for long term investors. Plus, the company’s superior cash flow generation capability provides convenience. Therefore, we recommend to “subscribe” to the show, ”said Vikas Jain, senior research analyst at Reliance Securities.


The red flag remains in terms of profitability. The company is in deficit over the last three years reported, although EBIDTA margins are at a satisfactory level of 17.3 percent over the 19-year 21 fiscal years. In addition, the generation of cash flow from the he business has been impressive with a cumulative OCF and FCF of Rs 820 crore and Rs 180 crore, respectively over fiscal 19-fiscal 21.

“DIL will use Rs 324 crore for debt repayment, which in turn will help the company improve its net profit margin. OCF margin has also remained healthy at 20 percent in FY19- FY 21. With the strong increase in revenues, cash flow generation is expected to remain healthy, also thanks to a likely improvement in margin and a favorable working capital cycle, ”noted Choice Broking.

Given the updated valuation and the likelihood of strong business growth in the future, the brokerage house also assigned an underwriting rating to the IPO.

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