IPO update: Devyani International

This franchisee of Pizza Hut, KFC, and Costa Coffee came out with its IPO four months ago. You can find Value Research's IPO analysis here. This article will focus on the post-listing performance of the company in the market and financially.

Our analysis of the IPO
Devyani International is the largest franchisee of Yum Brands in India and is one of India's largest quick-service restaurants (QSR). Under this franchise, the company operates stores of well-renowned brands, including KFC, Pizza Hut, Costa Coffee, and Vaango. As of September 2021, Devyani International operates 309, 351, 45 and 54 stores of KFC, Pizza Hut, Costa and Vaango, respectively. It also operates QSR chains of KFC and Pizza Hut in Nepal and Nigeria.

Based on our IPO analysis, we gave the company a score of 14 out of 27. We just had one major concern: many of its outlets have a dine-in model, which has taken a hit due to covid-19 and remains an area of concern due to the new omicron variant.

Our ratings of the company were based on the following factors:

• Out of the 11 business metrics, the company did well on five.
• Out of six management-related metrics, the company did well on five.
• Out of the eight financial metrics, the company did well only on three.
• Out of the two valuation-related metrics, the company did well on just one.

Stock performance since listing
The company saw an amazing response to its IPO, which was oversubscribed by more than 116 times. The qualified institutional buyers (QIB) portion was oversubscribed by 95 times, while the non-institutional investors' portion poured in large numbers, oversubscribing by 213 times and the retail portion by 39 times.

On the back of such a high demand for its IPO, its stock debuted at the stock exchanges with a premium of over 56 per cent at Rs 141. Post listing, the stock had been range-bound till the declaration of its half-yearly results, after which it steadily moved higher and currently trades close to Rs 172.

Business performance
In the quarter ended September 2021, the company revenues jumped by 124 per cent YoY to Rs 516 crore. This was on the back of new store additions and sustainable cost optimisation and reopening for dine-in facilities, which has enabled the company to turn profitable with a PAT of Rs 46.6 crore.

The company has been quite aggressive in expanding its stores and opened 111 net new stores (adj. for closed stores) in the first six months of the current financial year. Apart from this, the company also benefits from a negative working cycle that stands at -27.5 days. It means the company can quickly convert its sales into cash and get a month's time before paying its suppliers. This helps the company internally fund its store expansion capex without relying on external funding.

What to do now?
As per the GlobalData report, the QSR segment is expected to grow at a CAGR of 12.4 per cent from 2020 to 2025. This is one of the key tailwinds for the companies operating in the QSR space. The company plans to expand its stores both organically and inorganically, leading to higher revenues and more cost efficiencies going forward. Following the IPO, which had a fresh issue of Rs 440 crore, the company has turned net debt-free which will be used to fund the company's plans for expansion.

Except for Jubilant FoodWorks, all other major QSR companies have been incurring losses, and growing concerns about the resurgence of covid cases can further dent the hopes of these companies. At present, the company's stock trades at a price-to-book value of 37 times which is the highest amongst its peer companies, with Jubilant FoodWorks trading at 27 times. Thus, one should be cautious regarding valuations before investing at these levels.

Also read:

Devyani International IPO: Information analysis

'IPOs should be seen as an opportunity to buy good companies at a very early stage'

Disclaimer: This analysis is not intended to serve as a recommendation. Readers must do thorough research before investing in this company. If you are interested in our stock recommendations, please visit www.valueresearchstocks.com.