Devyani International Shares Jump: Devyani International share price jumped almost 8 per cent in early trade on the BSE on Tuesday, December 19, a day after the company announced its entry into the quick service restaurants (QSR) and the limited service restaurants (LSR) market in Thailand.
A subsidiary Devyani International DMCC signed a share purchase agreement with Restaurants Development Co (RD) and would be paying $129 million for 93 per cent stake in the company. The deal is seen fairly valued.
“The subsidiary will be meeting the acquisition’s funds (Rs 670 crore) with capital infusions from the India parent (Rs 340 crore) and Temasek (Rs 330 crore). Valuations are fair at 9-10 times its trailing Ebitda, given the potential of low-to-mid teens Ebitda CAGR for Thailand business. Devyani expects doubling of store count in 10 years, and we see scope of low-to-mid-single-digit SSG profile and potential margin gains of 200-300 bps over this period. While further acquisition of territories, stronger recovery in the tourism space, and better margin delivery remain potential upsides, we would like to remain conservative as of now,” Emkay Global said.
According to the exchange filing, Restaurants Development operates a chain of 274 (as of September 2023) KFC restaurants across Thailand and employs more than 4,500 people.
This strategic venture into Thailand is a collaboration between Devyani International Limited and Temasek Holdings (Private) Limited, a global investment company headquartered in Singapore, with over SGD 380 billion in assets under management.
Devyani International share price has been lacklustre this year so far. Year-to-date, the stock has gained just about a per cent. Devyani International share price hit its 52-week high of Rs 227.75 on September 11, 2023, and its 52-week low of Rs 134.05 on March 27, 2023.
Given muted demand trends in KFC India, challenges in the pizza category, and macroeconomic issues in Nigeria, the brokerage, however, retained its ‘Reduce’ rating on Devyani International shares with a target of Rs 165.
Nuvama said Devyani International Ltd will acquire Thailand operations at 0.9 times net consideration/FY23 sales and 7–7.5 times net consideration/FY23 Ebidta.
“Prima facie, acquisition looks attractive given Thailand’s dynamic (upper middle-income economy, poultry consumption, KFC leadership) and valuations (versus SEA peers). Await clarity on how development rights are split and key franchise terms,” it said while suggesting a target of Rs 225 on the stock.
Motilal Oswal Securities said it remains bullish on Devyani’s prospects, considering: KFC’s strong brand equity and its growth opportunity; gradual turnaround in PH, driven by the management’s focus on delivery and improved store metrics; network expansion across the portfolio; healthy mid-teens Ebitda.
“We model a revenue/Ebitda CAGR of 19 per cent/20 p cent over FY23-FY25E. We have not factored in the Thailand KFC acquisition. We reiterate our BUY rating with an SoTP-based TP of Rs 220,” it said.
Brokerage firm Emkay Global Financial Services pointed out that Devyani has entered the Thailand QSR market with its subsidiary acquiring a 93 per cent stake in Restaurant Development Co. (RD) and the remaining 7 per cent stake being allocated to a local partner, as per regulation norms.
The brokerage firm said the valuations are fair at 9-10 times its trailing EBITDA, given the potential of low-to-mid teens EBITDA CAGR for Thailand business.
“Devyani expects a doubling of store count in 10 years, and we see a scope of low-to-mid-single-digit SSG profile and potential margin gains of 200-300bps over this period. While the further acquisition of territories, stronger recovery in the tourism space, and better margin delivery remain potential upsides, we would like to remain conservative as of now,” said Emkay.
“Given muted demand trends in KFC India, challenges in the pizza category, and macroeconomic issues in Nigeria, we maintain our ‘reduce’ rating on the stock with a target price of Rs 165,” said Emkay.
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