Initially incorporated in 1991 as ‘Universal Ice Creams Private Limited’, the name got changed to ‘Devyani International Private Limited’ in 2000. Devyani International Limited (after this referred to as ‘The Company’) is coming up with an IPO, which opens for subscription on August 4, 2021. Here is all you would like to know about the Devyani International Limited IPO.

• Yum Brands Inc operates brands such as KFC, Pizza Hut, and Taco Bell and has a presence across the globe
• Devyani International is the largest franchisee of Yum Brands in India, an association that started in 1977 when the first Pizza Hut store opened in Jaipur
• In addition, Devyani has a franchise of Costa Coffee brand
• The company is amongst the largest operators of chain quick-service restaurants (QSRs) in India on a non-exclusive basis and operates 696 stores across 166 cities as of June 30, 2021
• Within core brands, the company currently operates 645 stores (284 KFC, 317 Pizza Hut, and 44 Costs Coffee), up from 469 stores as of March 2019

The company classifies business into three verticals: KFC, Pizza Hut, and Costa Coffee referred to as Core brands. The core brands contributed to 94% of total revenue during the financial year ending March 2021. In addition, stores operated outside India in Nepal and Nigeria (International business) and other operations in the food & beverages industry (brands like Vaango and Food Street) get classified as the Other Business.

Here are the key performance metrics:

Key company strength areas

1. Portfolio of highly recognized global brands catering to a range of customer preferences
2. A comprehensive QSR player, a channel that has been rapidly growing in popularity in India
3. The company has a presence across critical consumptions markets like Delhi NCR, Bengaluru, Kolkatta, Mumbai and Hyderabad
4. Immense cross-brand synergies and operational leverage are possible. Centralized sourcing, warehousing, and distribution of raw material across core brands bring efficiencies
5. Favourable demographics in India, the rapid growth of foodservice channels and the highest being in the QSR segment

About the promoters

RJ Corp is a diversified conglomerate in the F&B sector. Mr Ravi Kant Jaipuria has significant experience in the industry. Mr Virag Joshi, the Whole Time Director, is the chief architect of Pizza Hut, KFC and Costa Coffee expansion. 

Financial Profile

Below is the condensed financial information of Devyani International Limited.

Comparison with other industry peers

Industry average PE ratio of 179x

Offer proceeds

 Utilization of proceeds:

• Repayment/prepayment of all or certain borrowings (Rs 324 Cr)
• General corporate expenses

IPO Factsheet

In conclusion

The company is amongst the single large QSR companies in India listed on the Swiggy platform. It is also among the largest QSR companies in India on Zomato during 2019 and 2020. In the future, we expect the prevalence of home delivery in India QSR space to grow, thereby benefitting the company.

Recently declining revenues and three consecutive years of loss is indeed a drag.

However, we have recently witnessed a loss-making company still makes a good IPO option. And, this is because the market evaluates a security basis the prospects of the concept and not the immediate financial situation.

Having said that, in this case, a belief that the network of restaurants will expand with growing demand works in favour. After that, eventually, the company’s business will transition to become fundamentally viable.

In conclusion, we maintain a neutral stand on the IPO, although the current market euphoria may bring short term cheer. In other words, from an investment strategy perspective, one must subscribe only with a long-term view.

The information provided in the red herring prospectus filed by the company with the Securities and Exchange Board of India (www.sebi.gov.in) is the basis for this note. However, I recommend that the reader validate the data before making any financial decision. Also, investment in an initial public offering (IPO) is subject to market risks. Therefore, it should be evaluated, keeping your risk profile and investment objective in mind. The author will not be responsible for any financial loss or otherwise resulting from any action taken based on the above.

About the author

The author is a senior finance professional with over fifteen years of work experience in corporate finance. He has an affinity for matters relating to personal finance and investment management. Through his writing, the author wants to share his knowledge and understanding of the subject.

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